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How to make a budget warm your soul. Retire abroad to the sun.

by:
Laurie Campbell

Has this season's brutal weather in Canada left your retired grandpa and grandma wishing a pox on Old Man Winter? Or maybe you yourself are a retired - or soon to be retired - person who is so fed up with the chills that you'd like to move and live outside of Canada altogether, enjoying a warm sun some place much closer to the equator.

But wait, you're thinking that would cost too much. Think again.

If you're an elder with an adventurous spirit, perhaps you ought to consider how to track your spending - and how you make a budget work for you - based on the cost of living in places such as Mexico, Costa Rica, Thailand, and other international destinations with mild climates. In the process, you will likely discover what a lot of financial analysts are saying these days. You can retire abroad quite comfortably on $2,000 or less a month depending on whether you rent or buy. It's a figure that can include receiving monthly Old Age Security (OAS) and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits. Yes, folks, they can come to you even as you live outside the country.

Of course, other factors must be considered before making the move. Health insurance, for instance, is hugely important to seniors. As a CAA Travel Insurance specialist told the Globe and Mail not so long ago, "many insurers do sell (insurance) catering to Canadians who live abroad during retirement that insure for costs in excess of what would be covered under their provincial health insurance plan when outside of the country." The price of travel insurance - averaging less than $6.50 a day for a healthy 65 year old - represents only a small fraction of the potentially astronomical medical costs that might arise and put you over your budget. Simply put, travel insurance is a must to avoid financial trouble should emergency medical treatment be required in another country.

The Globe and Mail noted that for seniors abroad to maintain their provincial health insurance plan coverage, "the maximum allowable time outside the country is 212 days for Ontario residents, and 183 days for most other provinces unless they've obtained special authorization from their provincial health insurance plan, in which case the maximum allowable would be up to 365 days." That means grandpa and grandma would have to return home to Canada at least once a year. But in any event that shouldn't be seen as a burden for seniors who want to enjoy at least one occasion annually for face time with their kids and grandkids. The bottom line in relation to health insurance costs is, expect to add about $198 each month when you make a budget while  living abroad.

Taxes and other financial considerations also come into play for retirees living outside of Canada.  Rod Burylo, an Axcess Capital Advisors specialist in international retirement, told the Globe and Mail that, "Canadians are not taxed based on citizenship, but residency. That means retirees who live abroad full-time can take themselves out of the Canadian tax system and - local legislation permitting - be subject to the tax laws of their adopted retirement home." But Burylo's words come with some cautionary advice. He notes that "many developing countries lack the resources to collect taxes on foreign-source income, so they compensate by imposing high consumption taxes or import duties ... Make sure you take into account all taxes, duties and fees, as well as the withholding taxes you will pay on income originating in Canada."

The federal government explains that "Canadian pension and benefit payments could be subject to two different taxes depending on your country of residence and your net world income ... Monthly Old Age Security (OAS) and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) pensions and benefits may be subject to a Canadian income tax called the "non-resident tax". The tax rate is 25 per cent unless reduced or exempted by a tax treaty between Canada and your country of residence. The non-resident tax will be deducted from your benefit payments."  Read more information from the federal government on Canadian government payments  here.

Banking while living abroad is another issue. CAA's travel insurance specialist says "that many retirees are shocked to learn that their financial institution will no longer heed their instruction once they relinquish Canadian residency. It's critical for retirees to understand their bank or financial management firm's policies before departing." CAA strongly urges retirees to shelter funds in Canadian banks rather than in foreign accounts.

From our perspective at Credit Canada Debt Solutions, smart planning should frame all hopes for retiring abroad. To this end, wise souls will find themselves an accountant who specializes in international tax law and who works closely with a financial planner to cover all bases. For those still looking far ahead to retiring outside of Canada, today could be the time to take a very close look at personal debt management and possibly how to make a budget and track your spending. To these ends, our financial coaches and credit counselling services here at Credit Canada can be of great assistance.

Perhaps the biggest concerns about retiring abroad have to do with the shift in culture and the distance that is put between loved ones. Grandpa and grandma have to really think about living in a place that will be quite unlike Canada not only in terms of climate, but in terms of customs, services, and general surroundings where other family members are physically far away.

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