Everything You Need to Know Before Retiring Abroad
An Overview of International Retirement
International retirement is an increasingly popular choice for people wanting to enjoy their golden years in a different country. Dreaming of sunsets on a tropical beach or sipping coffee on a cobblestone street at a small cafe can stir up the feeling of adventure and vacation. Retiring overseas does not have to be a dream – it could be your reality!
But where do you start and how would you pay for that? There is an extensive amount of planning required but the benefits can far outweigh the work it takes to achieve this aspiration. It’s easy to see why individuals are getting a better quality of life for a lower cost after carefully considering factors such as safety, taxes, cultural differences and healthcare.
Choosing Your Retirement Destination
If you are not sure where you’d like to retire but have a list of criteria like: economic stability, weather, tranquility, fresh food and water sources etc… you’ll have to do the research to narrow down your options. You might already have a destination in mind but aren’t sure about how to establish residency, get a visa or manage all the moving parts. Can you make your Social Security check stretch far enough, can you handle healthcare changes? There are a significant number of factors to consider but don’t let them daunt you – every challenge can be met head on.
How Do You Meet Residency Requirements?
Each country has different legal and regulatory considerations. Some countries have promoted relaxed immigration and residency requirements along with different visa types depending on your eligibility. The application process requires documentation and depends on your length of stay, permanent residency and possible renewals. Some programs can require an income as little as $1,000 a month from Social Security or private pension to be approved. Other countries ask that you renew your visa twice for up to two years and after five years you are eligible for permanent residency.
What Are Some Cost Factors?
Housing Expenses
One of the greatest advantages of retiring abroad is lower cost of living expenses. A crucial factor is housing costs and determining whether or not you would like to rent or purchase a home. There is still property taxes and maintenance costs to factor into the decision. Not every country views mortgages the same way the United States does so they can be difficult to obtain. Even if you’re certain this new country will be your forever home, you may consider renting to get a feel for the neighborhoods before you decide to make anything permanent.
Health Care Expenses
Most countries cost a fraction of what you pay in health care expenses in the United States. As individuals age, medical expenses can become their largest financial burden. The average retiree spends up to 20% of their income on healthcare costs. Unfortunately, Medicare doesn’t typically cover care received overseas but on the flip side, most countries cover everything from routine check ups to major surgeries and procedures through a hospital plan. This can also include prescriptions and outpatient care.
Once again costs vary as much as your destination but monthly premiums in certain countries can be less than $300 per month. Some individuals pay out of pocket while others go as far as obtaining a global health policy that allows them to receive care anywhere in the world. International policy premiums vary based on age and the amount of coverage you want but there are options for quality healthcare anywhere in the world.
Once you establish residency, you may qualify for government funded programs for a nominal cost. Depending on your location, the standard of care is relatively the same though the waits may be longer. There are local services in most countries to help facilitate appointments (and assist with potential language barriers). There is another option as well – to enroll in Medigap and return to the United States for nonessential care. The option for medical evacuation and repatriation insurance in case of an emergency can also protect you. Whatever you decide, be sure to evaluate the quality and accessibility for eligibility and adequate coverage.
Quality of Life Expenses
The amount of money any individual spends on dining out, entertainment, transportation (public, purchasing a car, fuel costs) and groceries must be put into consideration when determining whether or not to retire abroad. The political and economic stability, stable banking and financial systems and even employment opportunities for potential part-time work are all factors as well. Knowing the strength of the local currency can help you establish a secure budget. Being a tourist can be expensive but you may be pleasantly surprised at the cost of living compared to the same quality of living in the United States.
How do you Manage Financial Accounts?
To start you’ll need at least two bank accounts. One for direct deposit of retirement distributions (Social Security) and the other at a local bank to help establish residency and cover everyday expenses. Things can get a little tricky so be sure to do your due diligence as most US banks do not allow accounts without a permanent US address connected to them. Be aware of foreign exchange risks. Also, some foreign countries do not want to partner with US customers to avoid the Foreign Account Tax Compliance Act and IRS penalties.
Most countries have adapted to the law but be sure to research your country’s policy. One way around the problem is to open a checking account at the State Department Federal Credit Union which partners with American citizens overseas. Keep in mind marketplace exchange rates and transfer fees when funds from a US account go into your local bank account.
Retirement, personal savings, investments, pension plans, annuities and insurance policies all have their place in your retirement destination. The financial complexities can be difficult to navigate. You may have to manage your accounts in multiple currencies and currency conversion fluctuates by country but there are professionals to help you every step of the way.
Tax Considerations
Tax benefits for your retirement income are imperative to understand. Some destinations have double tax agreements where the US will tax you and then the new destination location will tax you a second time on the same income. Fortunately, there are policies designed in most places to prevent this and there are even countries in Europe that have incorporated programs and tax provisions to entice Americans to retire there giving you a credit against your US tax return in order to avoid the double taxation.
Unfortunately, not all countries recognize tax free withdrawals from an IRA like they do in the US. Some countries have a D7 Passive Income Visa and it requires you to demonstrate a level of income that includes dividends from your 401(k). You also need to contemplate estate planning and inheritance tax laws to ensure your assets are protected for future generations. Tax obligations vary and you’ll want to review all the implications before you make the move. There are advocacy groups for American citizens to aid in tax preparation abroad worth exploring.
Preparing for the Move
Organizations and Workshops
Utilizing online resources, researching, networking, and attending forums to gather information and advice is imperative. Building a network of individuals to help guide you along to your new home is a brilliant way of thinking. There are practical and logical ways to prepare and you can gain valuable insight into best practices by tapping into the knowledge of experts in each field. There are people who are global diversification experts and they know exactly how to help you get where you want to go.
Embracing New Experiences
Learning the local language, familiarizing yourself with the culture and customs as well as connecting with the locals can add to the quality of life you are aiming to achieve. The thrill of recreational activities and adventure, enjoying the climate, cuisine and scenery should be at the forefront of your decision to retire abroad.
You can maintain ties at home while fostering relationships in the new destination and relish the benefits of all your hardwork and planning. Once you’ve ironed out the details and overcome any obstacles involved in moving abroad, you can enjoy the sunset chapter of your life anywhere in the whole world.
