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  • Alan Sell

Unexpected Retirement? Moving Abroad Could Be The Answer

"Plans are nothing; planning is everything." - Dwight D Eisenhower

Retired Abroad

As the Baby Boomer generation reaches retirement, the number of retirees in the US has been growing. In 2022, there were roughly 29.42 million retirees in the US, 8.25 million more than 2009, during the Great Recession. 2009 was also the last year the number of retirees declined, marking 13 consecutive years of expansion in the number of retired people in the US. Over that time period, the retired population has grown at a rate of 2.57% per year, for a total change over over 39%! ¹

With all of those retirements, it's a fair bet to say that not all of them were planned. In our careers, as in all of life, the unexpected happens. Whether that's getting a surprise tax refund, seeing an old friend, or falling in love (just ask how I met my wife!), the unexpected is a normal part of life. But when the surprise affects our finances, it's critical that we manage the uncertainty and shift our plans to account for our new situation.

That's why managing an unexpected retirement is such an important task. When events like corporate layoffs, an unexpected merger, medical conditions, or family responsibilities cause an early exit from the workforce, often it shakes up our ideas of what retirement might look like for us. We might have thought we had another five, ten, or even more years in the workforce, and suddenly we're confronted with a new reality. Our plans have to adapt, and we must adjust our thoughts and expectations to match our new situation.

Critical Tasks for Managing an Early Retirement

As a financial planner, I can say that there is a lot to account for when it comes to an unexpected change like this.

The first step is to take stock of your new situation. Often, an early retirement will have changed what financial resources are available, possibly for the better or for the worse. Some retirees may have left the workforce before they had quite finished stocking their retirement accounts, and they might need to consider ways to stretch their dollars. Others may have exited a business with a major windfall and might have more cash at their disposal.

The beginning of retirement is also an extremely important time to process life goals. I always encourage my clients to take it slowly and give themselves plenty of time for this. Things you might once have wished for might now seem unappealing, and new dreams may have emerged. For married couples, you'll want to make sure you and your spouse are on the same page. I've seen couples where the dream retirement for one spouse is a nightmare for the other, and it's extremely important that both spouses share their feelings to avoid this scenario.

You'll also want to think through your opportunities. What real, actual opportunities are on the table for your next steps in life?

Moving Overseas as a Retiree

One interesting opportunity for early retirees can be a bit out of the box: retiring outside the US. While this option won't be for everyone, it provides some unique benefits that could be appealing.

When It Could Make Sense To Retire Abroad

One major consideration for retirement is whether your savings is enough to last through your retired years. For those who had to retire abruptly, they may have been counting on a few more years to save, and early retirement might be a source of stress as they consider their financial condition.

But there's good news! The same amount of money could go further in different parts of the world. If you're able to retire in a place with a lower cost of living, your savings might be perfectly adequate for the lifestyle you'd like.

The United States is in the top 9% of countries for cost of living, significantly more expensive than many international retirement locations. For example, the cost of living in the US is 53.9% more expensive than Panama and 92.7% more expensive than Thailand, both popular retirement destinations. ²

For a retiree who needs to stretch their savings, lower costs like these could make a huge difference in the quality of life they're able to afford.

A Taste for Adventure

Finances aren't the only consideration in retirement, and for those who left the workforce earlier than expected, there's a good chance they retired younger than they planned. That means they have much more of life ahead of them in retirement. For families in this situation, the opportunity to retire abroad could mean an exciting new adventure! Many hopeful retirees plan to do a good bit of travelling once they're not tied to a career, and it could make sense to live overseas to facilitate that lifestyle.

Keep in mind that a move overseas is a major transition, and not all of us handle transitions the same. Retirement itself is an enormous change and a chance to redefine oneself, and adding a new home in a different culture creates its own kind of stress. For those considering a retirement abroad, don't underestimate the degree of change this will bring about, and plan for how you'll handle the stress.

With that in mind, retirement abroad might not always be the right option. Here are some of the major reasons it could make more sense to stay in the US.

Cost of Living

While the US has a high cost of living, it certainly isn't the highest. There are countries such as Switzerland, whose cost of living is 57.9% higher than the United States! If your dream destination would put your finances in jeopardy, it may make more sense to take a sightseeing tour rather than to plant yourself there for several years.

Differences in Tax Law

Certain countries have tax laws that can also make retirement abroad difficult. The challenges posed by tax rules vary widely by location and can be specific to a particular retiree's situation.

One such example is Spain. Spain is often seen as an attractive retirement locale because of its low cost of living, rich history, and incredible geography. However, Spain does not recognize the tax status of the Roth IRA. What would normally be tax-free withdrawals in retirement are instead taxed at capital gains rates by Spain, which can take a big bite out of a person's retirement funds. If a retiree's investments are primarily located in Roth accounts, Spain can be a very inefficient place to retire.

Health Issues

Another drawback of retiring abroad is the Medicare system. By and large, Medicare plans cannot be used outside the United States, so access to this resource is limited for those living abroad. At times, this can be offset by lower medical costs in your retirement destination, such that medical care is still generally affordable. But this is by no means true in every location, and not all medical systems overseas are of the quality that you'd feel comfortable receiving care regardless of price. For those with health considerations, retirement abroad requires thorough research and may potentially not work out.

Long-Term Family Obligations

Life is about relationships. Regardless of where a retiree chooses to live, the success of that move is largely tied to how well they maintain their significant relationships and form new ones in the community around them.

When it comes to family situations like aging parents or the desire to be near grandchildren, it's hugely important to keep in mind that these relationships are precious and can't be replaced. Sometimes, a simpler retirement with the people we love is more fulfilling than an adventurous one that lacks connection with our closest friends and family. We need to take an honest look at whether we'll be able to keep our connections strong with the people that matter most in whatever retirement destination we choose.

Retirement Abroad: Talk It Out!

If you're recently retired and looking for ways to create adventure and simultaneously stretch your retirement income, a move overseas could be worth considering. The most important move you can make, though, is to talk it out with the important people in your life. Talk to your family, talk to your financial advisor, and talk with people whose opinion you respect, such as a pastor or mentor figure. Success in any venture comes with wise counsel from people who care about you.

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¹Statistics sourced from US Bureau of Labor Statistics, retrieved from FRED. Calculations are the author's own.

²Statistics sourced from Calculations are the author's own.



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