London calling: Should you retire overseas?

Raise your hand if you’ve ever made it through a particularly stressful day at the office by doing a Google image search for “Tropical Island.”  Me too.  In fact, if I type the letter “a” in the search bar, Google automatically thinks I’m looking for “Aruba” (B is Belize, C is Curaçao, etc.).  While I’m partial to the tropics, you can also practice this desk-top-escapism by Googling London, Paris, Sydney or any other destination that suits your fancy.

There’s just something about our fast paced lives that makes a simple life in an exotic locale sound pretty appealing.  Which raises the question: Should you retire overseas?  Before packing the snorkel and sun block and buying a one way ticket to retirement paradise, it’s important to do your homework and determine if the expat life is right for you.

Retirement Budget

No matter if you retire in the States or abroad, much of your planning will revolve around your retirement budget.  It will influence how much you need to save, when you can afford to retire and what types of things you can afford to do. 

One of the appeals of retiring overseas is finding a location with a lower cost of living than the U.S.  This is particularly true recently as the poor economy has battered retirement portfolios.  If you’re ready to retire, but your nest egg isn’t, one option is to delay retirement and give your portfolio a chance to recover.  Another option would be to move to a location where your dollar will go further.  The website Xpatulator.com will help you analyze how far your dollar will take you in hundreds of different locations.

Healthcare

Most retirees in the U.S. rely on Medicare to cover a majority of their health related expenses.  Unfortunately, Medicare will not provide coverage for U.S. citizens living abroad.  That can seem like a deal breaker to many, but there are alternatives to Medicare. 

The most obvious option would be to self-insure.  Healthcare costs can be significantly less in some countries and it could make sense for a healthy individual to pay for care out of pocket on an as needed basis. 

Another option is to purchase local coverage (which can be very reasonable, if available) or buy an international health policy through a company like Aetna International or ihi Bupa

If quality of care is a concern, visit Joint Commission International to learn about internationally accredited and certified health care organizations in the country that you are considering.  Keep in mind that if you eventually move back to the United States and want to sign up for Medicare, you will pay stiff penalties for waiting past age 65 to enroll.

Social Security

Unlike Medicare, your Social Security check can follow you beyond U.S. borders (assuming you don’t decide to retire to sunny North Korea or some other restricted country).  Practically speaking, it may be easier to have your check deposited into a U.S. bank account and then access your funds using your ATM card abroad.  This can help you avoid certain delays and fees if you try to have the check deposited directly into your foreign bank account.  For more information, read Social Security Administration Publication 05-10137.

Taxes

Calculating your tax liability can be difficult under the best of circumstances.  Add foreign residency into the mix and things can get downright complicated.  Generally speaking, you will be subject to the same income taxes abroad that you would be within the U.S.  You may also be subject to state taxes if you are still considered a resident of a state because you maintain a house or bank account there. 

If you get a job overseas to supplement your retirement income, you may be able to exclude up to $95,100 of that income from your U.S. tax bill by claiming the Foreign Earned Income Exclusion (FEIE).  This can help you avoid paying taxes to both the U.S. and your new country of residence on the same income. Before moving overseas, meet with a trusted tax advisor who is experienced in foreign tax issues so you can minimize your tax bill and stay within the good graces of the IRS.

Working

Many countries require you to obtain some form of work permit or visa before you will be able to legally work in that country.  Keep that in mind as you consider where to retire.  If possible, design your retirement budget so that it is not dependent on income from working.  If you do decide to work, consider jobs where expats have a competitive advantage such as teaching English as a second language (ESL).

Buying Property

Buying property in a foreign country can be complicated.  Some countries prohibit ownership by a foreigner altogether.  Because of this, renting may be a better option.  Either way, you should work with a local real estate agent and local attorney to make sure that any contracts are in order and that the transaction goes smoothly.

Retiring overseas isn’t for everyone, but it can be a great fit for some.  If your dream retirement includes Panama instead of Pennsylvania or Uruguay instead of Utah, just make sure to do your homework and work closely with your advisers to ensure a seamless transition.

And don’t forget to send me a postcard!

Joe

I originally published a version of this article at www.fpanet.org.  Photo by Ben Carr.  Used under Creative Commons License.

5 Responses to “London calling: Should you retire overseas?”

  1. ” Retiring overseas isn’t for everyone, but it can be a great fit for some. If your dream retirement includes Panama instead of Pennsylvania or Uruguay instead of Utah, just make sure to do your homework and work closely with your advisers to ensure a seamless transition.” – Great Quote.

    Some people just won’t suit life outside of the US. Sometimes a holiday to a country you are interested in seeing is the best option. The only way you’ll get a feeling for a Country is by testing out life there.

    • Mike August 26, 2012 at 1:36 am #

      Joe,
      What about Social Security “totalization” agreements the US has with some foreign nations? A US citizen living in a foreign country covered by one of these agreements enrolls in the host nation system and is no longer required to pay into US Social Security. The purpose is supposed to be to relief from paying into two retirement systems at the same time (much the same goal as the foreign earned income exclusion – relief from double taxation). However, I am concerned that when retirement time comes, I am going to learn that my US Social Security benefits are no longer available to me because I am enrolled in a foreign system. Would you consider writing on this subject? The information on the consequences of using these “totalization” agreements seems almost purposefully vague.
      Kind Regards,
      Mike

      • Joe Hearn August 28, 2012 at 11:01 am #

        Hi Mike. Thanks for mentioning that. I’m not super familiar with those totalization agreements, but I will do some research on it and consider writing about it in a future post. In the meantime, here’s a link to some information on the Social Security website that addresses the issue: http://www.ssa.gov/international/agreements_overview.html. Hope that helps. Thanks!

        Joe

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