Retirement choices go global
More than ever, retirees are finding exotic locales that complement their monetary needs
If the prospect of a pleasant retirement in an exotic locale appeals to you, you’re in luck because the options for retiring abroad are expanding. The numbers of expat English-speaking communities are growing in countries that offer safety, low taxes, attractive residency options and excellent healthcare facilities.
Life in a foreign land is not for everyone, of course. There is almost certain to be an element of culture shock. However, the attractions of an adventurous lifestyle tip the scales for many retirees. Retirement experts caution against making hasty decisions to move abroad.
Try approaching the idea systemically by researching questions such as:
- How will your family cope with distances and costs?
- Have you thoroughly investigated your chosen country and visited two or three times?
- How do you plan to deal with health issues that may arise?
- Can you handle inefficiencies and delays?
- Are you ready to embrace both the highs and lows of a totally new experience?
The countries listed here have successful English-speaking retirement communities, and all are high on various well-researched list of foreign retirement destinations.
- Where can I see myself enjoying retirement?
- What are my needs and limits for cost of living?
- Will I be happy in that location long term?
*Cost of living estimates are for one person per month. Shared accommodation and other factors generally mean that couples can live for considerably less than double the monthly figure.
**The Big Mac Index was devised by The Economist magazine as an easy-to-understand way of gauging the relative value of currencies.
Sources: internationalliving-magazine.com; aarp.org; economist.com; expatistan.com; numbeo.com
Tune in to levels of control
Know what you can tweak to find your ultimate retirement income mix
As much as some of us would like to control everything, the truth is we can’t. Many retirees harbor a distant fear that their money may not last as long as they need it to. When it comes to something as important as your retirement income, knowing what you can control and by how much may help save your energy for the things you can change.
The spectrum of control
Where your money lives
How and where you put your money is one of the largest areas of influence you have. Work with your advisor to ensure your asset allocation reflects your risk tolerance, your time horizon and your short- and long-term needs.
How much you spend and save
Save as early – and as much – as possible, and live within your means. Your advisor can help you decide on a withdrawal rate to keep you comfortable during a long and fulfilling retirement. Depending on market returns, this rate may need adjustments.
How long you work
While you may want to work in retirement, nearly half of retirees in 2014 left the workforce before they planned to due to health concerns, caregiving responsibilities or company changes.
While you don’t know for sure what will happen, you can increase your chances of a long, healthy life through better healthcare, preventive care and good nutrition.
Out of your control
No matter how much you try, there are always unknowns that you can’t exactly plan for. Build in a contingency plan by creating a financial cushion should you need cash on short notice and by mitigating risks with proper insurance coverage (e.g., long-term care insurance).
Even with thoughtful planning, no one has ever been able to predict what the market might do. Consider what you’ll do if you encounter a series of less-than-ideal market returns.
The cost of living & taxes
Things cost more over time. The inflation rate for retirement-age Americans is higher because they spend more on items that rise fastest in price, such as healthcare and housing.
As for taxes, without knowing when the government may implement a change that may affect you, be sure to take advantage of savings in tax-favored accounts, particularly those geared toward retirement.
You are your best advocate when it comes to fulfilling your retirement dreams, so be sure to exercise your power thoughtfully and proactively. Your advisor can help you stay ahead of the game and implement a plan that reflects what’s most important to you.
- Review your budget regularly as your needs evolve
- Overdue for a doctor’s appointment? Schedule that belated visit today
- Test your financial plan with your advisor for what-ifs and worst-case scenarios
Asset allocation does not guarantee a profit nor protect against losses. Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 1/2 a 10% federal penalty tax may apply.
Smart retirement withdrawal strategies
For many, tapping into your retirement principal causes some anxiety. Whether you’re months or years from retirement, work with your advisor to develop a withdrawal strategy that gives you confidence that your money will last as long as your retirement does.
Something for everyone
Fortunately, there are flexible strategies that can be used alone or in combination. With each of these strategies, it’s a good idea to start with a conservative withdrawal rate and increase it as your portfolio grows.
Constant withdrawals – This method advocates estimating your expenses and withdrawing a set dollar amount every year to cover initial spending expectations. You would adjust the amount for inflation and withdraw the new dollar figure.
- Strength: A predictable amount of yearly income
- Consideration: Should your wants and needs deviate from your budget or the market become unpredictable, your measured withdrawal plan may not keep up
Percentage-based withdrawals – Percentage-based withdrawals are based on the current value of your portfolio. You can withdraw a constant percentage or take a more variable approach. A percentage-based withdrawal may make more sense for those who rely on their retirement savings mostly for discretionary spending.
- Strength: Flexibility to allow for larger or smaller withdrawals depending on portfolio performance
- Consideration: Annual income varies with the markets and the size of your portfolio
These main strategies have further variations, each with its own benefits and considerations.
Flooring – Flooring relies on guaranteed income from Social Security and annuities to cover your retirement expenses. You then tap into your portfolio for discretionary spending.
- Good for: Those with long life expectancies; risk-averse investors who prefer a steady “paycheck” with less risk
- Consideration: This strategy is best suited for those using their savings mostly for discretionary spending
Bucketing – With bucketing, the idea is to invest a portion of your portfolio in relatively safe investments (think cash and cash alternatives) so that you feel confident that your short-term needs will be met. The rest would be dedicated to growth investments that align with your long-term goals.
- Good for: Those who prefer a safety net when drawing down the value of their portfolio
- Consideration: Cash sits idle and your investments may not grow enough to meet your long-term goals.
Adjust as needed
Even with a carefully planned withdrawal strategy, you can’t account for everything. In anticipation of the unexpected or periods of rocky market performance, talk to your advisor about potential adjustments you can make. They can also help you set realistic expectations for what you can comfortably spend during what should be the best years of your life.
- Consider your weekly, monthly and yearly budgetary needs
- Take into account all sources of income, such as Social Security
- Work with your advisor to determine which withdrawal method best suits your needs
Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 1/2 a 10% federal penalty tax may apply. Withdrawals which exceed earnings will reduce the principal value of your retirement savings.
Material prepared by Raymond James for use by its advisors. Raymond James is not affiliated with any companies mentioned in this material.