The reality of austerity is beginning to bite us Britons; slowly but surely we’re all becoming more aware of the fact that we have less to spend today than we did just five years ago – and the reality is, it’s going to get an awful lot worse before it can get any better.
The British government has created a massive deficit – a debt black hole if you like – and the only way they can fill it is with tax. Tax on savings, income, capital gains, pensions and retirement income, tax on goods and services; in other words tax on every aspect of our lives. However, we have a choice, and the choice relates to whether or not we choose to remain living in Great Britain and bailing out the economy.
If you’d rather see your pension income go far further in retirement you can opt out and move abroad – but where in the world are the cheapest countries to live? As we have already examined a handful of affordable countries that may be suitable for you in recent articles, we have decided that today we should instead help you find your own cheap country overseas in case you don’t like our suggestions! We will show you how you can use a series of affordability criteria when you search and review each nation you’re considering – and in so doing you can assess the cheapest countries to retire in and find your own ideal country abroad.
Cheap is a Relative Term
The concept of ‘cheap’ is relative to your income, assets, savings and even your way of life. Therefore if I suggest to you that a country like Malaysia is my preferred ‘cheap’ option for my retirement, you might point out that it is positively pricey for you. On the other hand, you might think that France is an affordable option for your retirement whereas for me, it could be far too expensive a nation for me to even dream about living in when I retire.
For this fundamental reason, lists and reports about cheap countries to retire to abroad are only really suitable as idea generators for you. They may highlight some countries you’ve never considered, and bring your attention to retired persons’ incentives that perhaps exist in some nations so you can research the benefits of these applicable to your own circumstances, but they may not inspire you to pick any country listed as an affordable place for pensioners.
It is far better if you can define what ‘cheap’ actually means or needs to mean for you based on your retirement budget, and then take this information with you as you research which nations overseas can meet your lifestyle requirements on the budget you now know you have to work with…and that’s what we’re going to help you do today.
How Affordable Does a Country Need to Be for You and Your Pension Income?
The baseline for you when you’re looking abroad for an affordable place to retire is knowing how much you are going to have to live on when you officially become a pensioner! So, you need to look very closely at your financial situation and bear in mind that you will have to potentially find a lump sum to purchase real estate abroad, and you will need to know how much income you can draw down each month to live on.
If you own your own home are you considering selling it and transferring the equity into a property abroad – if so, how much will you have to play with? Get a realistic valuation of your property, take away any fees and taxes, any outstanding mortgage and then you will have an idea of how much money you will have in the bank to use to purchase abroad. At this point you must factor in fees and taxes abroad when you buy, and as a minimum you need to take 10% off your final figure in the bank to pay these expenses. Note: fees and taxes can add up to far more than 10% depending on which country we’re talking about, so make sure you research the property buying process abroad in the country you finally choose.
If you’re not going to be buying a home abroad you will of course need to rent a property – in which case, when it comes to working out how much income you will have to work with each month, a large proportion of that will have to be allocated to housing.
To work out how much income you will have you may need to get pension forecasts from the government and any private pensions you have, you may need to sell assets or cash in investments. Take your time, consider working with a financial adviser and examining how best you can utilize everything you have to give you the best income options.
Remember that Currency Transfers and Inflation Can Erode Value
When you have worked out roughly what you will have to live on each month you need to take into account a number of additional factors. For example, if you constantly have to transfer money abroad from the UK to your new nation you may incur regular fees and suffer the fluctuating fortunes of your currencies’ values in relation to each other. In addition to this, inflationary pressure at home or abroad could upset the real value of what you have to work with each month.
There are aspects you should begin researching at this point – such as whether it makes sense for you to effectively ‘offshore’ your pension savings at this point in the form of a Qualifying Recognised Overseas Pension Scheme (QROPS), and how a currency transfer or FX specialist can perhaps save you money on regular transfers and with forward contracts that will fix your monthly rate of exchange. Again, if in doubt speak to a financial adviser.
The 10 Common Cost of Living Factors to Apply to Your Country Research
Having done all you can to establish just how much money you will have to live on in retirement, it’s important to then factor in the aspects of your lifestyle that will eat up that cash! You can then look at any country you fancy living abroad in in retirement, and examine how much of your cash a given country will swallow up per factor. For example, if you chose to retire to Spain or Cuba you wouldn’t necessarily have to pay for healthcare. But if you chose South Africa or Northern Cyprus you would…
1) Healthcare – as we age so our requirement for access to medical facilities generally increases. What’s more, inflation in the healthcare industry runs far higher than in the ‘real world.’ This means that in a nation where you have to have insurance or pay as you go, a lot of your monthly income could be eaten up in medical costs. Factor this potential cost in as a high priority – you do not want to be left high and dry when you really need healthcare.
2) Housing – we covered the consideration of real estate above when we discussed how much you might have in the bank to buy a house. But if you’re renting instead then a proportion of your monthly income will be taken in rent payments. If you do buy, you will also still need a certain amount to pay for the maintenance of your home each month.
3) Groceries – what is the day-to-day cost of food like in your chosen country? Can you live and shop like the locals in markets and from local suppliers to keep your costs down?
4) Utilities – everything from fuel for your car to fuel to heat and light your home has to be factored in. What does electricity cost, what will your water rates be, is there a council tax equivalent?
5) Taxation – talking of council tax, what about income tax on your pension if you remit it to the nation you live in? What about inheritance tax and the laws of succession too? Think about all of these realities when you look at each country in turn.
6) Leisure – the whole point of retirement is having the time on your hands to do all the things you have always wanted to do in life. So make sure you have enough cash in the bank to do the garden how you want it, to join the golf club, to have satellite TV or to be able to travel and explore your new nation.
7) Travel – and in terms of travel, will you be able to afford to have and run a car? And what about a flight ‘back home’ every so often to see the grand kids? Factor these likely costs in from any country you consider.
8) Insurance – you may need health insurance as mentioned above, you will also perhaps need building and contents insurance, earthquake insurance, indemnity insurance and maybe even life insurance if you have an outstanding mortgage.
9) Visas – will you have to pay a yearly or regular fee to maintain a visa to live in the country you have chosen? This is a reality in Northern Cyprus for example, and something often overlooked by us Britons who are sometimes under the misapprehension we can live anywhere in the world for free!
10) Rainy days – have you heard the one about how you make God laugh? You tell him your plans! It’s true – no matter how well and how carefully you plan, something will inevitably come along and knock you off course. That’s life! That can also be expensive! Perhaps there will be a big storm that blows the roof off your home and your insurance excess will need to be paid. Perhaps you’ll adopt a local stray and its vet bill will be high! Maybe an unexpected arrival of a new grandchild back home will require an additional flight home one year. You need to factor in that unforeseen bills will arise – and you’ll need to save towards such events.
How do You Apply the Above to a Country Search?
If you want to live abroad in retirement you need to know how much you will have to live on and what bills and expenses that money will have to cover – hopefully the above will help you understand your income and outgoing liabilities and possibilities. Next up, you need to look around and examine different nations that appeal to you because of their climate, the language spoken there, the culture, accessibility from the UK or whatever other driving factors affect your personal choice. When you have a shortlist of countries that sound favourable to you, you have to begin digging beneath the surface to see how much each nation will cost you to live there based upon the above 10 criteria.
If you discover a country where you can afford to live on the pension income you have determined you will have to work with each month – you will have found your ideal retirement destination abroad! In other words, you will have found the cheapest country to retire in for you personally!