Retiring abroad is more affordable than you think: here’s why


Retirement is an exciting time for many. After working for decades, you can live your life on your own terms. For some, the ideal retirement seems like doing nothing. For others, it means finding a new hobby. And for some, this means retiring abroad in dreamland.

Many people would like to retire abroad, but many believe that they do not have the financial means to do so. But retiring abroad is much more affordable than you might think.

Two people hugging and laughing.

Image Source: Getty Images.

Cost of living will be cheaper

America has a lot to offer, but the cost of living is usually not among them, especially if you live in a big city. The cost of living abroad can be cheaper than in the US, although it can vary greatly from country to country.

Using Numbeo (a Serbian website that uses a crowdsourced database) cost of living index, we can see how some countries in the world stack up. The higher the number, the higher the cost of living.

Country cost of living index
America 72.4
France 68.7
Jamaica 53.6
Mexico 37.3
Philippines 34.0

Data Source: Numbeo.

If you are financially preparing for retirement based on the cost of living in the United States, realizing that you can cut your spending significantly by moving to another country would be a gift. For example, if he needs $60,000 a year after retirement at home, he may only need $45,000 abroad. With an additional 25% savings, your nest egg could stretch for years.

Your country of residence may offer tax benefits for Roth IRAs

The selling point of the Roth IRA is tax-free withdrawals upon retirement. This is a tax cut that could easily save thousands of people in the long run. Most, but not all, countries treat Roth IRA withdrawals received while resident as taxable income. Countries that allow tax exempt benefits for Roth accounts include Belgium, Canada, France and the UK

If you plan to retire abroad, be sure to check whether your new country of residence will tax-free Roth IRA withdrawals. Even if a Roth IRA isn’t your primary source of income in retirement, the difference between paying or not paying taxes can have a big impact.

HSA may be used

Health care is a major concern for older retirees, and many countries offer high-quality services at a fraction of the cost of the United States. Even better, you may be able to use your Health Savings Account (HSA) to pay for medical expenses abroad.

HSA is available to those enrolled in high-value deductible medical plans that allow you to contribute and invest your pre-tax funds to withdraw tax-free covered medical expenses.

HSA is a supplement to health insurance, so your country of residence does not have to accept HSA to use it abroad. It can be used anywhere for eligible expenses, but restrictions apply primarily to prescriptions when used outside the United States.

In general, it cannot be used on prescriptions purchased in another country and brought back to the United States (there are some exceptions that the FDA says can be legally imported). However, it can be used for the cost of purchased prescriptions. and consume in another country.

For example, if you get sick while visiting Brazil and are prescribed antibiotics, taking those antibiotics while you are in Brazil may count as a medical expense. Bringing them back to the United States could result in their HSA disqualification.

Health care is typically one of the biggest expenses for retirees. With HSA, you can reduce your out-of-pocket medical costs and put more money toward retirement.

Dividends can cover part of the expenses

Given enough time to reinvest, investment dividends can provide a nice side income in retirement. A Dividend Reinvestment Plan (DRIP) allows you to reinvest in stocks from which you have paid dividends. This is usually a better long-term option than cash payments as it increases the overall equity and thus the dividend.

Let’s say your goal is to retire abroad in 20 years. Here’s how much you could earn over 20 years if you invested $500 a month in a dividend-focused exchange-traded fund with an average annual return of 8% and a dividend yield of 3%.

Reinvest your dividends? Annual revenue (not including fees) investment value
no 8% $274,500
yes Dividend Yield 8% + 3% $385,200

Source: Author’s calculation / Investment amount rounded to the nearest hundred.

Of course, even if I didn’t reinvest, I could have gotten cash out of 20 years of dividends, but the ~$21,000 I got is nothing compared to the ~$110,000 difference in investment value. . experience.

Retirement is a good time to start receiving dividends in cash. At a value of $385,200, using the example above, you would pay just over $11,500 annually with a 3% annual dividend yield. With a dividend yield of 3.2% or higher, you will be paying over $1,000 per month, which could be very popular abroad.

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