Are you a U.S. citizen who’s thinking about retiring abroad? It’s not the worst idea. After all, there are plenty of beautiful countries where your money could go a lot farther. Then again, there are also a lot of places where the cost of moving, the extra taxes, and exchange rate could all cost you an absolute fortune.
But which is which, and what steps must you take to find out? Well, from visas, to healthcare, to security, there’s a bunch you need to figure out first.
Whether you move to a place with a lower cost of living or one that allows you to live a more cost effective lifestyle; whether you move to a more costly overseas destination or you simply pursue a more costly lifestyle in your new country, there are a few things you need to research and learn before making the big move.
Only after you’ve taken these key factors into consideration can you determine whether retiring overseas is right for you. Read on for a step by step guide on how to retire abroad.
1. Adhere to the Residency Requirements of your New Country
Naturally, the very first step is to determine whether or not you actually can move to the country you have in mind. Before you select your dream destination, be sure this is a dream that you can make into a legal reality. If you’re an American planning to retire to Canada, it might be a pretty straightforward path to legal residency. If your goal is to spend your golden years in North Korea, the rules will probably be kind of different.
In all seriousness, it’s important to understand the residency requirements for any of the countries you’re considering. Will you require a residency visa? Will it be possible to obtain long-term residency or citizenship, if desired. Is it possible that you could earn your citizenship by moving to a country from which your family is descended?
According to Forbes, a number of countries will actually grant Americans dual citizenship if they can demonstrate that they are directly descended from citizens of their destination country. Forbes notes that among those countries who grant dual citizenship to descendants of natives are Australia, Costa Rica, Ireland, Italy, Greece, Hungary, and Portugal..
Forbes advises visiting the CIA’s World Factbook’s list to learn more about which countries offer dual citizenship and how you, as a descendent, can claim this unique status before retirement. From there, you would most likely need to contact the foreign embassy within the U.S. that represents your destination country. Alternatively, you may be required to contact the U.S. embassy in your destination country, or even both embassies in some cases. Again, every country’s rules are different.
If you choose a country which does not provide a pathway to citizenship, make sure you fully understand the terms and limitations that come with obtaining a temporary resident visa. Some nations have more restrictive policies than others, including the length of time that you must be living in your new home to claim a permanent residency visa.
There are also some nations that offer specialized visas to those who are retired but can still demonstrate an income; some nations which grant residency based on your ability to purchase real estate; and countless other countries which may not provide any pathway to earning a long-term visa.
This will factor into your retirement overseas so it’s important to fully understand the residency or citizenship requirements for any country on your list. Fortunately, says Forbes, “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.”
Use this as a point of reference before making the leap overseas.
2. Understand the Tax Implications of Your Expatriation
Naturally, a big part of your financial outlook in retirement will be determined by what you owe in taxes. Even if you leave the U.S., you are still likely to be beholden to America’s retirement income tax laws. This means you will almost certainly be paying some form of tax for withdrawals from retirement funds as well as assets like annuities, social security benefits, and real estate holdings.
In addition, you will still be required to file your taxes in the U.S. and report any income to the U.S. that you may be drawing as a resident of a foreign country. Add to this, of course, any likely tax responsibility that comes with your newfound status either as a visitor or citizen of your new home country. In other words, if you thought tax laws were annoying and complicated before, be sure you’re prepared for the whole new set of challenges that comes with filing in two countries.
We would tell you more but those challenges will absolutely vary from one country to another. Understand your tax responsibilities with both the U.S. and your destination country before you make the move. It could impact where you ultimately decide to go.
3. Know how to Navigate Your New Healthcare System
As we age, the issues of both access to and cost of healthcare loom large. In the United States, retirees typically survive on a combination of personal savings, private health insurance and Medicare. There is a good chance that neither your U.S. Medicare nor your private insurance will be applicable in a foreign country. However, the nature of healthcare coverage varies substantially from nation to nation. Indeed, few nations mirror the U.S. approach to private coverage.
As a result, access to healthcare, costs, and quality may reflect quite a different experience if you do retire abroad. Make sure you fully understand the healthcare system in your destination country. Many countries offer universal health insurance or universal access to health care. In other countries, private insurance may be available but may not be required.
You may also be able to acquire international health insurance. But this type of coverage can be costly. Be sure it’s something you’ll actually need. After all, explains U.S. News & World Report, “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.”
In addition to coverage, you will want to carefully consider the quality and accessibility of healthcare facilities in your new country. Will you be in close proximity to hospitals, physician’s and other important medical personnel and resources? Or will you be in a remote setting where healthcare resources are limited?
Does your new country have reliable healthcare services in the event of a very serious illness or injury? In the absence of these qualities, would you be prepared for an emergency medical evacuation to the United States should the need arise for advanced medical care?
These are all critical factors to consider before you choose the right country for your retirement. Your health and well-being will be an important determinant of your quality of life abroad, especially as you age. Make sure the healthcare system has what you need, that the quality is up to the standards you require, and that you can access the resources you’ll need when you need them.
4. Think About Your Adjustment to a New Culture and Possibly a New Language
Make sure you take into full consideration the realities of living in a new culture, and particularly one that carries a language barrier with it. Is this something you’re prepared to grapple with at this stage in your life and how much will it impede your ability to enjoy your retirement?
We’re not suggesting that these new experiences will be negative, but they will require adjustment. Give some thought to how likely you are to feel comfortable and compatible in this new culture. And give very serious consideration to the significant role that a language barrier can play in your experience. Does moving to your new country mean that you must master a new language? And if so, is that something you really want?
