You may be surprised to learn the two biggest expenses often faced by expats. Most of us think of rent. Or food and entertainment. Or taxes maybe.
But in my experience, many expats spend more on two other expenses. These two expenses rarely show up in cost summaries for destinations abroad, and they rarely seem like a big deal when planning to retire overseas.
What expenses am I thinking of? Trips back to the United States and U.S. health insurance.
We recently heard from a Seattle couple planning to retire to a tropical climate. They're on a budget and are thinking of Ecuador, which they know to be a good low-cost choice. They're interested in Ecuador rather than a tropical destination in Southeast Asia (which could be an even more affordable option than Ecuador) because they want to be closer to "home." They plan to make "frequent" trips back to Seattle.
I told them to forget about saving money. If they make frequent trips to Seattle, their cost of living, all in, after moving to Ecuador will almost certainly exceed what they spend now.
Let's run some numbers for this couple. A quick check on Expedia shows fares from Guayaquil, Ecuador, to Seattle at about $1,300, or $2,600 for two. Those are the deep-discount, advance-purchase, come-hell-or-high-water fares, non-refundable, non-changeable. In many cases, the couple will have to pay more.
But airfares are only the beginning. The couple will have to get from their overseas home to Guayaquil, in a bus, car, or taxi, maybe spending a night in a hotel. Once in Seattle they may need a hotel, too, and a rental car. They'll need presents for the grandchildren, and they'll want to have dinners out with family, including a few splurges.
We have to make some guesses, about total trip costs and what the word "frequent" means. For the sake of argument, let's put the trip costs at $5,000 per and figure on three trips a year. That totals $15,000, easily more than the couple might spend annually on rent, food and entertainment, or any other cost category living in Ecuador.
The couple faces a second major expense, too -- health insurance back in the United States. Many expats keep their U.S. insurance just in case, especially if they plan to visit the United States from time to time. Let's say U.S. health insurance for a couple in their 50s comes to $500 each per month, or $1,000 monthly for the two of them. In addition, they'll have to come up with co-pays, deductibles and other health-related out-of-pocket costs.
Again, we're making assumptions, but it's easy to imagine this couple's medical costs associated with their time in the United States exceeding $15,000 a year.
Those medical costs will likely go up under Obamacare. Insurance companies already predict big increases, especially for individuals (as opposed to groups). And Obamacare requires minimum standards of coverage, co-pays, deductibles and so on, depending on the plan you choose. The low-cost, high-deductible plan that costs only $500 a month might disappear.
Note that we're assuming this couple of retirees is younger than 65. After age 65 most Americans would be covered by Medicare during trips back to the United States. (Medicare doesn't cover medical costs overseas, but I recommend keeping it even if you do retire overseas as a back-up.)
What's the bottom line of all this? Every year our Seattle couple might spend $15,000 or more on travel to the United States, plus $15,000 or more on U.S. health insurance (at least until they reach Medicare age). They could easily find that these costs, $30,000 in total, exceed the cost savings of moving to Ecuador in the first place.
So what to do? Expats and retirees overseas can easily get around these two big costs by skipping those trips back home and by opting for medical care abroad, which can be significantly, dramatically less expensive than coverage in the States.
We know retired expats on strict budgets who do exactly that.
Many of us, though, want the freedom to travel back to the United States to see the grandkids, attend a wedding or two, visit the old neighborhood and friends, whatever. In that case we should be realistic about what we'll spend on travel and, if we're under age 65, on health insurance. Otherwise, travel to the States and health insurance while in the United States could easily be the two biggest costs in an overseas retirement.
This isn't a reason not to retire overseas. It's a caution to help with your retire overseas budget planning.