From dreaming to living: What you need to know about retiring abroad

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Millions of Americans will take vacations outside of the country this summer.

While some travelers are checking off destinations from their bucket list, others may also be scoping out possible locations for future retirement.

The number of Americans retiring outside the United States has continued to grow in recent years. The Social Security Administration (SSA) reports 760,000 retirees outside of the United States receive Social Security benefits each year. That total is up from 431,000 in 2019.

Europe a top destination

Many retirees are already living their dreams. According to the SSA, more than 700,000 retired US workers living overseas received Social Security benefits (as of December 2022, latest data available). Many of these retirees (38%) relocated to Europe. Among top retirement locations in Europe, 25,000 beneficiaries were living in the United Kingdom, and more than 23,000 in Germany, 19,000 in Poland, about 16,000 in Italy, 13,000 in Greece, nearly 12,000 in France, and 10,000 in Portugal.

In addition, more than 55,000 retirees were living in Japan, another 71,000 in Canada, 33,000 in Mexico, and nearly 19,000 across Central America and the Caribbean.

Why retire abroad?

Many individuals considering a retirement outside of the United States are looking for a lower cost of living and a higher quality of life. Numerous travel organizations and publications conduct annual surveys of the top places to retire based on affordability, safety, health care, and real estate. In researching locations, retirees are finding that there are many countries where they can live comfortably on $2,000 per month or less.

What individuals need to know to make their plans a reality

The process begins with research and lots of planning. Before choosing a location, pre-retirees need to ask themselves what they are comfortable with in terms of spending, adapting to a new culture, and managing the distance from family and friends. Additionally, do their plans entail relocating to another country full-time, or just part of the year?

Visiting the country before moving is a critical step. Make sure to fully research the level of political and economic stability of a potential destination. The US State Department monitors and publishes updates regularly and offers a guide on retirement abroad, with key considerations such as visas, safety, health care, retirement benefits and emergency preparedness.

Some key considerations for retirement abroad include (but are not limited to):

1. Health care and costs. Those retiring abroad should research whether they need to purchase additional coverage through private insurers, and whether it makes sense to enroll in Medicare as well. For example, if planning on living abroad entirely, it may make sense to not enroll in Medicare Part B to avoid the premiums.¹ For those looking for supplemental coverage to standard Medicare, most Medigap plans provide coverage for foreign travel, but this is less common with Medicare Advantage plans.

2. Visas and other legal documents. Some countries offer special retirement visas that may allow individuals to work. Existing legal documents, such as wills and trusts, should be reviewed before moving overseas.

3. Residing abroad. Research the real estate market and understand the local laws around property ownership and renting. Determine whether to rent out your US-based residence if you still maintain one.

4. Earning income. Many retirees want to continue working. This may include part-time work or starting your own business. Research the rules for earning and reporting income.

5. Finances and taxes. US citizens need to pay taxes no matter where they live. However, the United States has bilateral income tax treaties with some 70 countries to help workers avoid double taxation. Some countries, but not all, recognize the tax preferences of retirement accounts. The United States also has estate tax treaties with 14 countries. Those maintaining financial accounts with foreign institutions will need to be aware of the Foreign Account Tax Compliance Act (FATCA), which requires reporting on foreign-held financial assets directly to the IRS. When choosing a foreign bank or institution, retirees need to make sure the firm has the necessary resources to maintain FATCA compliance. While it likely makes sense to hold three to six months of emergency, liquid, reserves in local currency with a foreign bank, many retirees will opt to hold a majority of their financial assets with US firms. Lastly, choose a credit card with no foreign transaction fees that is widely accepted and monitor exchange rates to optimize any conversions to local currency.

The IRS provides information about taxes for individuals living overseas in its “Publication 54, Tax guide for U.S. citizens and resident aliens living abroad.” The IRS also has a page dedicated to tax deadlines, filing forms and information about tax credits and deductions.

Consult financial experts

There are multiple planning issues involved. With different laws in other countries, it is important for those planning to retire abroad to meet with a financial advisor who is familiar with their financial situation and retirement plans. Tax laws vary and can also make it complicated for investors to meet their financial goals. Seek help from a tax professional. Investors may need guidance planning and learning about strategies that may help them mitigate taxes and preserve their retirement nest egg. There are also estate attorneys who specialize in cross-border planning.

With proper planning, workers thinking about retiring abroad may be able to optimize their savings and live their dreams.

¹Since there is typically no premium, most retirees should automatically enroll in Medicare Part A (hospital coverage) when reaching age 65. Retirees moving abroad who choose not to enroll in Medicare Part B need to be aware that late enrollment penalties may apply if they choose to enroll in Part B in the future.