Retiring Abroad: A Sensible Choice in Today’s Economic Climate?

This is a guest post from Rick Todd who writes at Expat Investing on such topics as to whether retiring abroad is right for you and if you can afford to live abroad on social security alone.

For many, retirement is seen with fear and trepidation rather than optimism and happiness. Why? For many it will mean many years of reduced income alongside reduced expectations. Living off social security alone may mean for some households a dramatic change in lifestyle, particularly if it means a sudden and considerable drop in income. It may force a person to live far more frugally than he or she is used to doing.

Enter retiring overseas. It’s an idea that is picking up steam in today’s climate of the Baby Boomer generation reaching retirement age.  Since many in the workforce have had to depend on 401ks (and the stock market) instead of pensions for their retirement, many have seen their retirement savings evaporate as the markets periodically collapsed. Combined with poor investment decisions and a lack of overall savings, and you have a recipe for disaster for many people approaching the end of their working days.

Retirement abroad is seen as a way of avoiding this issue. It means moving to a country with a significantly lower cost of living that allows an individual to maintain or even improve his or her standard of living. Many countries around the world even offer a special retirement or pensioner visa made specifically for Americans, Europeans and others from wealthy countries who are receiving a steady check from the government for their expenses. The theory is that after a few forms are filled out and you are of a certain age, you can easily begin your move abroad. At least that’s the theory.

Challenges with Retiring Abroad

The old saying, “you get what you pay for” can be used to describe countries as well sadly. While you can expect to see your budget grow correspondingly with the more impoverished the country you move to is, the poorer the country, the more trouble you may encounter. A poor country will have infrastructure issues such as a lack of potable water, poor roads and highways, high crime, poorly constructed buildings and high levels of corruption. Healthcare, a key concern for any retiree, can vary greatly in quality depending on the country as well.

Moving abroad may also fool a person with bad spending habits into thinking he has more money than he really does. It then becomes a case of running away from your problems rather than dealing with them. Many will be surprised to learn that many items abroad are more expensive there than back home. Why? In the United States, we tend to have low tariffs on most goods. That is not the case in many developing countries that slap high tariffs on goods in order to prevent their own industries from having to be destroyed from foreign competition.

Another key expense is going to be healthcare. Many countries that have retirement visa programs require applicants to purchase health insurance. Health insurance tends to be inexpensive, but if you are eligible for Medicare, you were probably already paying for health insurance before you left home. You will not find cost savings here necessarily.

5 Rules to Follow When Retiring Abroad

My advice to anyone struggling with life on social security is to do the research before moving abroad. Someone who speaks Spanish, and has traveled extensively is going to do far better retired in Mexico than someone only speaks English and has not traveled a great deal. However, it is possible to retire abroad with little foreign experience, it’s just a lot harder. My advice is to follow five simple rules if you are thinking of making the leap to retirement in a foreign locale:

1. Learn as much as possible about the country you are going to retire to. Is it politically and economically stable? If there is a currency devaluation there, will I be affected?
2. Ask expats like you who are already living there how they are doing. Your fellow expat retirees are the best source of information on how to live well in the country you choose. They will tell you which health insurance to have, which hospitals to go to, which neighborhoods to live. They have been through all the tests and travails of living abroad, and you should get as much information out of them as possible.
3. Keep your home health insurance. It may sound expensive, but I think an expat should always keep his or her eligibility for their home healthcare. That means if you are receiving Medicare, you should continue to pay for it. Why? Because your private healthcare overseas is not guaranteed. If you become gravely ill and require long term treatment, your private healthcare may drop you. If you have your home health insurance, you may be able to work out being evacuated back home where you can receive guaranteed treatment.
4. Living overseas is not always frugal living. Ok it’s not really a rule, but it’s more of a discussion point. There are probably more affordable options in parts of the Midwest and South and in other rural communities. But many, particularly lifelong city dwellers, will not wish to adopt a new lifestyle and will be more comfortable in an urban environment, even if it is in another country. However, consider this option before moving overseas as even rural America can have far better infrastructure than urban areas of many foreign countries.
5. Don’t lose contact with your friends and family. The farther away you move, the more difficult it will be to visit those who are close to you. Do what you can to maintain contact with them to avoid loneliness. Phone calls in many countries are very expensive, particularly if they are to another country. Make sure you have an internet connection (which itself can be pricey) and get Skype or another VoIP program. This way your loved ones will always be near even if you can’t afford to fly and see them.