As you plan for retirement, the best way to stay active, healthy and engaged as you age could be to do something drastic: Move abroad.
“It would probably be better for couples or for people to move abroad rather than to Florida,” says Teresa Ghilarducci, a professor of economics and a retirement security expert at The New School for Social Research in New York.
Retiring in another country is not an ideal choice for everyone, especially if you’re concerned with mobility, homesickness or ongoing health issues. The current Covid-19 pandemic is also a big impediment to easy movement between countries.
Florida and other U.S. states with large retirement communities may also be attractive due to the ease of building social connections. But when it comes to emotional and physical well-being, the variable nature of life abroad could have special benefits.
“Moving abroad, you have these memorable days every day,” Ghilarducci says. “If you move to a community in Florida and the days move into each other and they’re all the same, that can be very bad for brain health and for physical health.”
Studies have shown that to prevent cognitive decline, it may be best to replace the brain activity you experienced during the workday with other activities in retirement. And you won’t have to search far for that type of stimulation as an international retiree.
But if you choose this route, you may need help finding answers to questions you never thought you’d ask. What type of visa do I need? How will I get health care? Where do I pay taxes?
Here’s what you need to know about retiring abroad before you take the leap.
1. Settle On Your Dream Destination
The first and most exciting decision you’ll make is where exactly you’ll retire. If you have family ties or an emotional connection to a specific place, you might have long-held plans to settle there.
Or you can opt for a place that others before you have given a try. According to the U.S. Social Security Administration, the countries where the most retired U.S. workers are receiving benefits are Canada, Mexico, Japan, Germany and the United Kingdom.
(You can receive the Social Security benefits you’re entitled to no matter where you live, with a few exceptions: The government generally won’t send payments to beneficiaries in Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan or Uzbekistan.)
For inspiration, check International Living Magazine’s annual Global Retirement Index, which lists Portugal, Panama, Costa Rica, Mexico and Colombia as the top places to retire in 2020. The index includes an analysis of a host of factors including health care, climate, cost of living and ease of securing a visa.
An important component of moving abroad is the language question: Will you have to, and do you want to, learn a new language? It could be an exhilarating challenge in retirement to build language skills—which you can start doing long before you move—but think about whether that will make your first several months in the country unduly tough.
“If you’re not considering English-speaking countries, are there resources available to you so you can move around and get things done?” says Sefa Mawuli, a Washington, D.C.-based Certified Financial Planner who specializes in cross-border planning at Citrine Capital Advisors.
For instance, it may be best to identify English-speaking real estate agents, health insurance brokers, translators or other services you might need in your new home.
2. Visa Options Vary Widely
If you’re open to a range of destinations, consider for each what visa requirements you’ll have to meet, and how easily you can work while living there if you’d like to take on a part-time job, Mawuli says.
Some countries offer citizenship by descent, meaning that as long as a parent or grandparent was born there, you can apply for full citizenship and receive all its associated benefits. Ideally, that country will also allow you to keep your U.S. citizenship so you don’t lose the ability to easily travel or move back home.
Countries that allow for dual citizenship by descent include Australia, Costa Rica, Ireland, Italy, Greece, Hungary, Portugal and several more. Check the Central Intelligence Agency World Factbook’s list for basic information on citizenship by descent, then follow up with the foreign ministry in the country you’re considering moving to, or its U.S. embassy, for more details.
If citizenship isn’t an option, identify your dream country’s visa requirements. Visa requirements and types vary widely: A temporary residency permit might be limited or renewable and will come with application and renewal fees. You’ll often have to live in the country for a certain number of years before you can gain permanent residency.
Some countries, such as Colombia and Panama, have specific visas for retirees who can demonstrate that they earn a certain amount of income per month. Still other countries offer residency to foreigners who make real estate purchases of a minimum amount. The U.S. State Department website lets you search by country to determine how long you can stay on a tourist visa and where to go for additional information about applying for temporary or permanent residency.
3. Secure Your Housing
Especially if you’re used to being a homeowner, your first instinct might be to buy real estate in your adopted home. But don’t assume that the real estate market or homebuying standards are the same abroad as in the U.S. Some countries have restrictions on where foreigners can buy property.
U.S. banks often won’t approve mortgages for foreign properties. And it can be difficult to get local financing as a U.S. citizen in another country; local banks may require you to buy a life insurance policy, listing the bank as the beneficiary, in order to get a mortgage.
If you’re set on buying, first explore your options with the help of a lawyer who understands the local market. Check the Legal Assistance website for the U.S. Embassy in the country where you plan to buy; there, you’ll find a list of attorneys recommended to the embassy and the languages they speak. A trusted attorney can advise you on the possible restrictions you’ll come up against and assess potential legal complications for any properties you’re interested in.
