What is early retirement?
Early retirement means leaving your job and stopping work before the usual age when people retire. Instead of working until you're around 65-67 years old, you stop working earlier. People do this to have more time for things they enjoy, like traveling overseas or spending time with family. It's a choice that needs planning to ensure you have enough money and a good life after you stop working.
Why retire abroad?
There may be several reasons why you may want to look into retiring abroad.
First, if you really have your eyes set on retiring early, doing so abroad can be substantially easier. If you live in a country with a high cost of living, moving somewhere with a lower cost of living will allow your retirement savings to go further.
Second, you may be looking for a change of scenery. Better weather, beautiful landscapes, and a slower pace of life can improve your overall well-being. Plus, living in a new country exposes you to different cultures, languages, and traditions.
Interesting fact:
Research indicates that maintaining cognitive health in retirement involves substituting work-related mental engagement with alternative activities. As an expatriate retiree, you'll readily find diverse sources of mental stimulation and engagement to support your cognitive well-being.
Some countries have excellent and affordable healthcare. As you get older, living in a country with high-quality, affordable healthcare may become an important factor. You may also find certain locations to be more “healthy lifestyle friendly”, allowing you to eat better, exercise more, breathe cleaner air, etc.
Many retirees find like-minded communities abroad, forming strong social connections. Finding acquaintances from different countries can substantially expand your social circle – especially if you move to a destination popular with retirees.
Retiring abroad breaks the routine and introduces a fresh chapter in life. Retirement doesn't have to be a conclusion to your life or simply a much-deserved vacation. It can also be a new adventure filled with exciting opportunities and the unknown.
Action plan for an early retirement abroad
Now that we've explored the benefits of early retirement abroad, it's time to work on an action plan.
Financial planning
Early retirement requires meticulous financial planning. And early retirement abroad comes with its own set of complications. In addition to having enough savings and sufficient income to finance your move and stay abroad, you will also need to consider other factors.
Research the cost of living in your chosen destination. Websites like Numbeo can provide valuable information about living costs in different countries. Determine how much money you'll need to cover your expenses in the new country. Consider factors like housing, healthcare, transportation, food, entertainment, and any other lifestyle expenses.
Set up a regular fund transfer plan to ensure a steady flow of funds for your expenses. This could involve scheduling automatic transfers from your home country's bank account to your local account in the retirement destination.
Investigate the most cost-effective and secure ways to transfer funds internationally. Compare exchange rates and fees offered by banks, online money transfer services, and other financial institutions. Consider strategies to minimize the impact of currency fluctuations on your savings. You could explore options like foreign currency accounts, currency hedging, or diversifying your investments to reduce risk.
Keep an emergency fund in your home country that can be easily accessed in case of unexpected situations or urgent financial needs.
Be aware of any tax implications related to transferring funds internationally, both in your home country and your new destination. Consulting a financial advisor can help you navigate potential tax issues.
Pension planning
When you're retiring abroad, dealing with pension matters can be a bit like untangling a puzzle. One big piece is figuring out if you can get your pension from your home country or the new place you're calling home.
- First, understand your home country's pension rules. Check if they allow payments to be sent abroad. If yes, find out the procedure and any associated fees.
- Explore your new country's policies. Do they welcome pension payments from abroad? Look for bilateral agreements that could make things smoother.
- Dance with the exchange rates. Decide if you want payments in your new country's currency or your home country's. This can impact how far your pension stretches.
- Get to know the tax moves. Different countries have varying tax rules for foreign pensions. Don't let surprise tax bills take a toll on your budget.
- Contact your pension provider back home. Check if they're familiar with international payments. Some providers specialize in the global groove.
- Prepare the paperwork. You might need documents like proof of residence, ID, and bank details for both countries.
- If you're feeling unsure, partner up with financial advisors who can guide you on the best ways to manage pension payments abroad.
Income and investments
As an expat retiree, you can explore various avenues to invest and potentially generate revenue. Here are just a few examples:
- Depending on your host country's regulations, you might be able to take on part-time or freelance work. This could be in fields like consulting, teaching, writing, or online services.
- If you own property, consider renting it out to generate rental income. Vacation rentals, long-term leases, or even co-living arrangements can be viable options.
- Leverage your professional experience by offering consulting services in your industry. This could involve advising companies or individuals on business strategies, management, or specialized knowledge.
- If you're living in a tourist destination, you could explore opportunities in the tourism and hospitality sector. This might include opening a guesthouse, leading guided tours, or offering unique local experiences.
- If your previous job allows for remote work, you might be able to continue working for your previous employer or find a new remote job.
If your savings allow you to consider investment opportunities, here are some possible options:
Local real estate: Purchasing property in your host country can provide rental income and potential capital appreciation. It can also offer a sense of stability and a place to call home. However, it's essential that you do proper research on the country you plan to invest in – the best course of action here would be to consult a real estate or investment professional.
Local businesses: Another option is investing in a small business in your host country or starting one yourself. In most cases, this option makes sense if you have already resided in your new destination for a while and are well familiar with local businesses and trends.
Fixed-income investments: Consider government bonds, corporate bonds, or certificates of deposit (CDs) that offer regular interest payments.
Foreign currency investments: Some opportunities exist in investing in assets denominated in the local currency of your host country to potentially benefit from currency appreciation. However, this comes with substantial risks and the success of such investments strongly depends on your location.
