I hope you’re having a good summer. As part of your summer plans you may be taking a trip somewhere. The trip may be to a new destination or an old favorite. This journey could be the catalyst for future adventures or setting up residence somewhere unfamiliar. This month’s newsletter considers that possibility with an international twist.
Living abroad and your finances
Living abroad is more than just a passing trend. The US State Department estimates that 8.7 million Americans live abroad. The Social Security Administration states that over ½ million payments per month are sent to overseas residents. The numbers may be understated because not all those abroad likely receive their Social Security or pension funds internationally.
From Europe to the Caribbean to South and Central America, more and more retirees are looking beyond Florida and Arizona to hunt for more exotic (and economically approachable) destinations. It’s a major decision that brings up a notable question: How will living or retiring abroad influence my assets and cash flow?
Living abroad and its impact on expenses
Living overseas could be something that comes up as part of a business responsibility or a long-time goal for retirement. Examining your financial situation is a crucial component for whether this step makes sense.
Cash flow is a measure of your income and expenses. The income will be your salary, pensions, Social Security and investment earnings. Your expenses will be your discretionary and non-discretionary outflows (rent, mortgages, utilities, groceries, etc.). While working your expenses tend to be higher than in retirement. When we understand our net cash flow it gives us some control on the type of lifestyle we want to live.
According to the Bureau of Labor Statistics, Americans 65 and older, on average, spend roughly $45,756 each year. That works out to be about $3,800 each month. Housing is typically the highest category for retirees, averaging $14,000 for those age 65 and older. And don’t forget about property taxes, insurance and the like.
The scenario, however, can be a lot different when you look at large expenses outside of the United States. For example, one expat rents a furnished, two-bedroom apartment in Portugal for just $700. In many countries high-quality health care also costs much less. Factor in the country’s slower pace and breathtaking natural beauty, and it’s easy to see why many more Americans are retiring abroad in droves.
As the saying goes, “your mileage may vary”, so take any published numbers for cost-of-living abroad with a “grain of salt” (lots of idioms in one sentence, I apologize). The idea of moving from the US to somewhere internationally can be broken down by the costs of the relocation. That will not always be the deciding factor, because comparing beachfront living with a (perfectly fine) home in the suburbs might not have a total cost factor to provide you an answer. It may be matter of how you want to live and what you want to experience.
How to Prepare for Living Abroad
Preparing for living abroad requires many of the same considerations as continuing to live in the US. Just as mentioned above, you’ll want to develop a budget to understand your cash flow expectations. How much money will you have over the next 10 to 15 years? You will also want to look at plans for longevity. How will your expected lifespan impact your finances? You will want to account for everything from 401(k) and IRA distributions and pensions to Social Security benefits and any passive income streams.
From there, begin researching destinations that will stretch your money the furthest. This research can even be hands-on, seeing the sights of potential new homes. You might already be doing this with current vacation destinations. Does the prospective locale have the climate, culture, and/or attractions you want? Renting to start also probably makes the most sense to confirm its where you want to set down roots.
You’ll also want to think about where you’ll be most content. Will it make be logical to keep a U.S. residence and spend part of your time back in the US? Do you have peace of mind that there’s always a place you can return to, close to family and old friends? That will be another consideration that isn’t just about the cost.
If you are at a point where you need someone to bounce ideas off of feel free to contact me. As you prepare for your international adventure we can look at the pros and cons together.