Five considerations for retiring abroad
Here are five things to think about and plan for if you’re considering retiring overseas.
1. Residency requirements: Every nation has its own residency requirements, but many countries have been relaxing theirs to attract more expats. For example, Belize offers residency to U.S. citizens who are 45 years of age or older and have retirement income of at least $2,000 per month, while Panama only requires a valid U.S. passport and retirement income of $1,000 per month. Portugal, Italy, Greece, France and Spain offer generous retirement visas with modest income requirements.
2. Healthcare options: Medicare generally doesn’t cover medical care delivered outside the U.S., so it’s critical to figure out how you’ll pay for healthcare if you retire abroad. One option is to simply pay out of pocket for medical expenses, especially if costs are relatively low where you move. You could also purchase a hospital insurance plan that covers all healthcare provided at a specific hospital, or an international policy that offers broader coverage, including access to more doctors and hospitals.
Tubongbanua says you can qualify for government-sponsored healthcare in countries that offer it once you have established residency there. “This is one thing that’s attracting many retirees to Europe right now,” she says. “However, I encourage clients to retain Medicare in case they ever move back to the U.S. or want to come back here for a major procedure.”
3. Financial accounts: Tubongbanua recommends maintaining bank accounts both in the U.S. and the country where you retire. “This way, you can have Social Security and other retirement distributions direct deposited into your U.S. bank account and use your local account to pay your bills,” she says. Keep in mind that some countries require expats to open a local bank account to establish residency. Also, the Foreign Account Tax Compliance Act (FATCA) requires foreign banks to report assets held by certain U.S. citizens to the IRS.
4. Buying vs. renting a home: It’s usually wise to rent instead of buy a home when first moving to a new country so you can get a feel for the new area before making a long-term commitment. Also, overseas real estate tends to be more expensive and more difficult to buy. That’s why Tubongbanua stresses working with a local expert if you plan to purchase a home overseas. “Home ownership is very different in most other countries than it is here,” she says.
5. Navigating taxes: As long as you retain your U.S. citizenship, you must pay federal taxes (and perhaps taxes to your former state) even if you retire overseas. The Foreign Earned Income Exclusion helps prevent double taxation by allowing U.S. expats to exclude wages and salaries (up to a certain threshold) earned overseas from U.S. taxes. The exclusion doesn’t apply to Social Security, pension or retirement investment income.
Tubongbanua notes that some countries tax withdrawals from Roth accounts, though the U.S. government doesn’t tax them if you’re over age 59½ and have owned the account for at least five years. “This can get complicated, so it’s important to work with a tax expert who specializes in overseas taxation,” she says. American Citizens Abroad offers an online Expat Tax Services Directory to help Americans who retire overseas.
Approach retiring abroad like you would any major financial decision
Retiring overseas is a big decision that requires lots of careful thought and planning—but the rewards can be great. “Make sure you have your eyes wide open and perform all your research and due diligence before making a move like this,” says Tubongbanua.
Working with a financial advisor can help you untangle any financial challenges to retiring abroad, allowing you to enjoy your post-work years in the location of your dreams.
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