Retiring abroad is a dream for many people. Perhaps you want to get away from the hustle and bustle of a big city and spend your later years in rural France? Or maybe you want to spend your retirement somewhere with warmer weather?
The last couple of years have forced some retirees with aspirations of moving abroad to delay their plans. Brexit, the Covid-19 pandemic, and economic uncertainty have affected thousands of plans. In fact, 48% of people who were thinking about moving abroad are reconsidering because of Brexit.
Yet, many retirees still plan to make the move and Spain remains the top destination.
Spain has been the number one retirement destination for Brits for a decade, according to Canada Life research. It’s easy to see why the country is appealing – it’s known for its great weather, incredible culture, and thriving expat community.
Almost half of retirees who are thinking about moving abroad are considering Spain as a destination. The most popular spots retirees consider are:
- Spain (46%)
- Portugal (21%)
- France (19%)
- Italy (16%)
- South-eastern Europe (14%)
- Eastern Asia (8%)
- United States (8%)
- Australia (8%)
- New Zealand (7%)
- Turkey (5%)
If you’ve been dreaming about spending retirement in sunny Spain or another destination, you need to spend some time understanding your finances first.
3 potential financial challenges to consider if you want to retire abroad
1. Your State Pension may be frozen
Your State Pension provides a reliable source of income throughout retirement. It can give you financial security and peace of mind.
One of the reasons that the State Pension is valuable is that it increases each tax year by a minimum of 2.5% under the triple lock. This helps to preserve the spending power of your income, as inflation can have a huge effect over the decades you could spend in retirement.
However, if you move abroad, the government could freeze your State Pension.
The Canada Life research estimates that 43% of State Pensions that are paid overseas are frozen. This means it won’t increase each tax year and, gradually, what you can buy with your State Pension is likely to fall.
If you want to move abroad, you should check if the country has a reciprocal social security agreement with the UK. If it does, your State Pension will rise. A freeze doesn’t mean you have to change your plans to live abroad, but being aware now means you can take steps to ensure you remain financially secure.
2. The cost of living can vary significantly
The cost of living is a key factor for many Brits that are thinking about retiring abroad. 54% cited a cheaper cost of living as a key reason why they wanted to move.
It’s vital you do your research before you move. The cost of living can vary significantly between countries. Take some time to understand what your expenses will be and how they compare to the UK.
While overall you may find that the cost of living is cheaper, keep in mind that some goods and services may be more expensive than you expect, especially if you want to purchase British items.
As well as your day-to-day costs, you may want to factor in a budget to visit friends and family in the UK regularly.
3. Understanding your tax liability
One of the challenges of moving abroad is understanding how and when you’ll need to pay tax. As it can have a direct effect on your income, it’s something you should consider when weighing up the pros and cons.
Expat finances can be more complex, so seeking financial advice could be beneficial. We could help you understand how to make the most of your money to secure the life you’re looking forward to.
We could help you have financial confidence as you move abroad
If you’re ready to enjoy your retirement abroad, we are here to help you understand the financial implications and give you confidence about the future.
We’ll help you create a financial plan that provides you with the security you need to start your new life and consider long-term challenges.
Please contact us to discuss your retirement aspirations and how to reach them.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.