What You Need to Know About Retiring to Another Country
September 25th, 2017
For decades, your career stretched out before you, with retirement seeming like a faraway dream on the horizon that might never arrive. Suddenly, that moment you've been saving for is rapidly approaching, and you are faced with the decision of when, how, and where to actually retire.
You may have found that, despite your good habits and careful saving, you don't have as much saved up for retirement as you would like. At the same time, you don't want to give up your retirement dreams of living in a gracious home in a warm climate.
One possible solution is retiring to another country where the weather is good and your dollar stretches further. If one of your goals for retirement is to travel more, living in a foreign country may make this easier as well. But before you run off to renew your passport, there are some things you should take into consideration.
Money may be part of the motivation for considering retiring in a foreign country, so you should not just assume that you will have enough for your needs because it looks like you will at this moment in time. The exchange rate between the U.S. and the foreign country may be favorable now, but exchange rates can fluctuate. You'll need to decide, along with your financial adviser, how much risk you can bear in that regard. Of course, it's also possible that a fluctuation in the exchange rate will work in your favor, but you can't count on that.
And don't forget taxes. If you maintain your U.S. citizenship, you will continue to be liable for income tax in the United States, and you may also need to pay tax in the foreign country. Also, if you move assets abroad, you may need to make additional tax filings in this country.
You should also be aware that U.S. citizens or permanent residents are required to file a separate form called a Report of Foreign Bank and Financial Accounts (FBAR) through the Financial Crimes Enforcement Network (FinCEN). An FBAR must be filed if the value of assets in foreign accounts exceeds $10,000 at any time during the calendar year. Depending on circumstances, other filings may be required as well. Failure to make the required disclosures can result in steep financial penalties.
As for assets that remain in the United States, if you are not also maintaining an address in this country, you will need to consult your financial institution as to whether the lack of a U.S. address will be an issue.
Health Care and Insurance
One of the things that is hardest for people who choose to retire abroad is leaving the doctors and specialists with whom they've become comfortable. You're likely to need more medical care, not less, as you age. Are you comfortable starting over with all new doctors in a new country? Are you confident communicating in the language of your intended country?
Then there's the matter of health insurance. You will be able to maintain Medicare while you live in another country., but as a general rule, it does not cover the cost of health care you receive outside the U.S. Will you be able to purchase and maintain health insurance that does?
On the bright side, in many countries, medical care is much less expensive than it is in the United States, and the quality of services is often as good or better. That said, you should definitely investigate what medical coverage will be available to you, what you can expect to pay out of pocket for care, and whether specialists you may need are readily available in your chosen location.
Social Security and Other Retirement Benefits
You've paid into Social Security all your adult life. Now it's your turn to collect, right? Not so fast. There are some countries to which the U.S. government will not send Social Security checks. This may be due to issues with security with the country's banking system, or sanctions against the country itself.
And again, the specter of taxes rears its ugly head. As far as retirement accounts like 401(k)s are concerned, many countries have favorable tax treaties with the U.S. However, you will want to find out the specifics of your tax obligations in your chosen country before you pick up and move.
Personal Considerations in Retiring to Another Country
When contemplating retiring to another country, there are considerations beyond those that can be quantified. Right now you're presumably in good health. Will you be as happy living abroad if your health declines? Do you have friends or relatives in the foreign country, and, if not, are you outgoing enough that you feel confident that you could develop a social network? Are you familiar with the language and culture of the new country? How often will you be able to see loved ones in the States? Will you miss being able to watch grandchildren grow up? How will you feel about living in another country if your spouse dies or needs care in a nursing home?
These are personal questions that only you can answer, after discussion with your spouse and family. As far as financial, tax, and benefit considerations are concerned, you would do well to discuss your situation with an experienced estate planning and elder law attorney long before you pack your bags.
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