Renting could be a safer option, at least when you first arrive in the country and you’re exploring where you might like to settle. But the same rule applies: The rental process in other countries is often very different. When searching for properties, double-check whether they come with furnishings that are often standard in the U.S., such as kitchen appliances. Explore whether you’ll need to set up a local bank account before paying a security deposit or your first month’s rent.
If you’re unfamiliar with the language, an English-speaking relocation consultant could be a wise investment, as they can help with the apartment search, document translation and clarifying the terms of any rental agreement.
4. Consider Health Care Costs
The cost of health care is an important consideration no matter your age, but it takes on special significance as a retiree.
First, sign up for Medicare and any Medicare supplements as soon as you’re eligible if you haven’t been registered automatically, and even if you’re not planning to live in the U.S. in the short term, says Ghilarducci. (You generally do not have to re-enroll each year.) That’s because you may want to return to the U.S., and if you didn’t sign up right away, you could pay a penalty.
For instance, if you don’t sign up for Medicare Part B when you’re first eligible, your premiums will be 10% higher for every 12-month period during which you were eligible but not enrolled. It’s likely worth it to pay the premiums while you’re away to maintain peace of mind. But you won’t be able to use Medicare benefits outside the U.S.
In certain countries, paying for health care out of pocket or with private insurance is less expensive than at home. Health care spending per capita in the U.S. was more than double that of several developed Western countries including Canada, France and Australia in 2018, according to an analysis by the Commonwealth Fund, a nonprofit private foundation focused on health care policy.
But consider getting emergency medical evacuation insurance for transport back to the U.S.—which can be very pricey—in case of a dire emergency, Mawuli says. You can also get in touch with other expat retirees in your new country to learn how they navigate the health care system, Ghilarducci says.
In Mexico, there are sizable expat communities in Acapulco and Oaxaca, Ghilarducci says, and also in Mexico City, Puerto Vallarta and Merida, according to Victor Gersten, a Certified Financial Planner in San Diego who works particularly with U.S. expats living part- or full-time in Mexico.
“If you’re not going to a large city, and most don’t, an American expat community is helpful because they’ve already figured it out,” Ghilarducci says. “They’ve blazed the trail.”
5. Don’t Forget About Uncle Sam
Even if you’re living in another country, as a U.S. citizen you won’t be able to avoid the U.S. tax system.
“One of the biggest things that people should be aware of, that people don’t often know, is the far-reaching grasp of Uncle Sam,” Mawuli says.
The IRS puts it this way: “Your worldwide income is subject to U.S. income tax, regardless of where you reside.” This system is extremely rare; the U.S. is one of the only countries that taxes based on citizenship, not on residence.
That doesn’t mean you’ll pay U.S. tax on every dollar you earn or keep abroad. Certain countries have tax treaties with the U.S. that limit the amount of U.S. income tax you must pay, or exempt you from paying tax up to a certain level of foreign income you’ve earned. The Foreign Earned Income Exclusion, for instance, allows U.S. citizens living abroad for a full tax year, or for more than 330 days in a 12-month period, to exclude up to $107,600 in foreign earnings from U.S. income tax for 2020. But for anything you earn over that threshold, you may be taxed twice—by your country of residence and the U.S.
If you’re not planning to work while abroad, paying income tax on employment earnings won’t be a concern for you. But you’ll still have to pay tax on withdrawals from traditional individual retirement accounts or 401(k)s, taxable pensions and Social Security income over certain income thresholds. (U.S. citizens who reside in a handful of countries, including Canada, Germany and Ireland, do not have to pay U.S. income tax on their Social Security benefits, due to the nature of these tax treaties.)
The Foreign Tax Credit can also help reduce your U.S. tax burden. If you earn foreign investment income while living abroad, for instance, you can typically take the Foreign Tax Credit so that you only pay tax to the foreign entity, rather than to both your new home country and the U.S.
You must file a U.S. tax return each year, even if it’s to report income that you’re not required to pay tax on. You must also report balances of foreign bank accounts if they reached $10,000 at any point during the year—“for even one day,” Gersten says.
Ignorance of U.S. tax law doesn’t preclude you from your payment or reporting requirements, Gersten says. So it’s best to line up an accountant with a deep understanding of international tax law so you’re not caught paying penalties.
But don’t let the potential complications stop you from making a change that could bring a lot of joy to your life.
As an international retiree, “really what you need is a web of support,” Muwali says.
A taste for adventure, some patience and a good travel journal will help, too—because the logistical and financial headaches of time abroad may be many, but the priceless experiences will be, too.
