Everyone’s read horror stories about retirees who finally take the plunge to realize their long-held dreams of relocating abroad, only for it all to quickly turn sour. Fantasies of tropical paradises, year-round sunshine, and exotic culture soon fade when they figure out they’ve made various errors in the process. Finances disappear, properties never materialize, and credit scores are shredded, leaving them in a far worse position than before their misinformed adventure began.
You don’t have to follow in their footsteps. Many of the small hiccups that come with moving abroad are unavoidable, but with proper planning, you can prevent any large mishaps that may derail your dream. Here are five of the biggest overseas retirement mistakes people make, and how to avoid them.
1. Buying property without due diligence
Buying property in the U.S. is often a long and complicated process, but purchasing abroad is a totally different ballgame. Each country has its own individual property laws that tend to have some idiosyncrasies that can trip you up if you’re not aware of them. This can become extra complicated if you’re unable to speak the language, and some unscrupulous agents and developers sometimes take advantage of this naiveté.
There are a few golden rules you should follow when buying property overseas.
Never buy without seeing the property. This is still surprisingly common among people buying overseas, but contains all kinds of pitfalls, including the risk that the property may not even exist.
Always get anything you’ve agreed upon with the vendor in writing; otherwise, you make it extremely easy for them to deny it altogether.
Check the reputation of the company you’re buying through. This is best done both online and, if possible, by talking to people who have previously bought through them.
2. Not having an exit plan
Some people see it as defeatist to have an exit plan when retiring overseas, but in fact, it’s one of the most sensible things you can do. There are circumstances that could make you want or need to move back to the U.S. — many of them completely outside of your control. Political instability, currency fluctuations, health issues, and family situations at home are all potential causes.
The most important thing is that your plan allows you to get out of any crisis that may arise with minimal or no need for financial assistance. That means you should have funds set aside and dedicated solely to getting you back home safely, covering at the very minimum the cost of flights. You should also figure out how to get in touch with the closest U.S. consulate or embassy in an emergency. (See also: 5 Details You Shouldn’t Neglect When Retiring Overseas)
3. Failing to file U.S. tax returns
Some people adopt an “out of sight, out of mind” approach when it comes to taxes after they leave the U.S., but be aware this is absolutely not the attitude of the IRS. Unless you have renounced your U.S. citizenship, you’re still required to file your annual income tax returns. Failure to do this can lead to you incurring interest due on any amount you owe, plus penalties. Note that even if you don’t owe anything, the IRS requires you to file a return.
You’ll probably also be required to submit a Report of Foreign Bank and Financial Accounts, otherwise known as an FBAR. Current FBAR regulations state that anyone whose foreign financial accounts go over $10,000 at any time during the year will need to file one. (See also: 13 Financial Steps to Take Before Retiring Abroad)
4. Closing down U.S. bank accounts
A common financial mistake of overseas retirees is to close down all of their bank accounts in the U.S. once they move to their new country. While you’re going to need to open up a bank account in your new home for various reasons, it’s a bad idea to sever all your financial ties with the U.S. Keeping your bank accounts and credit cards open in the U.S. will help to protect your credit score. This would likely be quickly obliterated if you closed down all of your accounts overnight.
In nearly all cases, you’ll be able to use the internet or phone to easily manage any financial affairs you still have in the U.S., such as payments and transfers, without the hassle and time involved in going through foreign banks. Most importantly, you should probably maintain the larger part of your retirement wealth in the U.S. IRAs and 401(k)s aren’t easily transferred to foreign banks.
Though you may not continue to have an address in the U.S., you can switch your account so it’s registered to one belonging to a relative or close friend. Then you can simply manage all of your business online.
5. Not having an open mind
Retirement often precedes a huge period of change in a person’s life. For some people, it can mean figuring out who they are without work, and what they are going to spend their newfound free time doing. This can become heightened stress when you throw moving abroad into the mix.
Things that you enjoyed pre-retirement in the U.S. can suddenly seem trivial and unimportant in your new surroundings. But it’s possible that you won’t change one bit, and rather than exploring a host of new activities, you might simply want to do the same things you’ve always done, just in your new home country. So it’s important to head abroad with an open mind and allow yourself time to settle down and find a routine filled with things you love. (See also: 4 Moves That Guarantee a Great Retirement)