Thinking of Retiring Overseas? Considerations to Keep in Mind
Over nearly three decades of providing financial planning counsel to clients, I have observed a variety of lifestyle trends rise and fall in popularity. A good example of those changing persuasions is the growing number of pre-retirees that are shunning the idea of owning a 2nd home. The most cited reason is the high “true cost of ownership” (e.g., home, insurance, maintenance, HOA dues etc.) when the home is only occupied 3-6 months annually. Secondarily, retirees say that the knowledge of these associated costs create pangs of guilt when they contemplate going somewhere other than the 2nd home for a holiday. Finally, the internet has made it possible for you to find outstanding properties for rent all over the world and with commitments as small as a week or spanning 2-5 years. In fact, a growing number of retirees are embracing the freedom to explore different global areas of interest by way of extended stays. If you are thinking of enjoying some of your retirement in another country, be sure to understand the hurdles you may have to face. The following considerations will help you lay the groundwork for a smooth transition and avoid any unpleasant surprises that might otherwise arise after the big move.
In general, the Social Security Administration allows eligible individuals living outside of the United States to collect Social Security retirement payments in their country of residence. There are exceptions to the rule, however. For example, your eligibility to collect Social Security benefits overseas may be affected by your foreign citizenship status and by whether or not you receive dependent or survivor benefits. And regardless of your citizenship, the U.S. Treasury Department forbids the Social Security Administration to make payments in certain countries, including Cuba, North Korea, Cambodia, and Vietnam.
As far as the IRS is concerned, out of sight is not out of mind. You’ll need to pay tax on your income regardless of where you live when you receive the money. The United States has signed tax treaties with approximately 50 nations around the world. In part, these treaties are designed to help taxpayers avoid double taxation (i.e., paying full taxes on the same income to two different governments). You should consider working closely with a tax advisor who specializes in international taxation to learn exactly how your benefits payments will be taxed in the country where you plan to live.
If your retirement assets are denominated in U.S. dollars, then you’ll need to consider the implications of spending and budgeting in a foreign currency. For example, you could opt to convert U.S. dollars to cash on an as-needed basis, or choose to make purchases on a U.S. credit card that automatically “translates” the amount back into dollars on your statement. In either situation, it pays to research which financial institutions offer the best exchange rates and lowest transaction fees.
Just as important, however, is the need to understand how currency fluctuations can affect your budget, particularly if you’re living on a fixed income. If the value of the U.S. dollar declines, then the purchasing power of your U.S. income may drop significantly.
Medicare and Other Insurance
Medicare coverage usually ends when you set foot on foreign soil. If it’s impractical for you to return to the United States for medical treatment, then you should consider purchasing additional health insurance policies. Remember, too, that moving to a country with universal health coverage does not necessarily mean you will be immediately eligible for such coverage. Again, it pays to know the rules before arriving in your new country.
You should also review any U.S. insurance policies that you plan to keep in place after a move. For example, if your U.S. homeowner’s policy requires the residence to be owner occupied, then relocation could jeopardize your existing coverage.
Finally, don’t overlook the immigration policies of the country you hope to call home. The expenses and waiting periods associated with submitting your paperwork may be significant, and ignoring them could result in an unfriendly “welcome” from the local authorities on moving day.