In the age of globalization and mass tourism traveling abroad is nothing special anymore. Most of us vacation at least once a year in a foreign country. Some spend a lot of time overseas on business trips or doing project work. And the number of people who take off several months or even a year to travel the globe is constantly growing. But this is traveling, not global living. To spend many years of your life outside of your home country – either because you choose to or because you are forced to – requires a very different set of preparations. You need to obtain the right to legally enter a country for an extended period and perhaps work there. You need to ensure that you have at least basic health coverage. And you must have access to your money with limited exposure to capital controls, exchange rate fluctuations and excessive credit card fees.
Almost all Westerners have a passport that allows them to travel abroad. However, what happens if your home country revokes your passport. You believe this is impossible or unlikely? Then talk to U.S. citizens who owed just a few dollars in taxes or chat with dissidents in a number of countries around the world. Even if your passport is valid that does not necessarily give you the right to enter a foreign country. In most cases you require a visa that can be denied. People from developing countries that want to enter the USA, Europe or Australia know what I mean. Once a global crisis gets under way it will become more difficult or even impossible for Westerners to travel as freely as we used to.
There are many websites that promote the acquisition of a second passport. Though it is generally a good idea to have a back-up there are a few pitfalls with this solution. Some countries in the Caribbean or other exotic parts of the world allow you to purchase a passport outright for a little “donation” starting at about USD 200,000. Others require you to invest a sizeable amount of money, that is millions of dollars. In many cases you have to spend most of the year in the country offering the passport. Obtaining a second passport is therefore not a very realistic option for the average middle-class family except if you can claim ancestry in a country that offers citizen by descent. A second passport also does not guarantee you the right to enter countries where you want to spend time (except for the country issuing the passport). Think twice before investing a lot of money into obtaining a second passport that might prove not to be useful or necessary.
Another option is to obtain residency status or at least a one-year visa. As with the second passport most countries require a larger investment and/or a longer stay in the country in exchange for residency status. To get a one-year visa with the right to work is comparatively easy if you are young and have the right education and professional background. For the rest of us it is quite difficult except if you are eligible for a retirement visa. This usually requires you to be 50 and above, have sufficient funds to finance your stay and possibly proof of an adequate health insurance. You are also not allowed to work.
Quite a few people try to circumvent long-term visa requirements by entering a country with a tourist visa. Some go for a “visa run” every 3 months or so to renew their tourist visa but recently many “travelers” have been denied reentry and could therefore not recover their belongings and forfeited their rental deposit. Others decide to just stay after their original visa expires. Almost all of them are eventually sent back to their home country and some even end up in jail for overstaying. Both approaches are therefore not recommended.
Many digital nomads have found another way. They just move every 3-6 months to another country. This is great when you are young. But the initial excitement wears off after a few years and most finally settle down somewhere especially if they want to get married and have kids. In summary obtaining the legal right to stay and work in another country can be a big challenge and therefore requires a lot of preparation that is best done well in advance.
Another task for long-term expats is to obtain medical coverage. Most public and private health insurances either don’t cover foreign stays at all or only for a short period. If you travel for several months you can obtain relatively cheap travel insurance. But if you live in a foreign country for a year or longer you need a different solution.
Quite a few expats have been living abroad for many years without any expat health insurance. Some fly back to their home country to use the inexpensive or free public health service there for regular checks and larger operations. This might be fine as long as you are young and don’t have a severe accident. But once you get older the likelihood of getting sick or having an accident increases and you might not have the choice to fly back to your home country. Longer hospital treatments even in developing countries can be quite expensive except if you are willing to stay in a room with another 20 patients and be treated by a doctor who doesn’t speak a word of English. There are regular news reports about Westerners who got stuck in a tropical paradise and even had to go to jail because they couldn’t afford to pay their astonishingly high hospital bills. In some countries you can even die in front of a hospital if your credit card limit is below the expected cost of the medical treatment.
Getting health coverage from a local company or a global expat insurance is affordable if you are young. But exemptions might apply that can prove very costly and once you get older insurance premiums skyrocket. Most people above 60 face problems to pay for expat health insurance and above 80 it is virtually unaffordable except for multi-millionaires. This will become a bigger issue as more and more countries are requiring sufficient health insurance in exchange for a long-term visa.