Forbes advises that “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 retirement abroad includes learning a whole new language, make sure you’re up for the challenge.
5. Understand the Cost of Living
This is a particularly important and foundational consideration. As a retiree, you may be living on a fixed retirement fund and social security income. How far will this money go in your new country versus the United States?
Do extensive research on the cost of living in your new country and compare it to your current location. Of course, the United States is large and geographically diverse. It costs a lot more to live in California than Kentucky, for instance. So bear in mind that your findings may vary. But generally speaking, you’ll want to consider the cost of certain necessities like housing, groceries, transportation, healthcare, recreation, and more. Will your retirement income be sufficient to enjoy the retirement you envision in this new country? Will your money go farther there, or not quite as far as it might in the U.S.?
The Global Retirement Index from International Living Magazine is an excellent resource for investigating these questions in greater depth. This resource provides an index based on factors like healthcare care, climate, cost of living, and the ease of securing a visa in order to evaluate the best destinations, financially, for cost-conscious American retirees.
The findings highlight nations like Portugal, Panama, Costa Rica, Mexico and Colombia. It’s also worth noting that Panama and Colombia are unique in that they will grant long term visas to retirees with demonstrated income. This likely factors into their ranking as desirable destinations.
6. Know How Relocation Will Impact Your Social Security Benefits
Be sure you have a complete understanding of how your relocation will impact your access to social security benefits. The U.S. may share tax treaties with other nations so that you can continue to collect your social security benefits abroad without paying any additional penalties.
If you’re not sure where to start on this question, the American Association of Retired Persons advises “To find out if you are eligible to receive benefits in a foreign country, contact Social Security’s Office of Earnings & International Operations at www.ssa.gov/foreign or 410-965-0160. To learn more, go to www.ssa.gov/pubs and search for the brochure “Your Payments While You Are Outside the United States.”
The AARP also notes that the Social Security Administration will always calculate your benefits in U.S. dollars, no matter where you live abroad. Likewise, the AARP notes that most transactions to retirees abroad are made electronically. If you are using a local bank account in a foreign country, you may pay additional charges for processing these international transactions. Be aware of any fees you may incur and how these might diminish your social security benefits.
7. Prepare for the Impact of Currency and Exchange Rates
Speaking of international transactions, the exchange rate may be a pretty big one. As noted above for instance, you will be receiving your social security benefits in U.S. dollars. Depending on the value of the dollar as it compares to the currency in your new country, this could either be a good thing or a bad thing.
You should be aware of the currency exchange rates and have a sense of the potential fluctuations that have characterized these rates in the past. Understand how currency conversion can affect your retirement income, savings, and cost of living. This could directly impact your ability to manage the cost of living in your new country. Prepare for the exchange rate accordingly.
8. Know the Rules for Property Ownership in Your New Country
As we noted above, there are some countries that will grant long term visas or even citizenship for those who own real estate in their new home nation. However, it’s also important to understand that the rules for property ownership are unique in every country, and most particularly as they apply to non-native residents.
If purchasing property or owning your own home abroad is part of the plan, make sure that you thoroughly research the local laws and regulations regarding property ownership by foreigners. Understand the legal processes, property taxes, and any restrictions on property ownership that may apply to non-natives.
And since you must still file taxes in the United States, make sure that you know how to report this property ownership to the Internal Revenue Service (IRS). Know everything that goes into being a homeowner–practically, economically, and legally–in your new home country.
9. Consider Safety and Security
As a retiree, safety and security will play a big part in your long term quality of life. Make sure that you prioritize these considerations when you do choose a retirement destination. Factors to consider include local crime rates, the availability of emergency services, the reliability of law enforcement, political and economic stability, healthcare access, and the availability of modern infrastructure such as paved roads, stocked grocery stores, and well-maintained public transit options.
All of these factors contribute to the safety outlook for your destination. This will be of especially great importance as you adjust to your new surroundings and as you plot out your later years. As your health needs grow and your mobility declines, it will be especially important that you have chosen a new home where you feel a sense of comfort, security, and belonging.
10. Anticipate the Challenges of Social Integration
People need people, especially in retirement. As you depart from friends and family in the U.S., as well as the work family and neighbors that have surrounded you for years, consider your social needs in your new location.
How effectively will you be able to integrate into your new local community? Will there be ready avenues to make new friends? Are there expat communities, social groups, or recreational activities that you can become involved in upon your arrival? This kind of recreational engagement can significantly ease this major transition. After all, moving abroad means you will likely be retiring away from your familiar social support system. This could have a determinant impact on your quality of life and the tenor of your retirement.
Before you make the move, do some research on the kinds of activities and social opportunities you might pursue upon your arrival. Retiring to an exciting new place can be thrilling, but there is also a risk that it could be somewhat lonely. Preempt this cultural isolation in advance with a few opportunities for socialization and secure a much richer retirement for yourself.
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One thing should be particularly clear. There’s a whole lot to plan for if you intend to retire overseas. What’s more, the rules and expectations vary entirely depending on where you plan to go. After all, “abroad” covers a lot of ground!
So the best step you can take before making the big voyage is to consult with a handful of qualified professionals, like tax advisors, financial advisors and immigration lawyers. These experts can provide specific guidance based on your individual circumstances and the country you plan to retire in.
Not sure where to start? Jump to our guide on how to choose the best financial advisor for you.