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If you’re an American longing for an expat retirement in Europe, you’re not alone. The dream of sitting on a beach in a sunny European country, enjoying a lower cost of living and all that free healthcare that Europeans always brag about, is a common dream. There are huge advantages to moving abroad for retirement, but there are also some big disadvantages, and some of them are financial.
I recently read that 73% of American expats are moving to Spain leave within the first two years of living there. That’s a pretty high failure rate. And at least some of those failures are due to the fact that the finances simply don’t add up, or at least not in the way many retirees expect.
Yes, the cost of living in Spain (and in most European countries) is quite low – for citizens. But for ex-pats, not so much. Here are some things Americans moving to European countries may not be ready for.
The bureaucracy
I lived in Spain for 15 years. Not as a retired expat, but as an immigrant of working age with young children. Life is quite simple for native Spaniards. For everyone else, there seems to be an awful lot of red tape to buy a home, get a work permit, access healthcare or even open a bank account.
The Spanish systems are slow, inefficient and often expensive, especially if you have to pay for a translator (and you may have to do that even if your Spanish is reasonably good, because like most other countries, legal jargon and pages of fine print can be complex and confusing).
In the article linked above, a couple complained that it took months to get a residence permit and until it was settled, they had no local bank account – meaning they had to constantly exchange expensive currency to pay for everyday living. They needed a NIE (the equivalent of a social security number) to open that bank account and the arrangement to get one would (they were casually told) take eight months.
Americans accustomed to working with efficient, timely, customer-service-oriented systems may go into shock (and find themselves in financial shortfall) when they realize that the famous “mañana culture” doesn’t mean putting everything off until tomorrow. It means things are postponed for eight months or more. And this does not only apply to Spain. Most European countries are heavy (and inefficient) on bureaucracy when it comes to non-EU citizens.
Moving and settling costs
Rent is really cheap in many parts of Europe, but of course there are all the usual costs associated with moving. Security deposits, setting up utilities, setting up internet, additional taxes and community fees, agency fees, etc. It never ends, and it’s not as easy as before because you’re not as familiar with the processes or the language. Ensure more investments in translation, management or consultancy costs.
That’s all before you have to furnish and equip your new home. Many find that shipping furniture and equipment from the US is just as expensive as buying it cheaply in their new country. Moreover, it can take months. What do you do in the meantime? Oh and none of your electrical appliances will work in Europe without converters. So those are more costs.
In some European countries it is more common than in the US to be able to rent furnished, but before you panic at the thought of that, be aware that the standard of furnishing and equipping homes in Europe is quite un-American, to put it politely.
You may find your new home incredibly basic compared to what you’re used to, and of course there are other hidden costs involved. Unless you’ve sold or given away all your belongings in the US, you’re suddenly looking at storage costs at home as well.
Healthcare
Europeans love to brag about their free healthcare, so it seems to really come as a shock to many expats that free healthcare is generally only automatically available to actual citizens of the country.
As an American, you are initially not eligible for free healthcare, if at all, and mandatory health insurance is usually a visa requirement to live in a European country as a non-citizen.
If you work there, your employer or the government may cover you, and eventually you can enjoy the comprehensive and fully funded health care that the natives are proud of, but it can take forever. If you are a retired ex-pat who is not working or taking full citizenship (another complex and expensive process), this probably will be the case.
Tax
The US is a rare outlier because it expects its citizens to file tax returns even if they live abroad. (In most countries, you simply declare that you live abroad and stop filing unless and until you return.)
If you are a U.S. citizen, you will likely owe U.S. taxes on all unearned income, including investments and pensions, although this typically does not include income earned by working for a foreign company. But it’s complicated. That means – you guessed it – more costs.
Paying a specialist tax advisor is highly advisable to ensure you stay on the right side of the tax authorities, both in your adopted country and in the US, where Uncle Sam will be waiting for that tax return every year, even though you no longer use the services funded by your tax payments.
There’s more, honestly. You could very well spend money buying a car, learning the language, taking trips home for family visits and special events, and participating in clubs or activities to help you integrate into your new community or make ex-pat friends (a strangely expensive process all by yourself).
Believe it or not, this article is not intended to deter you if you have your heart set on expat retirement in Europe. There are great benefits to it, and it really can be more affordable than a US pension in many ways. But only if you are fully prepared and aware of all the hidden and not so hidden costs.
Still interested in the ex-pat life? Speak to a specialist financial advisor and start putting your plan in place so you aren’t caught by surprise.
About the author
Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks, and the occasional award-winning short story. Her work has appeared in a range of publications, both online and offline, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn more about Karen
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