Beware Of Nightmares On The Way To The Retirement Dream Abroad

A new report from International Living offers two distinct takeaways that should be of interest to investment advisors.

First, more Americans are retiring early, as young as in their 30s. Secondly, more Americans are retiring early and moving overseas.

Those twin scenarios could spell “opportunity” for advisors. Imagine being the trusted financial professional who can both help clients retire early, and expertly steer them to favored foreign destinations Belize, Malaysia, or Mexico.

“Our correspondents on the ground have noticed more younger expats refusing to postpone retirement - opting, instead, to retire early overseas in places where the cost of living is a small fraction of what it is in the U.S. or Canada,” said Jennifer Stevens, executive editor at International Living “We’re seeing younger people at our live events, exploring their retire-early options in person ahead of a move. And our editors and correspondents based around the world report they’re running into more folks on the ground, too, who have decided to retire years early overseas.”

Why are so many younger U.S. workers gazing abroad? It’s simple, Stevens said.

“The average American hasn’t saved nearly enough for a comfortable retirement in the U.S.,” Stevens noted. “Conventional wisdom says: Work longer, save more, and lower your expectations for retirement.

“But in the right places overseas, you don't have to do any of that. If you slash your cost of living by half (or more)—you can retire years earlier than you expected.”

And many people who’ve done it say they live better than they ever did back home, she added.

'It's Getting Easier'

Chris Backe, a 36-year-old American travel writer and expat living in South Korea, agreed.

“The trend of retiring early and living abroad is steadily rising,” he said. “That’s especially so given that the word is out and more Americans are hearing about living abroad. It’s getting easier as people share their stories on how they did it.”

Advisors who want to help clients retiring early and moving overseas need to first understand some strategic basics, Backe said.

“You’ve got to understand that retiring abroad at any age means your nest egg will go further than staying in the U.S.,” he said. “In countries like Colombia and Ecuador, rent, food, and getting around can be one-third the price of life in the U.S.”

That fact alone could lure more Americans to foreign bourses earlier than they may have planned, he said.

On the downside, advisors and their wanderlust clients should be aware that certain key logistical hurdles need to be cleared.

“For instance, foreign visas can be full of red tape, language barriers can be an issue, and the early retiree must be willing to adapt to a new lifestyle,” Backe noted.

Money managers must also grapple with key financial-oriented issues before clients get on a plane for Panama, Vietnam or other foreign countries.

“Advisors and clients need to consider earning and accessing U.S. benefits such as Social Security, planning for the difference in cost of living, currency issues, and handling tax implications if they're withdrawing from U.S. accounts and establishing residency abroad,” said Kieran Rooney, a Boston based wealth manager with extensive experience in managing money overseas.

“Add in all the qualitative aspects of being isolated from your regular routine and community, and trying to integrate into a new culture, and it gets very complicated,” he added.

Need Plenty Of Money To Start Out

Job one for wealth managers advising expats, especially younger ones heading into retirement, is to make sure the client has enough savings to hit the ground running in a foreign country.

“It’s no secret that the cost of living is cheaper in other countries,” said Daniel Wesley, founder of CreditLoan.com, a financial educational services firm in Tampa, Fla.

Still, you need a lot of money all at once, he said.

“Think about it this way: you have to pay for your new home, a new vehicle, other costs that come along with going to a new country, plus the costs of moving all your stuff,” Wesley explained.

How much money a newbie expat needs to actually save depends on what their unique goals are, and where they want to land, other experts said.

“If you have $500,000 in your retirement accounts in the US, you probably won't feel rich if you try to retire in the states,” said Jon Sterling, a real estate professional and expat living in Columbia.

“But if you take that same $500,000 and retire in Colombia,” he said, “you will definitely be able to live like a rich person.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected].

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