Retiring abroad is touted as a money saver — here’s why it isn’t always cheaper

Start early in figuring out where to go. Visit your top-tier destinations and consider the impact of inflation and taxes in those countries. “Identify the income-tax rules in the country and in the local province where you might move,” Bernstein said. “What’s the local sales tax? What other taxes are there?”

From his experience advising clients who retire abroad, some Americans assume “it’ll be cheaper to live over there.” The figure they can sell their U.S. house at a big profit, rent abroad and live happily ever after.

The challenge is accurately projecting the cost of living, especially nondiscretionary expenses (rent, taxes, insurance, etc.) in a new home. Advisers often use financial-planning software to map out scenarios that include currency swings, taxes and investment options.

After deciding on a foreign destination, it’s best to hire an international-tax adviser who specializes in tax laws in that country. Relocation consultants or attorneys can also help anticipate and address legal and logistical issues.

Portfolio shifts

Managing long-term currency risk plays a key role. Unfavorable exchange rates can erode spending power in the years after a move. 

Similarly, it’s good to diversify investment portfolios to include stocks and bonds issued in the future home country. That’s vital if it’s a permanent move.  

“Having international diversification in place is important,” said Shane Cummings, a Denver-based certified financial planner. “Beyond that, the most important thing you can do before moving abroad is to look into tax implications because [foreign] tax treaties can be complex. On the investment side, portfolio income can be taxed differently and that can lead you to make investment changes now.”

Financial-planning strategies that worked in America may no longer work as intended after relocation. For example, some countries tax distributions from a Roth IRA — as well as taxing other sources of income from the U.S.

While planning well in advance of a move makes sense, risks abound. A stable country can be rocked by political instability. American retirees can quickly find themselves on the outside looking in.

“Don’t assume today’s dream destination will welcome Americans well into the future,” said David A. Schneider, a New York City-based certified financial planner. “There’s a risk of backlash if lots of Americans stream into that country.”

Spain and Portugal, for instance, remain popular choices for American retirees. But their residency and language requirements are tightening up, along with property-investment restrictions.

It may be necessary to sever ties to well-liked financial advisers or brokerage accounts.

“If you become a permanent resident abroad, you’ll need to find new financial [institutions] to work with you because the U.S. financial system will largely be cut off from you, even if the country is a strong U.S. ally,” Schneider said. 

U.S. financial custodians, such as banks and brokerages, have strict rules about continuing to serve Americans who relocate abroad. Increasingly, they are terminating accounts once they learn an American customer has left the U.S. 

“Your ability to invest in the U.S. can end without a legal U.S. address,” said Mike Delgass, a New York City-based adviser.

Healthcare concerns

If you move abroad, you will lose almost all your Medicare coverage.

Healthcare is another factor that can affect a retiree’s nest egg. Retirees abroad will lose almost all Medicare coverage. “So you need to figure out how you’ll fund healthcare in that country,” Delgass said. “It’s a new expense for retirees to plan for. You may need private-pay or supplemental [health] insurance. Some countries subsidize it.”

And for those indecisive or prone to changing minds at the last minute, retiring abroad gets tougher and potentially more costly. Laying the groundwork methodically — researching costs and benefits and enlisting experts to ease the transition — works better for those sure they have found the right spot to retire.

Said Delgass: “The worst thing is to do a ton of financial planning and then choose the wrong place.”

More: You can find quality, affordable healthcare if you retire abroad. Here’s where to look.

Also read: U.S. passport power plunges — and ‘worried’ Americans are searching for second passports and golden visas