Retiring early abroad: The good and bad of living overseas during retirement

Portugal routinely tops the list of foreign destinations for retirees, such as International Living’s list of the world’s best places to retire, while Western Hemisphere countries Mexico and Panama are usually not far behind. For many Americans, the appeal of a foreign destination is obvious – living a new adventure, enjoying new types of food and stretching their dollar – but is it really the best option for early retirees?

If you’ve retired early, here are some key things to know about moving abroad, including both the good and bad sides of retiring overseas.

The pros and cons of retiring early abroad

Over the past few years, the idea of early retirement has been riding a wave, whether that’s due to the COVID pandemic, the desire for more autonomy or just the ever-recurring dream of quitting the “rat race” and living life on your own terms. Members of the FIRE movement – short for financial independence, retire early – have been the most vocal proponents of saving and investing aggressively so that they can do what they really dream of doing with their lives.

For quite a few, that dream means retiring abroad because of the freedom it affords them. While retiring overseas certainly can bring a lot of advantages, it has drawbacks, too. (This Bankrate investment calculator can help you figure out how you could make FIRE a reality for you.)

Key advantages of retiring abroad

1. Your dollar can buy more – sometimes a lot more

Earning money in a high-wage area and then spending it in a low-wage area can really offer significant benefits. You can stretch your dollar significantly if you move to a low-cost country, but even Western Europe can be affordable if you’re willing to live outside the big cities.

“Geo-arbitrage is the biggest financial advantage,” according to Billy and Akaisha Kaderli, multi-decade early retirees and authors of “The Adventurer’s Guide to Early Retirement.” “Go where your dollar purchases more and leave the rest invested in the U.S.”

The Kaderlis spent much of their time in Mexico, where a favorable exchange rate and local knowledge helped them keep their costs low. Mexico may be an ideal location for many Americans because it’s a simple and quick flight to see friends or for them to visit you.

If you want to go farther afield, you have a number of other low-cost options, too.

“Many countries, particularly in Southeast Asia, Central and South America, and Eastern Europe, have a lower cost of living compared to the United States,” says Doug Carey, CFA, president and owner of WealthTrace, a financial planning software app. “This can significantly stretch your retirement savings and make it easier to maintain a comfortable lifestyle.”

And if you’re willing to pick up some extra work for a passion project, at least one country may let you skip paying income taxes.

While moving abroad may sound like a luxury, it may be eminently affordable – if you do it right.

2. Health care is available and affordable

Early retirees also have to contend with the fact that Medicare, the U.S. public health care program for the elderly, doesn’t begin until age 65. Retire in their mid-40s, for example, and early retirees may be left with two decades of finding health insurance via the Affordable Care Act marketplace. And as many have discovered, the government program may offer anything but affordable health care, depending on your individual situation.

But many countries do offer affordable and comprehensive health care for expats (people who reside outside their country of origin) — even those in Western Europe such as France and Spain. Plus, France, Spain and many others routinely outrank the U.S. in terms of quality, too. So you may not have to sacrifice quality for cost.

“For us, the quality of health care was a pleasant surprise,” says Akaisha Kaderli. “Both of us have had emergencies in various countries and were very well treated and healed. Normal checkups and health issues are super easy to take care of and, generally, with no appointment or referral needed.”

In fact, she says it’s cheap enough that they pay out of pocket for services. The contrast with the costs of American health care is enormous. However, don’t assume that a foreign system will work better, and instead research the health care of your new prospective domicile.

3. All that culture!

If you’re looking to explore the world, moving abroad may be a good fit for you. For many, FIRE is more than just retiring from the world, it’s about independence and doing what you love.

“Living abroad provides an opportunity to immerse yourself in a different culture, learn a new language, and experience a different way of life,” says Carey.

In Europe, for example, a two-hour train ride may put you in the next country, while if you fly two hours you could be two or three countries over, with a new culture, food and more. In contrast, you could easily fly two hours in the U.S. and not be halfway across the country. That diversity and proximity to other countries can provide needed sustenance to so-called “culture vultures.”

