One of the key parts of retirement planning is deciding where to live. While many people stay in their homes or at least in the same city, other people will move to a new location to pursue a different lifestyle or a lower cost of living.
Still others will choose to move abroad, a decision that offers a unique adventure and often a much lower cost of living, but comes with its own challenges. Many of these problems are administrative in nature. As a result, individuals should do their homework as early as possible and make sure that everything is in line for a low-stress retirement.
Some tips to keep in mind when it comes to considering international retirement destinations include:
1. Keep money stateside.
People need to feel secure with their money. Keeping it in a federally-insured American bank is often the best solution—even if transferring cash proves a bit of a headache. Often, simply accessing cash through a local ATM is the best option for daily expenses.
Look for an institution that rebates foreign ATM fees or at least does not impose its own. Some international banks may even have local branches or affiliated institutions, or at ones located not very far away.
For countries that do not revolve around cash, or if costs are relatively high, it may make sense to open a local checking accounts that can receive cash from American accounts. However, opening these accounts can be challenging for expatriates.
Retirees can have Social Security payments directly deposited into foreign accounts. However, doing this with IRA or 401(k) distributions is not wise since it involves a 10-percent withholding tax.
2. Keep on top of taxes.
The United States is one of the few countries in the world to base taxation not on residency, but rather on citizenship. In other words, when individuals live abroad and make an income, they will need to pay taxes both where they work and in the United States provided that they make more than the foreign earned income tax credit.
For the most part, retirees are unlikely to have income that exceeds this credit. However, retirees will still face a tax burden in the United States and potentially the foreign country in which they live. Individuals will also need to report when they have more than $10,000 in foreign accounts.
Often, foreign taxes can be credited on an American return, but it is helpful to speak with tax professionals experienced with these sorts of situations. Accountants who have worked with expats are also a valuable resource when it comes to planning and understanding tax liability.
3. Start with a rental.
In other parts of the world, real estate can prove very inexpensive, so people may be tempted to purchase a home. However, this is not always the best decision when retiring abroad. Getting a mortgage in another country can prove extremely difficult.
Individuals will need to tie up a lot of their money in the property, which could cause some issues down the line. Plus, signing a contract abroad, especially one written in a foreign language, can result in some serious problems.
Retirees should also not underestimate the value of flexibility, especially in retirement, and the ability to pack bags and go. When people are sure they want to buy, it is often advisable to rent for the first year in order to identify the perfect neighborhood.
4. Verify residency visas.
For the most part, Americans can get tourist visas rather easily. However, these visas generally only let people stay in the country for a few months. During retirement planning, it is wise to visit the relevant consulate or the embassy in the target country to go over requirements and restrictions.
Some countries actually make it quite easy to retire. For example, both Panama and Ecuador offer retirement visas for individuals who can show proof of a guaranteed income, even if it is only Social Security. For other countries, however, getting a residency visa can take a lot of time and work.
In places where there is a reputation for a lot of difficulties, hiring a local lawyer can make the process much smoother. While no one should let these hurdles deter them from retiring abroad, mentally preparing for the struggle can help.
5. Get health insurance.
Most health insurance plans from the United States, including Medicare, do not offer coverage overseas. Individuals should investigate what their plan offers and if there is a way to extend coverage. Sometimes, it is possible to get local coverage. Otherwise, individuals should make sure that they set aside money to cover medical expenses.
In some countries, healthcare is public, so it is important to investigate whether or not American expatriates will be covered and figure out what is necessary to obtain coverage. Before retiring, people should investigate the quality of care in their chosen location.
In many places, healthcare is actually quite affordable and of quality that is on par with what is accessible in the United States. Sometimes, however, individuals may need to travel to get good care, particularly if a specialist is required.