How to Retire Abroad
/The number of retired Americans living outside of the country has increased steadily. A growing number of blogs and books about retirees moving abroad offer a window into a life of adventure, cheaper living, and inexpensive healthcare. The top 3 spending concerns of American retirees all relate to health care: long-term care costs, health insurance premiums, and out-of-pocket health care expenses.
While leaving behind family and friends is not for everyone, some people choose to do it at least part-time or for the first years in retirement before Medicare kicks in (at age 65). Whether you are seeking an adventure or the ability to stretch your retirement funds, this guide can help ensure a smooth transition overseas.
Banking logistics for retirees living abroad.
Wherever you decide to live, continue to maintain a bank account in the United States. Deposit any income, such as social security or rental income, into this account and then electronically transfer it to an overseas account. The IRS is concerned about U.S. citizens trying to hide money abroad, therefore if you have more than $10,000 in foreign accounts at any point during the year, you need to report it. The penalty for failure to report is extremely high, so notify your tax preparer to ensure that you comply with the rules.
There aren't foreign equivalents to a 401k or IRA that you can roll your accounts into. Keep your investments in U.S. brokerage firms and manage the investments online.
Managing currency risk when you live abroad.
Your social security and other U.S.-based income will be paid in U.S. dollars, but you may be spending the money in a different currency. Therefore, currency fluctuations can have an effect on your standard of living. Research historical fluctuations of your new currency versus the U.S. dollar to understand what kind of volatility you can expect. You can also choose a country that pegs their currency to the U.S. dollar, or choose a country that uses U.S. dollars as their national currency (or accepts it in addition to their own currency).
Deciding whether to rent versus buy in your new country.
Rent in your new country for at least one or two years to make sure you will be happy there and to get a better handle on the neighborhood you want to settle in. If you decide to buy, you may not be able to obtain a mortgage without earned income. Therefore, be prepared to pay cash and make sure you understand any paperwork you are signing.
Determine visa and residency requirements for long-term stays abroad.
Research the requirements of your new home country since you will need more than just a tourist visa (which typically covers you for 90 days). Some countries have a minimum income requirement to become a permanent resident and others may require you purchase real estate. Panama, for example, requires $1,000 per month in pension income (and social security counts towards this).
Review the Department of State's country-specific info with regards to safety and political stability. I searched for Portugal, a hot destination for tourists and expats, and there were no warnings (see above). This site also provides entry and exit requirements, customs information, and vaccine requirements.
Obtaining health insurance when retiring abroad.
In general, Medicare and Medicaid will not cover you when you are living overseas. Your options are to purchase health insurance in your new country, buy an international health insurance policy, go without insurance, or do a combination of these options. While it sounds crazy for Americans to fathom going without health insurance, healthcare is so affordable in many places that it may make sense to pay out of pocket. Here is a good read from International Living about healthcare in Costa Rica. The article gives an overview of your options and shares the experiences of other expats. Liz Weston recently wrote about healthcare costs for expats in Panama and France. Every country is unique - diligently research the costs and requirements to obtain healthcare in your new country before moving.
Even though you are not utilizing Medicare while overseas, sign up at age 65 in the event you return to the U.S. to visit family or friends. If you wait and decide to move back, you will pay a penalty for late enrollment. For Medicare Part B, the premium increases 10% for every year that you could have been enrolled.
How the tax and estate system works for U.S. citizens living abroad.
The taxes you pay are based on citizenship, not residency, therefore you will still be subject to U.S. tax laws and required to file an annual return. You may also need to file a return in your new country, but many places have tax treaties in place to help you avoid paying tax twice. This can get complicated, so work with a tax preparer that specializes in expats.
Estate planning also needs to be reviewed when you move abroad. Again, you are subject to the U.S. estate laws, but your new country will have its own rules that need to be planned for. The non-profit AmericansAbroad.org has resources such as professionals that can help with tax preparation, estate planning documents and banking while living abroad.
The emotional factors to consider before moving abroad.
While retiring abroad offers a sense of adventure and may, in fact, be cheaper, it is not uncommon for people to become homesick after a few years. They miss family, friends, or the convenience of living in the states. This summary of about a dozen retirees that moved abroad a few years ago is a great read because it shares why some people moved back versus others that decided to stay put in New Zealand, Costa Rica, Peru, France, and more.
Retiring abroad is not a decision to take lightly. Build flexibility into your plan to make it easier for you to transition back home if you decide it isn't for you. As with all financial decisions, proper planning can help you avoid costly mistakes and focus on enjoying your retirement years.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.