But regardless of which country you go to, whether it’s big or small, you still have the opportunity to immerse yourself in a new way of life, meet new people and see how the locals live.

Key disadvantages of retiring abroad

1. Getting accustomed to the culture

While exploring a new culture can be exciting, it can also come with serious drawbacks. Visiting a new place on vacation isn’t the same as living there for a significant period of time and discovering what it takes to navigate the various and often difficult features of day-to-day life.

“Adapting to a new culture and way of life can be challenging,” says Carey. “Language barriers, social norms and cultural differences may create initial discomfort and stress.”

What may seem like common sense to you may be anything but that to the locals. You may quickly end up frustrated in your new home, and you absolutely will end up frustrated if you take the attitude that your country should be the party that changes rather than you doing so.

Even simple actions may require more time or hassle than they would in the U.S., and it can be easy to compare your new home to your old, to the detriment of the former.

“It can take a while to become accustomed to different cultures and the way things work or not work,” says Akasiha. “It’s good to develop patience and flexibility as a person.”

2. Learning a new language

Part of culture, of course, is the language and if you’re not moving to an Anglophone country (or to a country with a language that you don’t speak natively), then you’ll have to get up to speed. Learning the language is not just a courtesy to the locals, but rather a necessity to flourish in your new country. If you can’t easily navigate your daily world, you will not enjoy living there.

It can be easy to get going with the language, though. Take a language course to get started on the basics. Of course, as a resident of the country, you couldn’t be in a better position to learn the language, with plenty of speakers all around you and ready to listen and engage. Then pick up a book or read the local news to get a handle on vocabulary and what’s going on.

If you find the prospect of learning a new language daunting, then it might be wise to stick to a country where you already speak the native language. Or perhaps reconsider a move abroad entirely.

3. Dealing with financial institutions and the IRS

Dealing with financial institutions can be a real headache if you’re living abroad. And don’t think you’ll get out of paying taxes to the IRS, either, since the U.S. taxes worldwide income.

It may be difficult dealing with foreign financial institutions, in part due to onerous American laws. Laws such as the Foreign Account Tax Compliance Act (FATCA) require foreign financial institutions to report on the assets held by their American customers. This law can make it all but impossible to get an account in some foreign countries. And if you have a foreign account, it’s vital that you understand your filing obligations – or you could rack up huge tax penalties!

That said, it may not be all that fun dealing with American banks, either.

“Dealing with U.S. financial institutions from abroad can be challenging at times,” says Akaisha. “You definitely need a U.S.-based domicile and that is where any credit or debit cards will be sent.”

That home base can be helpful for financial and other business matters as well as a way to keep a foot on the ground if you want to stay connected with friends and family, for example.

Should you retire overseas?

It can be easy to idealize a country if you’ve only visited there on vacation or just seen it on TV. But living in a country differs from a trip when you’re there to have fun. You’ll want to carefully consider whether it makes sense for you, even if you’re an early retiree and have gained your financial independence. But retiring overseas can be the right adventure for the right person.

But even for the most adventurous spirits, a move abroad will present some challenges.

“While many people anticipate experiencing a new culture when they retire abroad, the depth of the cultural learning curve can be surprising,” says Carey. “It’s not just about trying new foods or attending local festivals. It involves navigating cultural norms, social etiquette, and customs that can vary from what you’re used to.”

All that culture can actually be stressful as you adjust to a new way of living and a new way of spending your time. As you do so, you’ll also slowly become like a local, taking on some of the attitudes of the natives, as you begin to appreciate various aspects of the culture.

And that leads to another key point: You’ll become a new person when you live abroad.

“Retiring abroad often leads to a re-evaluation of one’s identity,” says Carey. “Living in a different country can prompt questions about your own national and cultural identity.”

Even without intending to, you’ll start picking up the attitudes and perspectives of your new home, and those may challenge how you see yourself and your place in the world.

Bottom line

Retiring early overseas may be a dream for many, while for others it’s a necessity. With the increasing cost of health care and many affordable living options abroad, early retirees may find it a surprisingly feasible option to chuck it all – or most of it – and try life overseas for a while. (Planning to retire in 2024? Do these 7 things now.)