16 Worst Mistakes When Retiring Abroad

16 Worst Mistakes When Retiring Abroad

If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or WhatsApp (+44-7393-450-837).

Introduction

What are the worst mistakes when retiring abroad that you should avoid?

Everyone has heard horror stories about retirees who make the decision to move abroad, fulfilling a lifelong dream, only for things to quickly go south.

As they learn that they have committed a number of mistakes during the process, their fantasies of tropical paradises, year-round sunshine, and exotic cultures quickly fade.

They find themselves in a much worse situation than they were before their erroneous adventure began due to finances disappearing, properties never materializing, and destroyed credit scores.

You’re under no obligation to emulate them. Many of the minor problems that arise when moving abroad are unavoidable, but with careful planning, you can avoid any major blunders that might put your dream of living abroad in jeopardy.

Here are the 16 worst mistakes when retiring abroad and how to avoid them.

16 Worst Mistakes When Retiring Abroad

1. Relocating Without Good Planning

Many people who are getting close to retirement have long been drawn to warmer climates by their siren call.

You’re therefore planning to move south to Florida or one of the many other wonderful locations to retire if you despise the cold. Test the waters first, then consider a long-term decision, is our advice.

Too many people have trudged off aimlessly to places they believed to be their dream destinations only to discover that they are more akin to nightmares. Everybody is a stranger, life moves too slowly, and endless rounds of golf and beach walks get old quickly.

Spend a significant amount of time on vacation in your chosen location well in advance of your planned retirement date to get a sense of the locals and way of life. Doing otherwise is one of the worst mistakes when retiring abroad that you should avoid.

This is particularly true if you intend to retire abroad, where unfamiliar languages, laws, and customs can be too much for even the most resilient retirees.

When you finally take the plunge, think about renting instead of buying. Consider a couple who chose Savannah, Georgia, as their permanent retirement home. But they made the wise choice, as it turned out, to rent an apartment downtown for a year before constructing or purchasing a new house in the suburbs.

It turns out that their Philadelphian, get-it-done-now mentality didn’t fit in the Deep South. Instead, they became part of the group of “halfback retirees,” those who move to the Deep South, discover they don’t like it, and then relocate halfway back toward their original home in the north.

2. Acquiring A Property Without Conducting Research

The process of purchasing real estate in the United States is frequently drawn-out and challenging, but doing so abroad is a completely different story. Doing so is one of the worst mistakes when retiring abroad that you should avoid.

Each nation has unique property laws with some quirks that, if you’re not aware of them, could cause you trouble. If you don’t speak the language, this can get more difficult, and some shady agents and developers will occasionally take advantage of this ignorance.

When purchasing real estate abroad, there are a few guiding principles you must adhere to.

• Never make a purchase before visiting the home. This still happens surprisingly frequently when people purchase property abroad, but it comes with a number of risks, including the possibility that the property may not even exist.
• Any agreement you make with the vendor should always be in writing; otherwise, you make it very simple for them to completely reject it.
• Verify the reputation of the business you are purchasing from. The best way to do this is online and, if at all possible, by speaking with customers who have previously made purchases from them.

3. Taking Too-Good-To-Be-True Offers at Face Value

Financial security in retirement is based on years of wealth-building, careful planning, and a lot of graft. There are no quick fixes.

But despite the prevalence of elder fraud, Americans still lose hundreds of millions of dollars each year to get-rich-quick schemes and other types of fraud, according to the FTC. 37% of the more than 3 million complaints that were received in 2016 came from people 60 and older. 

Victims of fraud reported giving con artists $744 million. My parents, who are both in their late 80s and early 90s and are both in good mental health, frequently get calls from con artists attempting to part them from their arduous retirement savings on their landline.

The FTC and state Attorney General offices provide advice on how to recognize offers that seem too good to be true.

Guarantees of extraordinary profits in a brief period of time without risk, requests to wire money or pay a fee before you can claim a prize, or unwarranted requests for sensitive financial data like Social Security numbers, bank account and credit card numbers, or other sensitive information are all red flags.

Be wary of anyone who urges you to decide right away or discourages you from seeking guidance from a neutral third party. In fact, run from them.

What should you do if a scam is suspected? The FTC suggests using Google or another search engine to run the name of the business or product along with “review,” “complaint,” or “scam.” 

To see if it has received any complaints, you can also contact your state’s attorney general or your local consumer protection office. Add your name to the list if it has. Don’t forget to complain to the FTC as well.

