The Hidden Costs That Can Ruin Your Ex-Pat Retirement Dreams

If you’re an American who’s craving an ex-pat retirement in Europe, you’re not alone. The dream of sitting on a beach in a sunny European country, enjoying a reduced cost of living and all that free healthcare the Europeans are always bragging about is a common one. There are huge advantages to moving overseas for your retirement, but there are some big drawbacks too, and some of them are financial.

I recently read that 73% of Americans Ex-pats who move to Spain leave within the first two years of living there. That’s a pretty big failure rate. And at least some of those failures are due to the finances simply not adding up, or at least not it the way many retirees expect them to.

Yes, the cost of living in Spain (and in most European countries) is pretty low — for citizens. But for ex-pats, not so much. Here are some of the things Americans moving to European countries might not be ready for.

The Bureaucracy

I lived in Spain for 15 years. Not as a retiree ex-pat, but as a working age immigrant with young children. Life is pretty easy for native Spaniards. For everyone else, there seems to be an awful lot of red tape to cut through in order to buy a property, 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 even if your Spanish is fairly decent, because like most other countries legal jargon and pages of small print can be complex and confusing).

In the article linked above, one couple complained it took months to establish residency and until it was established they had no local bank account — meaning constant expensive currency exchanges just to pay for everyday life. They needed an NIE (the equivalent of a social security number) to open that bank account and the appointment to get one was (they were casually told) going to take eight months to come through.

Americans used to working with efficient, timely, customer service focused systems can end up in shock (and in a financial deficit) when they realise that the famous “mañana culture” doesn’t actually mean everything gets put off until tomorrow. It means things get put off eight months or more. And this doesn’t just apply to Spain. Most European countries are heavy (and inefficient) on bureaucracy when it comes to non-EU citizens.

Moving and Settling in Costs

Rent really is quite cheap in many parts of Europe, but there are of course all the usual costs of moving in. Deposits, utilities set-up, internet set-up, extra taxes and community fees, agency fees, etc. It’s never-ending, and it’s not as easy as it’s been previously because you’re not as familiar with the processes or the language. Cue more investment in translation, management or consultation fees.

That’s all before you have to furnish and equip your new home. Many find that shipping furniture and equipment from the U.S. is just as expensive as buying cheap in their new country. Plus it can take months. What do you do in the meantime? Oh and none of your electrical goods will work in Europe without converters. So that’s more expense.

It’s more common in some European countries than in the U.S. to be able to rent furnished, but before you jump for joy at the thought of that, just be aware that the standard of furnishing and equipping homes in Europe tends to be fairly un-American, to put it politely.

You may find your new dwelling incredibly basic compared to what you’re used to, and it comes with a further hidden cost of course. Unless you’ve sold or given away all your possessions in the U.S. you’re suddenly looking at storage fees back home as well.

Healthcare

Europeans love to boast about their free healthcare, so it genuinely seems to come as a shock to many ex-pats that free healthcare is generally only automatically available to actual citizens of the country.

As an American you won’t qualify for free healthcare initially, if at all, and mandatory healthcare insurance is usually a requirement of a visa to go live in a European country as a non-citizen.

If you’re working there, your employer or the government might cover you, and eventually you might enjoy the comprehensive and fully funded healthcare the natives boast of, but it could take forever. If you’re a retiree ex-pat who‘s’ not working or taking on full citizenship (another complex and expensive procedure) it probably will.

Tax

The U.S. is a rare outlier in that it expects its citizens to file a tax return even if living overseas. (In most countries you just declare that you’re living abroad and stop filing unless and until you return.)

If you’re a U.S. citizen, you’ll probably end up owing tax in the U.S. on any unearned income, which includes investments and pensions, although not usually income earned by working for a foreign company. But it’s complicated. Which means — you guessed it — more expense.

Paying a specialist tax advisor is highly advisable to make sure you’re staying on the right side of the tax authorities both in your adopted country and back in the USA, where Uncle Sam will be waiting for that tax return each year even though you don’t use any of the services that your tax payments fund anymore.

There’s more, to be honest. You may well spend money buying a vehicle, learning the language, taking trips home for family visits and special events, and joining clubs or activities to help you integrate into your new community or make ex-pat friends (a strangely expensive process all by itself).

Believe it or not, this article is not aimed at putting you off if you have your heart set on an ex-pat retirement in Europe. There are big advantages to it, and it really can be more affordable than a U.S. retirement in many ways. But only if you’re fully prepared and aware of all the hidden, and not-so-hidden, costs.

Still interested in the ex-pat life? Talk to a specialist financial advisor and start getting your plan on so you’re not caught unawares.

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