I am retiring abroad – what should I do?

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Many Canadians decide to spend their retirement years in another country. Retiring abroad is not as simple as booking plane tickets; planning to spend all or part of this time abroad can be complicated from both a financial and a personal perspective. Some of the key factors to consider are discussed below.

Tax Planning

The length of time that an individual spends outside of Canada has implications for the way in which their tax return must be filed. Canadians living abroad may still have to pay Canadian and provincial or territorial income taxes. It is important to determine residency status and applicable income tax rules prior to retiring abroad.

Residency status depends on a number of factors:

Why and how long a person spends outside of Canada;
How often and for how long a person returns to Canada;
Residential and social ties established in the new country; and
Residential and social ties to Canada

These factors will determine whether a retiree is considered a resident or non-resident of Canada for income tax purposes. Find additional information about the categories of residency status here. Or contact a TEP to discuss how these rules apply to your specific situation.

Medical Care

Retiring outside of Canada may impact medical coverage from a provincial or territorial health plan. Generally, provincial and territorial plans will only cover a limited number of costs associated with emergency health services received while living temporarily outside of Canada. Treatments must be medically necessary, provided at a licensed hospital or health facility, and for an acute illness or injury that is medically necessary and not pre-existing.

To plan for retirement abroad, it is helpful to consult the guides published by the applicable provincial or territorial health plan regarding medical coverage outside of Canada. It will likely be necessary to purchase additional medical coverage.

Financial Planning

It is important to speak with a financial professional to plan for all contingencies associated with living and retiring abroad. Useful first steps include opening a foreign bank account in the host country and advising Canadian banks and credit card companies of living abroad.

Retiring abroad poses a number of challenges and can be risky if not planned properly.

For further information or help planning a retirement abroad, please consult a TEP.

Preparing for retirement

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The prospect of retirement is exciting but planning for it requires making important decisions in order to ensure that retirement is fulfilling and free of worries. Ensure that you are fully prepared for this significant stage of your life by considering the following.

Determine how much money you need for retirement

The amount of money you will need to save depends on the ways in which you plan to spend your retirement. Some important factors to consider include:

  • Travel plans
  • Hobbies
  • Age at retirement
  • Supporting children or grandchildren
  • Place of living
  • Outstanding debts
  • Other dependents

Familiarize yourself with sources of retirement income

 There are a variety of income sources available to retiring Canadians. Some of the most common include:

  1. Canada Pension Plan (CPP): This pension provides individuals and their families with partial replacement of earnings in certain situations, with retirement being one of them. Almost all individuals who work in Canada (with the exception of residents of Québec) contribute to the CPP. The amount paid as a CPP benefit is dependent on how much and for how long a person has contributed to the CPP.
  1. Old Age Security (OAS) Pension: OAS is a monthly benefit for Canadian citizens and residents over the age of 65. Canadians over the age of 65 are entitled to OAS regardless of whether they are currently employed, were employed in the past, or have never been employed. Eligibility for OAS is dependent on the length of time during which a person has lived in Canada.
  1. Pension from Employment: Some employers provide for a defined benefit or a defined contribution pension plan which will be paid out on retirement. Contact your employer for further details specific to your plan.
  1. Personal Retirement Savings and Investments: You may have other source of income that you can rely on during your retirement. Two common sources of retirement income include Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).

This list is not exhaustive, and there are many other sources of income for retiring Canadians. Please consult a TEP for further information.

Create a Budget

Creating a budget is vital to retirement planning – as is following the budget during retirement. Having a plan to manage money can help balance income with everyday expenses and guide spending. In addition, as someone retires, their expenses change. For example, while a person may no longer spend money on commuting to and from work, or their residence may be paid off, they may spend additional money on interests and hobbies, travel, or supporting dependents.

How long someone lives will also impact how much money they will need for retirement. Statistics indicate that people live longer than in the past. As such, new retirees are advised to budget for at least 30 years of retirement.

Pay outstanding debts

As sources of income are less flexible once a person is retired, it is important to ensure that retirement income stretches as far and as long as possible. As such, it is important to clear as many outstanding debts as possible. Such debts may include credit card bills, mortgage payments, lines of credit, etc. Even if it is not possible to clear the debts entirely, lowering the amounts owed is prudent when planning for retirement.

Deciding when to retire

Deciding when to retire is a significant decision. It is important to have a basic idea of how long someone will be retired in order to plan accordingly and ensure that there is enough money to support the retiree throughout the entire duration of retirement.

In deciding when to retire, some factors to consider include:

  • Desired lifestyle
  • Spouse’s retirement plans
  • Health and spouse’s health
  • Current financial obligations and living expenses

For further information, or assistance in preparing for retirement, please consult a TEP.