4. Absence Of An Exit Plan

Having an exit strategy when retiring abroad is one of the most prudent things you can do, despite the fact that some people view it as defeatist.

There are a variety of circumstances, many of which are wholly uncontrollable, that might lead you to want or need to return to the United States. There are a number of possible causes, including monetary fluctuations, health problems, and domestic family issues.

The most crucial factor is that your plan enables you to resolve any crisis that may occur with little to no help from the financial community.

That means you should have money set aside specifically for getting back home safely, at the very least to pay for your airfare. Additionally, you should learn how to contact the nearest embassy or consulate of the United States in case of an emergency.

5. Considering Working Permanently

A lot of baby boomers, including myself, plan to continue working past the age of 65 in order to maximize our Social Security benefits. That strategy, however, might not work. It is one of the worst mistakes when retiring abroad that you should avoid.

Take into account the fact that, according to the Transamerica Center for Retirement Studies, 53% of workers anticipate continuing to work past the age of 65 in order to make ends meet. 

However, you cannot rely on being able to earn a paycheck if you are in need of one. In spite of the fact that more than half of today’s workers intend to continue working after retirement, only 1 in 5 Americans 65 and older are actually employed, per U.S. statistics from the Department of Labor

According to the Transamerica Center for Retirement Studies, there are many reasons why you might be required to stop working and retire early. Health-related problems, whether they are your own or those of a loved one, play a significant role.

Employer-related issues like downsizing, layoffs, and buyouts are also relevant. Another factor that makes it difficult for older workers to find employment is a failure to keep skills current. The practical advice is to save frequently and early and to assume the worst.

In a Transamerica survey of baby boomers, only 28% reported having a backup strategy to replace retirement income in the event that they were unable to work.

6. Failure to Submit US Tax Returns

After leaving the United States, some people adopt the mentality that taxes are “out of sight, out of mind,” but you should be aware that the IRS does not operate in this manner.

You are still required to submit your annual income tax returns unless you have renounced your U.S. citizenship. If you don’t do this, you might be subject to penalties as well as interest that is due on any money you owe. The IRS requires you to file a return even if you owe nothing, so take note of that.

A Report of Foreign Bank and Financial Accounts, or FBAR, will likely also be requested from you. According to current FBAR regulations, anyone whose foreign financial accounts total more than $10,000 at any point in the year must file one.

7. Delaying Retirement Savings

Waiting too long to start saving for retirement was the one financial mistake that Americans surveyed by Bankrate regretted the most. This regret was expressed significantly more frequently by respondents 50 and older than by respondents under 50, which is not surprising.

Most people don’t begin actively saving for retirement until they are in their 40s or 50s. The good news for these investors is that they may still have enough time to alter their saving habits and accomplish their objectives, but they will need to act quickly and exercise extreme discipline when it comes to saving.

Based on calculations by Morningstar, here is how much you should set aside each month to have a $1 million nest egg by the time you are 65.

Assuming a 7% annual rate of return, starting at age 25, you would need to save $381 per month; at age 35, $820; at age 45, $1,920; and at age 55, $5,778.

Uncle Sam provides procrastinators with rewards. When you turn 50, you can begin funding your retirement accounts with catch-up contributions.

Therefore, in addition to the standard $19,500, older savers will be able to contribute an additional $6,500 to a 401(k) in 2020. In addition to the standard $5,500, there is a $1,000 catch-up amount for IRAs.

8. Having A Closed Mind

A major period of change in a person’s life is frequently preceded by retirement. Finding their identity outside of the workplace and their plans for their newfound free time can be challenging for some people. When you factor in moving abroad, this could result in increased stress.

In your new environment, things that you previously enjoyed before retiring in the United States may seem trivial and unimportant. However, it’s also possible that you won’t alter at all and that, rather than trying a variety of new things, you’ll just want to carry on as usual in your new country of residence.

So it’s important to travel with an open mind, give yourself time to settle in, and develop a routine that includes activities you enjoy.

9. Claiming Social Security Benefits Too Soon

You have until age 62 to begin receiving retirement benefits, but if you can wait, you should. If you claim your social security benefits too early on your retirement abroad, then you are committing one of the worst mistakes when retiring abroad.

Before utilizing Social Security, the majority of financial planners advise waiting at least until you reach your full retirement age, which is 67 for those who were born after 1959. It may be better to wait until you are 70.

