Considering Retiring Abroad? You’ll Want to Read These 5 Tips First
June 5, 2018
You've spent years anticipating this moment, and it's finally near. After working hard for someone else for decades, you're about to retire and focus on yourself.
You've even picked out a great place to settle down, purchase property and explore the world with a fresh perspective. The only problem is that your dream retirement destination is abroad. Before you can truly get into the golden years of your life, you'll need to understand what it means to retire outside of the U.S.
What could factors like taxes, local laws and property ownership mean for your retirement? There's nothing wrong with pursuing your dreams, but you'll have the most fun when you do your homework first. Check out these five essential pointers.
1. Know the Law of the Land Where You're Going
Ready to become an expat? This choice doesn't mean that you get to exist in some kind of free-for-all legal limbo.
Understand Foreign Property Ownership Rules
The country that you're heading to will undoubtedly have its own rules regarding key aspects of your retired life. For instance, you may not be able to own certain types of property as a non-citizen. If you happen to run out of money in retirement and want to start a business, then you might have to find a partner or agent who holds citizenship.
Understand the Destination's Financial Rules, Systems and Taxes
Many people retire in other countries because they want to avoid onerous domestic taxes. While this is certainly possible in some places, it's important to remember that there are always financial rules. Before you transfer assets to a bank in some far-off locale, learn the disclosure and reporting regulations that you'll be held accountable for adhering to.
Don't Wait to Get Informed
Knowing the rules ahead of time is much easier than losing out when you have to pay fines for your mistakes. It's also way less stressful than trying to learn important regulations on the fly.
2. Know the Laws of the Land You're Leaving Behind
Moving somewhere else doesn't make the government forget about you. As much as you might wish that bureaucrats would conveniently overlook your existence, you still have responsibilities as a U.S. citizen or resident alien.
Understand That You're Still Obligated to Pay U.S. Taxes
One of the most annoying things you'll notice about foreign retirement is that you still have to pay taxes on income that you earn overseas. These taxes are also supplemental to any taxes on assets or holdings that you maintain in the U.S. No matter where on Earth you reside, you must report your income as well as bank and investment accounts.
Considering hiding money or evading taxes? Don't think that the government isn't willing to come after you just because you're half a world away. Some forms of tax avoidance are legal, but tax evasion is usually an excellent way to transform your comfortable retirement into a jail stint.
3. Know Your Monetary Systems
Money works the same way everywhere, right? While the basic function is fairly universal, the particulars vary widely. These differences are extremely important:
Be Cognizant of the Exchange Rate
If you've ever traveled abroad before, then you've probably dealt with exchange rates. Simply put, this is the amount of foreign currency you get for every U.S. dollar or vice versa.
Although this concept is straightforward, the realities of modern markets mean that exchange rates tend to fluctuate rapidly. You can also expect to pay service charges for having your money changed from one currency type to another. Make sure that your budget includes a sufficient buffer.
Be Cognizant of the Inflation Rate
What will your nest egg be worth a few years down the line? Although the U.S. doesn't have the lowest inflation rate in the world, it's not the worst either. We recommend that you quickly check to see where your destination country ranks. If you're traveling somewhere in search of reduced living costs, then you should be aware that your money may not go quite as far as you think. This concept is especially relevant in climates of political or social unrest.
Get to Know the Banking Systems
The U.S. has one of the world's most stable banking systems, but it only goes so far. For instance, American law includes perks like consumer protections, but you can't necessarily count on the feds to race to your rescue even if you're the victim of bad business practices. Before moving, you should understand what rights you'll have and how to store money in the safest, most accessible fashion.
4. Staying Well in Your Old Age
Who's going to take care of you if you get sick 1,000 miles away from home? Keep in mind that your adult children may no longer be able to take care of you if they’re not coming too. It's critical to think ahead now so that you don't have to make these decisions when you've got more pressing matters on your plate:
Healthcare Changes: You Can't Receive Medicare
According to the U.S. Centers for Medicare & Medicaid Services, most healthcare that you receive outside the U.S. isn't covered by Medicare. Even though there are a few rare cases where you'll be covered, such as if you're in the midst of certain medical emergencies, the vast majority of the coverages that Americans enjoy are automatically excluded beyond the country's 50 states, territories and coastal waters. This key distinction means that your current plan probably won't pay for foreign medications, medical devices, ambulance services or consultations.
Benefits: What Happens to Your Social Security?
Many Social Security recipients are still eligible to draw benefits while they're abroad. Of course, there are always exceptions, and the system can be confusing. Use the government's official Payments Abroad Screening Tool to find out which rules apply to your specific situation.
5. Be Willing to Test Things Out First
Failing to plan thoroughly can transform your dreams of a cushy retirement life into nightmares. Even the most adventurous humans are creatures of sheer habit, so it's wise to make the transition gradually.
Ease yourself into it with a dry run. Before you purchase a property, fall in love with your future foreign spouse and make sure you figure out the fundamentals: Do you know how to speak the native language of your chosen retirement destination? Are you comfortable with the climate? Can you say with certainty that you'll be able to afford necessities on your pension or other income? If not, do you understand the rules required to start a business in that foreign location?
You've earned a break, and you've got the rest of your life ahead of you. Start off on the right foot by taking an extended vacation in your destination country. Think about it like moving into a new house: Before committing to a place, you should confirm that it's everything you thought it was. Taking this simple step is the easiest way to be sure that you'll actually enjoy your new lifestyle.
Polaris Greystone Financial Group, LLC is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. This material does not take into account your particular investment objectives, financial situation or needs, is not intended as a recommendation to purchase or sell any security, and is not intended as individual or specific advice. Investing involves risk and possible loss of principal capital. Diversification does not ensure a profit or protect against a loss. Advisory services are only offered to clients or prospective clients where Polaris Greystone Financial Group, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Polaris Greystone Financial Group, LLC unless a client service agreement is in place.