6 Money Mistakes People Make When Retiring Abroad
Retiring abroad sounds like a dream for many Americans. Whether it’s palm-lined, white sand beaches you’re after, an easier way of life or an exciting new culture, there are plenty of fantasies about spending your golden years overseas.
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While many of these dreams can come true, you’ll have to factor in the reality of what it means to retire abroad so your expectations aren’t dashed when you actually make the big move. To help make sure you’re ready for this type of change, take a look at these common mistakes that Americans make when they retire abroad.
Not Paying Taxes
Wherever you go in the world, if you’re an American citizen, you’ve got to file a return and pay your taxes just as if you still lived in the United States. This is an unfortunate truth that some overseas retirees overlook — perhaps because the U.S. is one of the very few countries in the world to practice “citizen-based taxation.”
If you’re an Austrian citizen and move to Australia to retire, for example, you won’t have to file taxes in Austria. But U.S. citizens owe no matter where they retire.
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Not Factoring in Currency Exposure
Many currencies around the world fluctuate significantly in value against the U.S. dollar. Since your Social Security check and any U.S.-based investment income you receive will be paid in dollars, you’ll generally have to convert those payments to your local currency to use them.
If the currency in your country of residence has risen 10% against the dollar, for example, you’ll have to learn to live off 10% less income.
Not Understanding Local Property Rules
Many Americans fall in love with a country and dream of buying a beautiful home for their retirement. But not all countries allow foreigners to own property. Some may allow purchases of apartments, but not of land, or vice versa.
The point is that property laws overseas can often vary considerably from the United States, and you’ll have to do your homework before you get there to avoid disappointment when you arrive.
Not Reporting Your Bank Account to the U.S. Government
Lately, the U.S. government has been cracking down on overseas bank accounts. The Financial Crimes Enforcement Network, a division of the U.S. Treasury, requires Americans to report any foreign bank accounts with balances that exceed $10,000 at any time during the calendar year. This applies regardless of the actual residence country of the U.S. citizen.
As a side note, you should also expect to file extra paperwork if you open an account with any overseas bank. Foreign institutions have reporting requirements for U.S. citizens opening accounts with them, and they can be burdensome — sometimes to the point where a foreign bank won’t even open an account for you if you’re a U.S. citizen.
Not Bringing Credit and Debit/ATM Cards That Work
Some credit and debit/ATM cards simply don’t work overseas. Others that do work may charge you a series of hefty fees. For example, when you take cash out of a foreign ATM, your bank may charge you a fee for using an “out-of-network” ATM — and then it may take on a “foreign conversion” fee. Next, the ATM itself may charge you a fee simply for using it. Added together, you could end up paying $10 or more just to get money out of a foreign ATM.
This is why it’s critical to find at least one bank — and preferably more — that will not only work overseas but that will refrain from charging you any additional fees. Some banks will actually rebate ATM fees from any terminal in the world — and these are the types of institutions you should seek out before you decide to retire overseas.
Not Planning for Expenses in Your New Country
Part of the dream many Americans have about living abroad is that the country they choose to retire in will be much more inexpensive than their own. This can certainly be the case — but not always.
Many countries in Southeast Asia, for example, have low costs of living for everything from food to lodging to transportation. However, as in America, how much you’ll be spending depends on your lifestyle and what your particular needs are in a given country.
For example, if you want to build a house in a Third World country and use materials of Western style and quality, you’ll likely end up paying more than you would in the U.S. Similarly, if you plan to eat most of the same foods you enjoyed in America, you should expect to pay more, as those products must be imported to your new country. Electricity in many countries can be more expensive than in the United States as well.
The bottom line is that you can’t simply assume that your cost of living will go down when you retire in a new country. You’ll have to do your research to determine what the costs will be for your personal lifestyle.
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This article originally appeared on GOBankingRates.com: 6 Money Mistakes People Make When Retiring Abroad
