Think you could save money and live better by becoming an expat? Maybe. Many retirees with means are moving to cities like Buenos Aires, Argentina, or countries like Costa Rica and Panama with the belief that their money will go further, and often, it does. But sometimes considering only the big costs such as buying a house or obtaining health care won't give you the full financial picture. There could be some surprising pitfalls if you don't know the bureaucracy, taxes and process for buying property or starting a business.
Bloomberg identified some hidden financial risks for expats. Here are four to investigate and understand before making the move:
- Currency risk. Expats who put all their money in the local currency will be vulnerable to fluctuation. For example, the dollar lost nearly half its value against the euro from 2000 to 2008. In just three months in 2011, it lost 11 percent. It's better to keep at least six months of living expenses in the local currency and some in your native currency, especially if inflation is higher abroad.
- Foreign banking. When Congress passed the Foreign Account Tax Compliance Act in the wake of its investigation into Swiss banking accounts, additional regulatory requirements have caused many foreign banks to become reluctant to do business with foreigners.
- Taxes. The U.S. levies income tax on all American citizens, no matter where they live. Consequently, you could be on the hook for U.S. taxes as well as the country you choose to call home. Every country is different, but it's worth knowing what you'll be paying when you factor your cost of living.
- Bureaucracy. Again, every country has different rules and regulations, and it's more onerous and expensive in some than others. The costs and headaches abroad for everything from renovating a home to obtaining a driver's license could be potential roadblocks.
The best advice for expats is to give the new country a trial run to test the waters. Once you've spent a few months actually living abroad, you'll have a better idea of what to expect before you invest your money more permanently.
Keep up with your wealth and follow me on Twitter.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.