“What will you do about healthcare in early retirement?”
“I’ll just move to a country that has it all figured out.”
“Are you sure your nest egg is large enough?”
“Yep. I’m going to move to a country with a much lower cost of living and live like a king there.”
“What will you do if there is an economic downturn that decimates your stash?”
“Oh I’ll just move to Thailand and ride it out there.”
When I hear folks make off-handed remarks about moving to a different country as part of their FIRE plan, it makes me cringe. Moving to a different country is a very Big Fucking Deal. I know because I’ve done it. I come from a family of immigrants – I migrated to the U.S., my parents took flight and landed in Botswana, my only sister wandered off and eventually put down roots in the Netherlands. So when I say that migrating to a new country is a BFD, I know what I’m talking about.
Nation-hopping can be a great way to get to FIRE faster. It can be a fantastic way to improve your quality of life. It will almost definitely broaden your mind. I’ve already done it once, and I hope to do it at least once more in my lifetime.
So by all means, emigrate. Just make sure you have an actual plan, and not just a wish in your heart and a song on your lips. When you finally leave the nest, wouldn’t it be nice to soar and not land with a loud, undignified bump? If you hear the call of foreign lands in your soul, this post is for you. It lays out a framework of things to consider and plan for before you take flight.
How Will You Get In?
The first thing to consider is how you plan to enter the country of your choice. A visitor’s visa won’t cut it for long term stay. The choices come down to:
- A work permit, for which you typically need an employer who is willing to sponsor you. Nearly every country has this class of visa.
- A non-lucrative residency visa. Not all countries offer this class of visa. Example countries that do include Portugal and Spain. This sort of visa allows you to establish residency in the country as long as you can prove you have enough assets to support yourself, and, in some cases, as long as you promise not to work (i.e. take a job from a local) while you are on this visa.
- Golden visas. Some countries allow you to buy your way into the country. If you can afford to pay for a so-called golden visa you are typically granted permanent resident status in the country, and sometimes an accelerated path to citizenship. America offers a golden visa program: the EB-5 visa offers permanent resident status to a foreign investor “ if they invest $500,000 in projects that create at least 10 jobs in rural regions or areas with high unemployment. They can also become eligible by investing $1 million in projects in other areas.”
- Special treaties between countries. e.g. if you are American and want to move to the Netherlands you could take advantage of the Dutch American Friendship Treaty to get a visa if you are self-employed and are willing to invest 4,500 euros in a business of your choice.
How Will You Stay There Long Term?
Barring the Golden Visa, most other long-stay visas have a finite timeline, so you need to figure out the residency requirements of the country. How long do you have to stay there to apply for permanent resident status? Do you plan to apply for citizenship? How long after becoming a permanent resident can you can apply for citizenship? Is length of stay the only criterion or do they have other conditions that you must meet? For example, some countries will require you to prove basic proficiency in the local language by taking written and oral tests before they will grant you citizenship.
If you don’t intend to give up your current citizenship, you need to verify that both your current country and future country approve of dual or multiple citizenship. For example, India does not allow for dual citizenship with another country – you have to renounce your citizenship if you acquire another.
What Benefits Apply To You
Just because a country is known for its fantastic social benefits, don’t assume that you will be eligible to partake in the feast as soon as you set foot in the country. Find out what benefits will apply based on the kind of visa you have. Some benefits may require that you pay into them. For example, if you move to the Netherlands you will be required to pay into the health system whether or not you have a job.
Before you lose your heart to some romantic destination, take a long hard look at their tax code.
First, establish that there is a tax treaty between that country and your current country – the last thing you need to do is pay double taxes. If there is a tax treaty, it will typically allow you to deduct taxes paid in country A from taxes owed to country B. This is especially applicable to permanent residents and citizens of the United States – the U.S. is one of very few countries in the world that taxes its citizens no matter where they live.
Then pay attention to the local tax laws. They may be very different than what you are used to. I’ll use the Netherlands as an example. The Dutch have a wealth tax, and if you are tax resident, it applies to your worldwide assets. How does it work?
