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Retirement Planning • November 08, 2024

How the Cost of Living Can Impact Your Retirement

Hoxton Blog • How the Cost of Living Can Impact Your Retirement

  • Retirement Planning
  • Financial Planning
  • Estate Planning

Retirement is a huge milestone. It’s a phase of life that many look forward to for years, but it also brings new financial challenges. For people who’ve spent time as expats and have assets in various countries, the decision of where to retire is one of the most important aspects of your retirement plan. Not least because the cost of living can vary drastically from place to place.

While retiring abroad can offer new experiences and potentially a lower cost of living, it's essential to thoroughly understand how different costs will affect your retirement savings and lifestyle.

In this article, we explore how the cost of living varies across different countries, how it evolves with different life stages, and the key expenses that you should consider when planning your retirement abroad.

What is the ‘Cost of Living’?

This term gets thrown around a lot, particularly in recent years when many countries have seen drastic increases in living costs as a result of high inflation. The term ‘cost of living’ refers to the amount of money required to maintain a certain standard of living in a specific location. 

It includes everything from daily necessities like groceries and utilities to larger, less frequent expenses like healthcare and property. It’s important to understand that when the term is used by the media or by governments when presenting data such as inflation, this refers to average figures which are designed to reflect the country as a whole.

For families and individuals, your own personal cost of living and the way it changes over time will be different based on where you spend your money. For example, a large increase in the cost of housing won’t impact you if you own your home outright.

For retirees, understanding the cost of living in a new country is vital, as it directly impacts how far your retirement savings will stretch. The cost of living typically includes:

  • Housing - Rent, council or property taxes, and maintenance costs if you own your home.
  • Food - The price of groceries and dining out.
  • Utilities - Bills such as electricity, water, heating, and internet.
  • Transportation - The cost of getting around, whether by car, public transport, or other means.
  • Healthcare - Medical insurance, medications, and regular check-ups.
  • Entertainment - Activities, hobbies, dining out, and other leisure activities.

When you’re planning for retirement, you must carefully calculate how these expenses will add up based on the country or city you’re considering. 

How Cost of Living Changes With Your Life Stage

As you move through different stages of life, your cost of living changes. In your working years, you might prioritize expenses related to career development, family needs, and saving for the future. However, in retirement, your cost of living typically shifts to focus on healthcare, leisure, and maintaining your home. 

While some costs might decrease (like paying for a commute or funding your kids), others can increase significantly as you age. This is why it’s essential to plan for the changes in spending that will occur in your retirement years. 

For example, healthcare tends to become a much larger part of the budget, especially if you plan to retire in a country without a public healthcare system. Property and maintenance costs may also change depending on where you decide to retire.

Country Cost of Living Variations

When deciding whether to retire abroad, cost of living is likely to be one of your biggest considerations. Some places, particularly in Western Europe and North America, are known for high living costs, while others in Southeast Asia or parts of South America can offer a more affordable lifestyle. 

Below we’ve listed some examples, with average costs for common expenses from comparison site Numbeo, and listed in US dollars.

Expensive Locations

High cost of living locations are usually expensive for a reason. They will often provide a very high standard of living, access to high quality services, many amenities and leisure opportunities, and generally relative safety and security.

Some popular places that fit into this category include:

  • Dubai, United Arab Emirates

    The cost of living in Dubai is relatively high, though this is partially offset by the tax-free lifestyle. Housing, transportation, and healthcare costs can be significant, with the average cost of living higher than many European cities.

    • Cappuccino: US$6.13
    • Internet: $101 per month
    • Gym membership: $80  per month
    • 3-bed central apartment rent: $4,070 per month

  • Sydney, Australia

    Australia is another popular retirement destination but comes with high living costs, especially in major cities like Sydney and Melbourne. Property prices and healthcare expenses add a significant figure to the cost of living in Australia, and it can quickly eat into your retirement savings.

