Retirement abroad should be an exciting adventure, but it can carry risks too, especially to your finances. Here is what you need to know about currency when you retire abroad.
There is little doubt that money matters more when you retire. With no chance to earn it back if you lose it, while being on a fixed income for an unknowable length of time, staying in control and careful with your money in retirement will be essential to most retirees’ peace of mind.
When your money is coming from one currency but being spent in another, things get more complicated and inherently less stable. For those who retired abroad before either the financial crisis in 2008, or the Brexit vote of 2016, just for two examples, the subsequent weakening of the pound against the euro meant they had to get used to an income in euros well below what they may have budgeted for.
There can be good news too. The British government upgrades pensions paid to British retirees in Europe according to the ‘triple lock’, which for 2024 look like being at least 7.8%. Yet inflation in Spain is just around 3% and in France 4.3%, so in real terms the pension income of people retiring to those countries next year has risen.
Buying property to retire abroad
For most retirees, their home is their biggest nest egg. So, when they move abroad and sell the family home, getting that money abroad safely is priority number one.
There are three main issues when it comes to an international property transaction. The first is the rate you’ll get for such a large transaction. So long as you avoid the high street banks and stick with an FX specialist like Smart Currency, you’ll get an excellent rate.
The second issue is the safety of such a transaction. A UK-based and authorised company like Smart Currency, a specialist in property transactions for 20 years, with your trader available on the phone in case of any last-minute hitches, will offer considerably more peace of mind than an online only service.
Thirdly, and potentially the biggest risk, is that of the pound to euro rate falling calamitously during the buying process. For example, anyone agreeing a property purchase in August 2022 would have been budgeting for a rate of around €1.18. However, the pound then fell and spent much of the next six months at below €1.14, meaning their property cost much more. Indeed if you agreed to buy a €200,000 property at 1.18 but had to subsequently complete the purchase at 1.14 you would have to find an extra £6,000 on the day.
The good news is that with Smart Currency you can lock in your rate with a forward contract when you shake on a deal, and know that when you complete that you can do so at the same exchange rate.
Your pension abroad
Having safely moved abroad, you need to get your pension there too.
Most European countries that require a visa from ‘third-country’ citizens (British, Americans etc) have a retirement visa. Bear in mind that there will be a minimum income requirement, and this can be quite steep. To retire to Spain on a ‘non-lucrative’ visa you will need around €23,000 income per year: a bit less to most other countries.
Your state pension can generally be paid into a foreign bank account directly. Just provide the International Pension Centre with your international bank account number (IBAN) and bank identification code (BIC) numbers if you have an overseas account and you’ll be paid in the local currency.
It’s more complicated if you have a private pension or have your wealth in investment income or even rental income from a UK property. Your trader at Smart will be able to work out a transfer solution for you, so you receive your money promptly.
You can even fix the exchange rate for the year ahead with a forward contract. Then, if you receive, for example £2,000 per month in sterling you will be transferred the same amount in euros each month, even if the pound weakens.
That all makes budgeting for living costs abroad so much easier.
Paying bills abroad
If you have to pay bills or other regular payments in a different currency when you retire, to avoid the hassle and risk of getting a poor exchange rate on ad hoc payments, talk to Smart Currency about getting a regular payment plan (RPP).
There is also a risk that, in the confusion of setting up home abroad and settling into your retirement, that vital payments get missed. An RPP should avoid that.
Your retirement in the sun should be exciting and active, but above all, solvent. So to ensure you get the best rates for your currency when you retire abroad, the most stable budget and avoid expensive mistakes, do talk to your trader at Smart Currency.
