Dubai: When choosing to retire to a popular overseas destination, you will likely base your decision on which country offers a relatively low cost of living. However, retiring abroad can also come with other unexpected bills.
“Standard of living is a massive draw of a retirement friendly terminus, but living abroad for a long term can also come with higher medical costs, taxes, inheritance restrictions, and house buying fees,” said Melanie Aguste, a wealth and estate planner based in Abu Dhabi.
“While the everyday cost of living might be favourable, these one-off costs can stack up. If you're thinking of building a life abroad for your retirement years, then get your finances prepared, so you can enjoy peace of mind.”
Hidden costs can hurt overseas retirement plans
While the cost of most obvious requirements like visa most often fall within a largely affordable range, typically Dh400 to Dh800 per year, hidden costs such as foreign exchange and health insurance can eat into your savings. However, these costs vary greatly depending on your circumstances.
“Expats, who may not be eligible for an overseas country’s domestic plans, want health insurance at a reasonable cost,” explained Pam Bagley, an insurance analyst based in Dubai, adding the average cost of a global health insurance plan is between $500 (Dh2,000) to $5,200 (Dh20,000) per year.
“Just as each country has different levels of costs for covering their citizens, these international health insurance plans can vary in price dramatically depending on several factors, primarily your age, citizenship, country of residence, level of coverage you desire and overall plan design.”
“In some cases you can opt to include or exclude certain types of health insurance coverage to manage your costs. The variables differ not only between plans but also between providers, so usually comparing the cost of one plan to another can be difficult,” added Bagley.
“Opting for high deductibles [i.e. what you pay before the policy starts paying for covered expenses] will lower your cost but often not as much as you would expect. So compare the deductible and cost sharing options and how they affect your pricing and determine what you are comfortable with.”
Exchange rates can affect your retirement pot
If you have decided to retire abroad partly because living overseas seem more affordable at first glance, bear in mind that cost of living can change not only with time and geography, but it is also dependent on how strong is the currency denomination of your retirement savings.
“Some countries may have a lower cost of living, which can stretch your retirement savings further, but it’s crucial to factor in potential fluctuations in currency exchange rates and inflation over time,” added Aguste.
“Tracking the value of the currency of your retirement pot against the currency of the country you are moving to can also play a role in your decision-making. These values are far from static and you can expect swings in value throughout your retirement.”
Secondly, if you plan on buying a house in your new retirement location, and you took a home loan on it in the currency denomination of the country you are residing in, your payment might change significantly because of the exchange rate. Thirdly, with changes in mortgage payments due to interest rate changes, you cannot predict what your housing bills will look like on an ongoing basis.
What’s the fix? “When buying a property in your adopted country, you can choose to take a loan in the currency of the country you plan on moving to. This means that the mortgage you will be paying is in the same currency that you draw income in, removing one source of worry,” noted Aguste.
When you are planning to retire abroad, financial planners would widely recommend that the most cost-effective means to settle overseas is to buy property there. But doing so is likely to create some unexpected bills and charges.
“Across Europe, Australia, and the US, for example, house buying comes with a whole range of fees which vary from country to country, and quickly mount up,” explained Aguste. “Make sure you're very clear on the costs involved before you make a realty transaction.
“Whichever country you're headed, if you draw income in one currency, and are planning on spending in another, then you need to also understand and make allowances for exchange rate fluctuations. If not, you might find yourself with a hefty bill to pay.”
The way out of such a costly predicament, according to forex experts, is to seek help from a foreign exchange service that will enable you to avoid market volatility by fixing a rate before a financial transaction and also make use of rate alerts to keep a watch on steep drops in the currency’s value.
Another cost intensive practice is paying for insurance when settling aboard. “As hospital costs are cheap in many places, many retirees prefer to pay out of pocket for healthcare, but not all countries offer them cheap. It helps save if you buy a basic plan regardless of your destination,” noted Bagley.