However, it's essential to consider the impact these activities might have on your expat retiree status. Different countries have specific regulations and rules governing income generated by expatriates, and engaging in certain types of income-generating activities could potentially affect your residency or retirement status.
Healthcare planning
Investigate the healthcare system in the country you plan to retire to. Determine whether you need to purchase private health insurance or if you're eligible for any local health programs.
Ensure that the healthcare services available in your chosen destination meet your needs and preferences. Some countries might have different standards of care and availability of medical facilities.
Legal and visa considerations
Look into the visa requirements for retirees in your chosen country. Some countries offer specific retirement visas or residence permits for retirees. Make sure you have all the necessary legal documents, such as passports, birth certificates, marriage certificates, wills, and any other paperwork that might be required.
Cultural and lifestyle adjustment
If the local language is different from your own, consider taking language classes as you plan your retirement. Being able to communicate will make your daily life easier and help you integrate into the local community. Research the local customs, traditions, and social norms. This will help you avoid cultural misunderstandings and make your transition smoother.
Real estate: Renting Vs. buying
Decide whether you want to rent or buy property. Renting property initially might give you more flexibility to explore the area before committing to a permanent location. Explore the real estate market in your chosen country. Consider factors like location, safety, proximity to amenities, and property prices.
Social connections
Engage with the local community and other expats. Join social clubs, organizations, or online forums to meet people who share your interests and experiences. Keep in touch with friends and family back home through technology to avoid feelings of isolation.
Test the waters
Consider spending extended periods in your chosen retirement destination before fully committing. This will give you a sense of whether the lifestyle and environment are a good fit for you.
Exit strategy
Plan for the unexpected. Have a roadmap in place for emergencies, unforeseen events, or changes in circumstances that might lead you to reconsider your retirement abroad.
What are your options if you want to retire early but are still not eligible for a pension?
If you're considering retiring early abroad and aren't eligible for a pension due to not reaching the official retirement age, there are still several options you can explore to financially support yourself during your retirement years:
Savings and investments: If you have saved up a substantial amount of money over the years, you can use these savings to fund your early retirement. This is why retiring early requires careful planning. In fact, if you are considering early retirement, the best financial strategy is to start saving as soon as you can. It's a good idea to look into savings options that are available in your country that can help you attain financial security faster.
Part-time work: Consider working part-time or freelancing in your new location. This can provide you with a steady income stream to cover your living expenses, especially if you are willing to consider downshifting. One of the potential side jobs you may consider is teaching or tutoring. ESL, in particular, is a very popular occupation for early retirees who need to make extra income. Make sure to research your desired destination for ESL working opportunities before making any plans.
Passive income: Explore passive income sources, such as rental properties, investment dividends, or royalties if you have intellectual property. These can provide a consistent flow of money without requiring full-time work.
Start a business: If you have an entrepreneurial spirit, you could start a small business in your new country. This could generate income while allowing you to pursue something you're passionate about. However, starting a business in a foreign country is a generally very risky undertaking. It is only advised to consider entrepreneurship if you have enough savings to sponsor your business and, perhaps, hire a consultant to help you navigate local laws.
Remote work: Depending on your skill set, you might be able to work remotely for your current employer or find freelance opportunities that allow you to work from anywhere.
Temporary residency: Some countries offer special visa programs for retirees, which may come with certain financial requirements or benefits. Research the requirements and benefits of these programs in your chosen destination.
It's important to thoroughly research your chosen destination, its cost of living, healthcare options, and any legal requirements for foreigners retiring there. Additionally, consult with financial and legal professionals who have expertise in international retirement to ensure you're making the best decisions for your circumstances.
Retiring abroad checklist
Below are some of the questions you need to ask yourself when planning to retire abroad early:
Have you calculated retirement expenses thoroughly, factoring in living costs, healthcare, and potential currency fluctuations?
Do you have a sustainable source of income to cover expenses abroad?
Have you accounted for unexpected expenses or emergencies?
Why do you want to retire in this particular country? What draws you to its culture, lifestyle, and amenities?
Have you researched the local laws, regulations, and visa requirements for retirees in that country?
Is the chosen location safe and stable? What is the quality of healthcare and infrastructure there?
How will you access healthcare in your chosen destination? Is there a reliable and affordable healthcare system?
Do you need to purchase international health insurance to cover medical expenses abroad?
How will early retirement affect my social connections and relationships? Have you thought about staying connected with friends and family back home?
Are you mentally prepared for the potential challenges of adapting to a new culture, language, and social norms?
What are the tax implications of retiring abroad? Do you need to pay taxes in both your home country and the new country?
Have you consulted legal professionals to understand any legal requirements or restrictions for retirees in the chosen country?
Have you explored housing options? Will you rent or buy property? How will you manage property-related matters from a distance?
How will you manage investments and retirement accounts while living abroad?
Have you considered the potential impacts of currency exchange rates on my income and expenses?
Have you thought about long-term plans for retirement? How will you spend time and stay engaged and fulfilled?
Are you open to embracing the local culture and integrating into the community?
How will you make new friends and establish a social network in your new home?
Have you thought about what you would do if your circumstances change and you need to return to your home country?
Have you considered how you will manage the repatriation of assets or property if needed?
Remember that early retirement abroad requires careful research, planning, and flexibility. It's important to be open to adjusting your plans as needed based on your experiences and changing circumstances. Consulting with financial advisors, legal professionals, and expats who have already made the move can also provide valuable insights and guidance.
