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Financial Factors to Consider If You Plan to Retire Abroad

Retiring Abroad

Exotic locales and a lower cost of living are luring a growing number of Americans overseas for their retirement years. Last year, nearly half-a-million U.S. citizens received a Social Security check at an overseas address, which was 38 percent more than in 2008.

The overseas lure is understandable for retirees with a sense of adventure, but moving abroad requires a tremendous amount of planning from both a lifestyle and a financial standpoint. In most foreign countries, the rules are different for everything from owning real estate to paying taxes and even opening a bank account.

Considerations When Buying a Home

The first thing you’ll probably need to decide before moving overseas is whether you will buy or rent a home. It’s often a good idea to rent for at least the first year as you adjust to your new surroundings and culture. This way, you can take your time in figuring out exactly where you want to live before making a commitment to home ownership.

If you do eventually decide to buy a home overseas, carefully investigate the laws regarding the titling of property and forms of property ownership in the host country. These may be very different from laws here in the U.S. For example, some countries require property buyers to purchase shares in a corporation, even if the property is a primary residence.

The same goes for rules governing property sales. For example, in some countries there are restrictions when it comes to transferring cash out of the country. This could have a major impact on your retirement plans if you ever decide to move back to the U.S. Consult with the American embassy in the host country, the U.S. Department of State website or American Citizens Abroad for more information or assistance with overseas real estate purchases and overseas funds transfers.

Paying Taxes While Living Overseas

Many retirees considering moving overseas aren’t aware that they will still have to file a U.S. tax return each year even if they aren’t living here or earning any income here. U.S. citizens must pay taxes to Uncle Sam on income earned anywhere in the world. This includes taxes that are due on withdrawals from qualified retirement plans like IRAs and 401(k)s and pensions, as well as taxes that may be due on a portion of Social Security benefits.

Overseas retirees may also have to file a state tax return pay income taxes to the state they lived in before moving overseas. State taxation for U.S. citizens living overseas can get complicated, so you should talk to a CPA or accounting professional for guidance in your situation.

Keep in mind that you might also have to file a tax return and pay income taxes in your new overseas country as well as in the U.S. Fortunately, treaties exist between the U.S. and many foreign governments that can help you avoid this kind of double taxation. A foreign tax credit can also be claimed for taxes paid overseas, and the Foreign Earned Income Exclusion provides an exclusion of $105,900 of foreign earnings from the annual income of retirees living overseas.

Planning for Healthcare Expenses

Healthcare is a major factor that you’ll need to strategize before moving overseas. In most instances, retirees who live abroad aren’t eligible for Medicare. However, some retirees who eventually plan to move back to the U.S. continue making Medicare premium payments while living overseas in order to maintain their eligibility.

Some U.S.-based health insurers offer international health plans that may be worth considering, and some foreign hospitals offer insurance plans that are similar to HMOs. However, given the relatively low cost of healthcare in some foreign countries compared to the U.S., it might make since to just pay out of pocket for healthcare expenses incurred while living overseas.

Overseas Banking and Currency Exchange

Legislation requiring foreign banks to report overseas accounts held by U.S. citizens that contain at least $10,000 to the federal government has made banking more complicated for retirees living abroad. In fact, some foreign banks try to avoid working with U.S. citizens altogether due to these cumbersome reporting requirements.

One solution is to open an account with a foreign-based branch of a bank headquartered in the U.S. Be sure to investigate whether there’s any kind of insurance on your deposits, like the FDIC insurance that covers deposits at most U.S. banks. 

Also keep in mind that your retirement funds will probably be denominated in U.S. dollars that have to be converted to the currency of your host country. Therefore, your retirement income could be vulnerable to changes in currency values that can fluctuate widely at times. If the U.S. dollar weakens against your host country’s currency, this could result in less income to meet your retirement living expenses.

Please contact us if you have more questions about financial factors you should consider if you plan to retire abroad.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.