Deciding on your health care strategy depends on your age, your health history, your family situation, your home country, the country or countries you plan to live in, your assets, your language skills, your risk aversion and many other factors. From our own experience we can assure you that the average insurance consultant does hardly consider any of them. They just want a quick deal to get their high commission. Truly independent advice is important as it can save you tens or even hundreds of thousands of dollars over your lifetime.
Ensuring easy access to your money can also prove to be a major challenge. To use the debit or credit card from your home country is a very expensive option even for short-term traveling. If you stay for a year or longer foreign exchange commissions on normal transactions can end up in the thousands of dollars and cash withdrawals are prohibitively expensive. You also have to be aware of exchange rate fluctuations. Many retirees who have moved to an alleged low-cost country in the developing world but kept their saving in their home country and also relied on a pension from there have experienced this first-hand. If you moved from Australia to Thailand at the beginning of 2010 you could see the Australian Dollar depreciate against the Thai Bath by 31% (that means you lost 31% in purchasing power). The respective rate for the Euro is 30% and the Canadian Dollar 28%. If you had hoped to spend your retirement in style you were in for a nasty surprise. With many Western nations in bad shape don’t expect the situation to reverse within the next couple of years. The only exception is the USD that – being the global reserve currency for the time being – might temporarily appreciate if a crisis strikes only to crash spectacularly at a later stage joining the other fiat currencies in their race for extinction.
In case you already have one or two countries in mind that could become your future home it is wise to open a local bank account there and deposit enough money to last for at least a few months. Even if you never end up living abroad you can still consider the foreign deposit as a currency hedge. Those living in the Euro area and traveling to other continents on a regular basis probably understand. Withdrawing money from your overseas bank account instead of from your EUR account will substantially reduce the cost of traveling if you have deposited your money many years ago. Admittedly, depending on exchange rate developments, you can also lose money with deposits in foreign currency.
Irrespective of whether you ever plan to live abroad it makes sense to open an offshore bank account to have access to money outside of your home country and to hedge against the potential depreciation of your home currency. Look at it as an insurance policy that gives you peace of mind. If your home currency gets stronger and stronger the exchange rate loss is like the premium for a disability, theft or fire insurance that you never claim. If your home currency depreciates a lot your foreign investment will pay off handsomely. And if you ever need to leave your home country because the situation there becomes intolerable having money stashed abroad can be a life changer.
Quite a few banks located in third world countries with instable or corrupt governments are offering offshore accounts. They might be easy to set up but often entail high risks. Fortunately, there are reputable jurisdictions such as Switzerland, Singapore or Hong Kong where respected financial institutions offer such services. But don’t expect it to be easy. Strong banks in safe jurisdictions are very selective. Just filling out their KYC (“Know Your Customer”) forms can present a nightmare and they certainly won’t accept a deposit of just a few thousand dollars. Other banks might have lower requirements but they often also have much weaker balance sheets.
A whole industry has sprung up that is offering second passports, foreign residencies, expat health insurance, and offshore bank accounts. But be warned. Many have no real office, the name of the company as well as the management structure are not disclosed or are even fake and your “consultant” might be a low-paid employee in India or the Philippines who only follows a script. What was supposed to take a few days might take months and they usually come up with new information requests that were previously never mentioned and that you are unable to fulfill. It is not unusual that you pay a lot of money without getting anything in return.
Don’t expect such companies to give you any meaningful advice. Knowing Germany very well we were recently shocked to read the following on one of the many websites: “Germany is widely considered as one of the safest places to save your money in considering the financial stability and the safety protocols that German banks have to offer.” Seems they never heard anything about the Euro crisis, scandals surrounding Deutsche Bank that the International Monetary Fund (IMF) labeled the “most important net contributor to systemic risk” in the world and the very fragile situation of many other banks in Germany. It didn’t come as a surprise that this site also strongly promoted a bank in Belize under “offshore banking services”.
If you want to be on the safe side be prepare to spend a lot of time doing your own research. Alternatively find a trustworthy adviser that is interested in a long-term relationship and not just in a quick commission. In the coming months we will provide detailed reports on various issues mentioned above that will help you with your personal internationalization strategy.
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