As baby boomers consider retiring abroad, financial experts advise caution

Retiring abroad is no longer a far-fetched fantasy. According to the Social Security Administration, more than half a million Americans received their Social Security benefits while living overseas in 2016.

Yet, while escaping the humdrum of America may sound enticing, there is more to making the leap than meets the eye. Researching potential potholes and hidden risks to health, wealth, and welfare can save aspiring retirees headaches when relocating to foreign lands.

Costa Rica Fever

According to International Living's recently released 2024 Annual Global Retirement Index, the world's top retirement destination is Costa Rica. This is the third time the South American country has beaten the competition to take the top place. In second this year came Portugal, followed by Mexico.

The Index aims to help retirees find destinations where their dollar goes furthest when it comes to real estate, cost of living, and overall quality of life. InternationalLiving.com says life in sun-kissed Costa Rica doesn't have to break the bank. Couples can enjoy retirement on $2,000 a month, while a single person can do so between $1,600 and $2,000 a month.

Although it assesses destinations worldwide, this year's best spots are all from Latin America and Europe.

"The number one reason that Costa Rica, Portugal, Mexico, Panama, and Spain top the lists as the world's best places to retire stems from an inviting climate, both in terms of weather and tax policies that are conducive to and welcoming of retirees," says Arielle Tucker, Founder of Connected Financial Planning.

Tucker is a certified cross-border financial planner whose firm specializes in assisting U.S. citizens with their financial lives abroad. She strongly recommends aspiring retirees seek professional consultation with an advisor for world travelers before jetting off, warning they may miss out on tax optimization opportunities if they move first and plan later. There is a lot of nuance in each destination.

"Each country has its own tax treaty, tax policies, and considerations, and we need to fully understand how they will interact with the client's U.S. tax and financial situation," she says. "Many countries offer different tax rates and policies depending on the client's visa or residency requirements."

"In some countries such as Brazil, dividend income is tax-free," says Chris Chen, CFP and Wealth Strategist of Insight Financial Strategists. "That would imply that you would switch at least part of your portfolio to a dividend portfolio. What are the tax quirks of your country of retirement that you need to consider?"

Regrettable Situation

Most Americans, even when moving within the country, experience remorse.

According to a Home Bay survey, three-quarters of Americans felt regret after relocating in 2022.

It is easy to fantasize about far-flung, dreamy destinations — the sand always seems whiter on the other side of the sea. It's only after crossing over and settling in a Caribbean or Mediterranean paradise that reality starts to bite.

One can expect to feel overwhelmed and experience some level of doubt about a significant move, especially as health considerations play a larger factor in the lives of retirees.

"Optimizing for health care in the United States is much different than optimizing for health care abroad," says JD Pritchett, Wealth Advisor at North Ridge Wealth Advisors. "The U.S. system is highly inflated from a cost perspective, and there are different ways to utilize tax-favorable accounts to optimize your health care planning. Several of our clients who retired outside the U.S. say they cover costs out of pocket because they are so cheap, and they typically fund their costs with their monthly budget."

When it comes to moving abroad, there are many additional considerations. Common complications include overpaying for accommodation or property, visa complications, legal hurdles, double taxation, and currency risk.

These are just the technical, legal, or financial headaches. Retirees may encounter other emotional issues due to distance from friends and families and the pressures of adjusting to a new society and climate.

"The culture shock can be challenging, so it is really important to have the right mindset and stay flexible when things don't go perfectly (because they won't)," advises Tucker. "Give it time; it can take two full years before you start to feel at home. If you don't like your new country, you can always move back to the U.S. or try something new."

Whether moving to America's "near abroad" or right over to the other side of the world, retiring overseas is never straightforward. Taking stock of one's financial situation, considering personal priorities and values, and consulting a relocation expert may all be effective ways to choose a destination for a fulfilling, sustainable retirement plan.