    • Cappuccino: $3.52
    • Internet: $53 per month
    • Gym membership: $61 per month
    • 3-bed central apartment rent: $4,183 per month

More Affordable Locations

For those who want their retirement savings to go further, there are many destinations that can cater for that. While lower cost of living can sometimes mean lower levels of development, there are many expat communities and private facilities (such as healthcare) that cater towards retirees.

Some popular options include:

  • Portugal

    A popular choice for British retirees, Portugal offers a lower cost of living while still providing a high standard of healthcare and a relaxed lifestyle. Cities like Lisbon are more affordable compared to major UK cities.

    • Cappuccino: $2.64
    • Internet: $41 per month
    • Gym membership: $43 per month
    • 3-bed central apartment rent: $2,886 per month

  • Thailand

    For those looking for even lower costs, Thailand offers retirees a tropical climate and a low cost of living. Healthcare is affordable, and property prices in certain regions can be much cheaper than in Western countries.

    • Cappuccino: $2.43
    • Internet: $16 per month
    • Gym membership: $57 per month
    • 3-bed central apartment rent: $1,808 per month

Key Living Costs for Retirement Planning

There are several key cost of living expenses you’ll need to factor into your retirement planning. Some of these costs are more prominent in retirement, and they can have a major impact on how much you’ll need to live comfortably.

Property

Whether you’re renting or buying, property costs will likely be one of your biggest expenses. If you’re retiring abroad, research property prices, taxes, and maintenance costs in the area. You should also consider whether you plan to downsize or relocate to a less expensive region to stretch your retirement budget.

Entertainment and Lifestyle

You’ll likely have more time for leisure activities once you retire, so it’s important to budget for this part of your life. Whether it’s traveling, dining out, or pursuing hobbies, lifestyle expenses can add up. Different countries offer varying costs of entertainment, so take this into account when choosing a retirement destination.

Healthcare

One of the most important costs to consider in retirement is healthcare. In many countries, particularly outside the UK, you’ll need private health insurance to cover medical expenses. Countries like the USA can have high healthcare costs, which can have a major impact on the viability of your retirement plan.

Travel ‘home’

Remember to take into account the fact that you may have to travel back to your home country, especially if you have family and friends still there. While Thailand, for example, can offer lower cost of living than places in Western Europe or the Gulf Coast, it will also be much more time consuming and expensive to travel to places like the UK or US.

How the Cost of Living Affects Your Retirement Plan

All of these considerations and discussions aren’t just academic. Picking the place you’re going to retire, and the cost of living that comes with it, is the most influential choice when considering the lifestyle you’re going to be able to afford.

As a result, when planning for retirement, your strategy should include a comprehensive understanding of the cost of living in your chosen location. Here are a few tips to keep in mind:

  • 1Create a detailed budget

    Use retirement planning tools, such as the Hoxton Wealth App, to calculate how your income, pensions, and investments will cover the cost of living in your chosen destination.

  • 2Consider investments and savings

    Make sure your investment portfolio is aligned with your retirement goals. Holding assets in a different country than the one you plan to retire to can introduce substantial extra risk in the form of currency movements. 

    If you’re not sure how to adjust your investments for retirement, the Hoxton Wealth team can help you review your options, whether it’s growing your portfolio through global investments or setting up retirement accounts.

  • 3Understand the impact on your UK State Pension

    For those retiring from the UK but retiring outside of the UK, it’s important to understand how your UK state pension will be affected by living abroad.

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Breaking Down the Retirement Dilemma

The cost of living can have a major impact on your retirement plans, particularly if you’re considering retiring outside of the UK. By understanding the variations in living costs across different countries and carefully calculating your property, healthcare, and lifestyle expenses, you can better prepare for the future. 

But before you even get to that part, you need to understand what you want your retirement to look like. Hoxton Wealth’s can help with all of it, with our holistic financial planning services tailored to help you identify and achieve your goals, no matter how complex your circumstances.

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Hoxton Wealth

November 08, 2024

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