- The first 25,000 euros of your invested assets are exempt.
- For assets between 25,000 and 100,000, the government will assume that you are getting a 2.85% return. They will charge you 30% income tax on that fictional return.
- Assets from 100,000 to 1,000,000 are assumed to yield a return of 4.6%, again taxed at 30%.
- Assets above 1,000,0000 euros are assumed to yield a whopping 5.39%, again taxed at 30%.
e.g. if you have investments of 1,150,000 euros, 25,000 euros will be tax exempt and the rest of your stash will be taxed annually as follows:
- 2.87% * 75,000 = 2,613
- 4.6% * 900,000 = 41,400
- 5.39% * 150,000 = 8,085
- Therefore, tax owed = 30% * (2,613 + 41,400 + 8,085) = 15,630 euros.
When you do eventually sell your investments to generate income there is no long term capital gains tax.
Weirdly different from the U.S. right? This was an example of how you can be completely blindsided by very different taxation laws if you don’t do your homework before planning a move.
In addition to the actual tax laws of that country, you will need to dig to find out what treaties exist for special treatment of retirement accounts. Again, using the Netherlands as an example: the Dutch recognize the American 401k as ‘special’ – the money in your 401k is exempt from the tax computations above – it is taxed only on withdrawal. However, Roth IRAs have no such special status – so that juicy tax-exempt Roth account suddenly resembles a sad old raisin.
If you were planning to retire in the U.S. and execute an aggressive Roth Conversion Ladder, you might have to rethink that strategy depending on how various U.S. retirement accounts are treated in your country of choice.
If you have kids, make sure you research schooling laws and expenses in your destination country. e.g. if you fantasize about home-schooling your child and being able to travel at will, it would be important to note that many countries consider home-schooling illegal. Examples include Brazil and Germany.
Do you have a fuzzy friend who will not have shuffled off this mortal coil before your planned move? Beware – some countries have very strict quarantine laws. You may not be allowed to bring a pet in, or if you are, you have to make your peace with them being separated from you for an extended period of time.
Will You Truly Live Like a King?
If you are moving to a place with a much lower cost of living with the expectation of living like royalty, I have a few words of caution for you.
There are many places where you can live like a king if you are willing to live like an affluent local. If, on the other hand, you try to duplicate the lifestyle of your homeland, you are likely to find that your money doesn’t stretch that far.
Every country has things that are really cheap and other things that will break the bank. You have to be willing to adapt to the country. Imagine if I had insisted on duplicating my life in India when I moved to the U.S. In India I had a maid come to my house every day for an hour or two. She hand washed my clothes and dishes, swept and swabbed the house, dusted, and cut vegetables. When I had to fill gas in my car, I never exited the vehicle – there was someone whose job it was to do that for me (and fill air in my tyres while they were at it). If I needed groceries at say 8 at night on a Saturday, I could ask the watchman of my building to go get me some, and I’d have to tip him less than a dollar to do so. I had access to tailors to custom fit my clothes. I earn way more in the U.S. than I ever did back home, but had I tried to duplicate my life, I would be broke.
Perhaps you can hire help really cheap and said help would wash your dishes. If on the other hand you insist on purchasing and installing a dishwasher, you could end up paying through your nose. If you were determined to have access garbage disposal in your sink irrespective of your geographical location, you are going to be a sad panda. You could probably feast day in and out on the local cuisine, but attempt to gorge on peanut butter and jelly sandwiches, and your grocery bill could go through the roof.
Go Plant Your Flag
If you were fantasizing about distant beaches, or old cobbled European towns, I hope I haven’t rained on your parade. My intent is not to dissuade you from going forth and planting your flag in foreign soil. Doing so is a wonderful adventure. You will grow as a person, and much like the Grinch, your heart will likely grow three sizes. My intent is to force you to think about the practicalities of the move, so that you can convert your fantasy into an actual plan, one that is likely to succeed.