Let’s assume that you are 67 when you reach full retirement age, at which point you would be entitled to 100% of your benefit amount. Your lifetime Social Security benefit will be 30% less if you apply for it at age 62.

But if you wait, you’ll benefit from delayed retirement credits, which will increase your benefits by 8% annually between the ages of 67 and 70. After you turn 70, there are no more retirement credits available.

For couples, widows, and divorced spouses, claiming strategies can vary, so consider your options and seek help from a professional if necessary.

If you can put off filing for a few years by living off your portfolio, do so. Where else can you find 8% market returns that are guaranteed?

As an alternative, continue working as long as you can or start a side business to fill the gap in your income. Nowadays, there are many interesting ways to make extra money.

10. Taking a Loan From Your 401 (k)

It can be tempting to borrow money from your 401(k) retirement account. It is, after all, your money. You typically have five years to repay the loan plus interest, provided your plan sponsor permits borrowing.

However, taking money out of your 401(k) is not a good idea unless there is an emergency. It is one of the worst mistakes when retiring abroad that you should avoid.

Meghan Murphy, a vice president at Fidelity Investments, predicts that during the loan repayment period, you’ll probably cut back on or stop making new contributions.

This entails forgoing employer match and shortchanging your retirement account for months or even years. Additionally, you lose out on the investment growth that would have resulted from the missed contributions and the borrowed funds.

Murphy asserts that before considering loans from retirement plans, you should first consider whether there are any other sources of funding available.

Consider how crucial having an emergency fund is. However, if that isn’t possible, is there any other resource you can use instead? You might want to consider whether you have access to funds in a health savings account in the event of a medical emergency.

According to Murphy, taking money out of employees’ stock plan options through their employer is a trend that is gaining popularity. There may not be a penalty if you withdraw money from that account, nor is it necessary for you to repay the loan with money taken directly out of your paycheck.

The cost of repaying a loan from your retirement savings is another significant drawback. Most loans have a maximum five-year repayment term before they are repaid to the fund.

According to Murphy, you must repay the loan in full within 60 to 90 days if you leave that employer before it is repaid, failing which it will be treated as a distribution and subject to taxes. Furthermore, a 10% tax penalty is now applied if the recipient is under the age of 59 1/2.

Also keep in mind that you’ll be using after-tax money to pay the interest on that 401(k) loan, and that you’ll have to pay taxes again on those funds once you reach retirement.

The loan must typically be repaid in as little as 30 days if you quit your job. If not, it counts as a distribution and must be taxed as income.

Investigate alternative loan options before using your 401(k). Student loans and PLUS loans for parents, for instance, can be used to pay for college tuition. With a home equity line of credit, significant home repairs may be financed.

11. Extremely Minimizing Clutter Too Early

Be cautious when tossing things out in a hurry. Regardless of their sentimental value, certain professionals, such as doctors, dentists, lawyers, and accountants, may be required by law to keep records even after they have retired.

Regarding tax records, the IRS typically has three years to begin an audit, but you might want to keep some records, like your actual returns, for an extended period of time.

The same holds true for documents pertaining to your home’s purchase and capital improvements, investments in stocks and funds in taxable investment accounts, and contributions to retirement accounts, particularly nondeductible IRA contributions reported on IRS Form 8606.

To avoid paying more in taxes than necessary, all can be used to determine the correct tax basis for assets.

12. Keeping Away From The Stock Market

One of the worst mistakes when retiring abroad and investing for their future is to avoid stocks because they seem too risky.

Despite the fact that the market experiences frequent ups and downs since 1926 stocks have returned an average of about 10% annually. Mattresses aren’t even close, let alone bonds, CDs, bank accounts, or savings.

According to Elizabeth Muldowney, a financial advisor with Savant Capital Management in Rockford, Illinois, conventional wisdom might suggest that investing in the stock market is “risky” and that it is best avoided if your objective is to protect your financial assets.

However, doing so results in low returns, and in reality, by staying away from the stock market, you haven’t reduced your risk; rather, you’ve simply shifted it to the possibility that your savings won’t keep up with inflation.

Because they provide an affordable way to own a share in thousands of companies without having to buy individual stocks, low-cost mutual funds and exchange-traded funds are preferable. When you reach retirement age, Murphy of Fidelity Investments advises against even considering retiring your stock portfolio.

For a retirement that could last 30 years, nest eggs must continue to increase. But as you get older, you do need to gradually cut back on your stock exposure.

