The benefits of retiring abroad

One rule of thumb holds that households should plan to spend about 70-80 percent of their pre-retirement incomes after retirement begins.

In fact, many advisors build this assumption into their retirement needs analysis models.

However, the world keeps changing, and for some clients you may want to point out new realities that can increase retirement budgeting flexibility:

• In the United States, retirement keeps getting more expensive as the costs faced by retirees rise at a faster rate than the Consumer Price Index. To review recent proof, see “Show clients why retirement inflation is not dead“:

• The U.S. dollar is on a roll against almost all foreign currencies. In 2015 alone, through the end of October, the dollar increased 10 percent against the euro, 12 percent against the Mexican peso, and 14.5 percent against the Australian dollar.

These trends have created a growing gap in the retirement cost-of-living in the U.S. relative to attractive options overseas. If your clients are interested in spending all or part of retirement years abroad, you may want to help them by doing the following:

1. estimating potential cost savings

2. comparing quality-of-life considerations in the U.S. vs. abroad

3. factoring lower living costs abroad into long-term planning assumptions. The free cost-of-living comparison calculators at Numbeo.com are useful tools for this purpose.

For example, Valencia is the third largest city in Spain, near the Mediterranean, with an attractive year-round climate. Using Numbeo calculator, let’s compare costs-of-living there to those in Chicago, the third largest city in the U.S.

The cost of rental apartments in Valencia is 71 percent lower than in Chicago. The cost of groceries is 46 percent lower, and restaurant prices are 32 percent lower. Overall, Valencia’s cost-of-living is about half Chicago’s.

What about the quality of life?