It was way back in 1981 when The Clash wrote their only number one hit single ’Should I stay or should I go?’
If you queued up in the record shops as a 20-something punk, you are probably now of an age where your thoughts are turning towards your retirement. How time flies!
Nearly four decades later though, many would-be retirees are asking themselves the same question, albeit this time, it’s about where they should live in their retirement. In fact, new research has found that 1 in 10 over-50s are considering moving abroad.
The main reasons for a change of scenery in retirement are:
- Better lifestyle
- A cheaper way of life
- Better weather than the UK
Despite nervousness around Brexit, the top five destinations for retiring overseas are all in Europe:
4th=: South East Europe
The Far East is 6th on the list, followed by the Americas, New Zealand and Australia.
Appealing but problematic
Retiring abroad may sound appealing to many people but it brings its own set of financial issues, which if not handled carefully, could cause future problems.
For example, in some countries your State Pension will not rise in line with the triple lock (the higher of inflation, wage growth or 2.5%) as it would do if you stayed at home. Over time, this will mean the buying power of your State Pension will fall.
Commenting on this problem, Andrew Tully, Pensions Technical Director at Retirement Advantage said: “Countries in the EU, as well as many others, have ‘reciprocal arrangements’ with the UK, meaning your State Pension will increase each year. However, other countries including Australia, Canada and New Zealand do not, which means the state pension will not increase once you move overseas.”
“For example, a single person who retired in 2007 to a country where there is no reciprocal agreement in place would have seen their State Pension frozen at £87.30 a week. It is now £122.30, a difference of 40%, or £1,820 less annual income.”
“When we leave the EU, reciprocal arrangements will form part of any deal reached, so it is unclear what the position will be in future.”
“So it’s worth keeping in mind how your financial position would be affected by changes to these agreements as well as how incomes paid in sterling are affected by currency exchange rates.”
Top tips if you are moving overseas
Retiring to a foreign country is a huge adventure and the beginning of a new life, but is also brings with it many financial challenges.
As with most things in life, preparation and planning are key. Here are our top 12 tips if you are thinking of retiring overseas:
- Understand how much income you will need in retirement to maintain your standard of living. This is relatively easy to do here in the UK, but far harder overseas. In some places, the cost of living will be lower, in others higher, you may also have to add in other expenses, such as flights back to the UK, which you wouldn’t have if you retired in the UK. You must factor inflation into your calculations too
- Get an estimate of how much income your State Pension will give you by clicking here
- The calculate the shortfall between the income you need and the State Pension. Now look at whether your exiting pensions, savings and investments are sufficient to bridge the gap
- Take advice from an Independent Financial Adviser who is experienced and knowledgeable about the challenges faced by people retiring overseas
- Tell HM Revenue and Customs (HMRC) that you are moving abroad. They can then calculate any UK tax liability you may have even though you are living overseas
- By telling HMRC you are moving abroad this will also enable any UK pension you have to be paid out in full, with no tax deducted, and taxed in your country of residence. Although, this only applies if the country you live in has a double taxation agreement with the UK
- Understand what agreements are in place between the UK and where you will be living for social security and healthcare benefits
- Understand the nature of the healthcare system in the country you are moving to and consider whether additional healthcare insurance will be needed
- Decide where you will live and, if you are buying a property, consider the best way to exchange a large amount of money from Sterling into the local currency
- Decide what you are doing with your property in the UK. You may sell but if you are going to rent it out, or leave it empty, there are certain steps you will need to take, including informing your insurance company
- Take care of the basics; tell utility companies you have moved, arrange for your post to be forwarded on to you and update the electoral role
- Consider how your future tax status will affect any previous financial planning decisions you have taken
If you are one of those people planning to move overseas after you retire, plenty of thought, and careful planning, will help make your dream become a reality.
If you would like to talk about how any move might affect your personal finances, we are here to help. Call Bev or Sarah on 0115 933 8433.