13. Prioritizing Your Children

Sure, you want the best for your kids: the best upbringing, the best wedding, the best everything. And by all means, take out your wallet if you can.

But paying for expensive weddings and private schooling out of your own retirement funds might end up costing you all dearly. It is one of the worst mistakes when retiring abroad that you should avoid.

You cannot borrow money to pay for your retirement lifestyle, according to financial experts. Instead, look into other options for funding a child’s education besides your 401(k).

Instead of raiding the retirement fund, parents and their children should look into scholarships, grants, student loans, and less expensive in-state institutions.

Another suggestion to save money is to attend community college for two years before transferring to a four-year institution. There are numerous wise ways to reduce wedding costs as well.

Nobody anticipates going broke in retirement, but it is possible for a variety of reasons. Of course, not starting out with enough savings is one of the main causes. If you don’t exercise caution now, you might find yourself later moving into your children’s basement.

14. Putting Off Long-Term Care

Everyone wants to think that they will remain active and healthy well into their retirement years. A healthy diet, lots of exercise, and routine check-ups at the doctor all help.

Even the toughest retirees can get sick, and even in the absence of a serious illness, time will inevitably take a toll on your mind and body as you enter your 70s, 80s, and 90s. Even the toughest retirees can get sick, and even in the absence of a serious illness, time will inevitably take a toll on your mind and body as you enter your 70s, 80s, and 90s.

Be ready for sticker shock if the time ever comes when you or a loved one needs long-term care. According to a 2019 Genworth survey, the national median cost of assisted living is $48,612 per year, up 1.28% from 2018, and the cost of a private nursing home room is $102,204 per year, up 1.82% from 2018.

Even a sizable retirement fund can be depleted quickly. And keep in mind that the majority of long-term care expenses are not covered by Medicare.

Though expensive, there are ways to pay for long-term care. Long-term care insurance, which can cover some but not all nursing home costs if you can afford the high premiums, is something to think about. According to Genworth, a typical policy in Virginia for a male 55-year-old might cost $800 per year. If the man waits until he is 65 to purchase a policy, the yearly premium increases to $1,148.

A qualified longevity annuity contract, or QLAC, might also be something you consider getting. Once you reach a certain age, usually 85, the QLAC will start paying out a regular stream of income for the rest of your life in exchange for investing a sizable lump sum when you’re younger.

15. Investing in Timeshare 

A timeshare’s appeal during retirement is simple to understand. You can travel to a favorite vacation spot more frequently now that you’re not tied to a 9 to 5 schedule. And if you get bored, just switch for slots at different locations across the time-share network. amazing offer, no? Not always.

The purchase of a time-share can quickly make a buyer regret it if they are unaware of all its financial repercussions. It is one of the worst mistakes when retiring abroad that you should avoid.

In addition to the upfront payment of thousands of dollars, annual maintenance costs typically exceed $660, and special assessments may be imposed for extensive renovations. To popular vacation destinations like Hawaii, Mexico, or the Bahamas, there are also high travel expenses.

If you experience buyer’s remorse, good luck. Because there are so many used time-shares on the market, it’s unlikely that you will be able to sell yours for the price you want, if you can even sell it. Be cautious even if you do find a buyer because con artists abound in the time-share industry.

Experts advise owners to inquire about resale options with their time-share management company first. List your timeshare for sale or rental on reputable websites if that fails. Alternately, work with a trustworthy broker.

An online directory of the members of the Licensed Timeshare Resale Brokers Association is available. If all else fails, consider giving your timeshare to a charity for the tax deduction. However, consult your tax advisor first.

16. Closing Your Bank Account At Home

One common financial error made by expat retirees is closing all of their bank accounts in your home country after moving to their new nation. It is one of the worst mistakes when retiring abroad that you should avoid.

It’s a bad idea to cut all financial ties with your home country, even though you’ll need to open a bank account in your new home for a variety of reasons.

Your credit score will be safeguarded by maintaining active bank accounts and credit cards in your home country. If you closed all your accounts overnight, this would probably be gone in a flash.

You will almost always be able to manage any financial matters you still have in the United States, such as payments and transfers, using the phone or internet without the hassle and delay associated with going through foreign banks.

Above all else, you should probably keep the majority of your retirement assets in your home country. To foreign banks, IRAs and 401(k)s are difficult to transfer.

You can change your account’s registration so it is registered to a relative’s or close friend’s address, even though you might not be able to maintain an address at your home country. When that happens, you can easily manage your entire business online.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.