Retiring to another country can be a very attractive option. Lower cost of living and health care expenses along with exotic locales and temperate climates persuade many seniors to retire outside of the United States. If you want to ensure a smooth transition, however, there are many issues to consider and steps to take before packing up and moving.
Local Laws
You should familiarize yourself with the local laws, and should seek professional legal advice before settling abroad. Determine whether your trust, will and powers of attorney are legally enforceable in your country of destination. If not, you will want to draft and implement legally enforceable planning documents. Some documents, such as health care powers, even if enforceable, may be more practically accepted locally if in the form and format common among the local population. Specific legal advice is necessary and advisable.
In addition to your lawyer in the United States, the U.S. embassy or consulate can provide you with a list of local English-speaking lawyers willing to assist U.S. citizens. Especially in local real estate matters, it is important to understand any contracts you are asked to sign. Review the local traffic laws and licensing requirements if you intend to drive. Some countries have a changeable political environment with different legal systems than you are accustomed to. Be sure to find out what civil liberties and political rights you will have as a foreign resident.
Bank Accounts
One of your first considerations should be where to keep your money. When you move abroad, you will most likely need to open a bank account in the new country in order to pay local bills. Opening a bank account in a foreign country can be difficult because of the Foreign Account Tax Compliance Act (FATCA), passed in 2010. The law requires banks to disclose data on American clients to the IRS, and many banks are refusing to accept clients from the United States because they don't want to deal with the requirements. Your best bet may be to look for a big bank that has routine dealings with the United States.
Once you have a bank, you will need to consider how much money you want to put into the local account as well as the best way to transfer money into the local currency. If your money remains in a U.S. bank and the exchange rate changes suddenly, the value of your money can change drastically. Another option is a foreign exchange specialty firm that may be able to provide you a fixed rate for transferring money. Before moving, you should consult with a financial planner to determine the best way to protect your money.
Currency Exchange
Navigating currency markets is an often unexpected and complicated consequence of retiring abroad. Hidden foreign-exchange fees are, according to some, the No. 1 culprit in dwindling your hard-earned retirement savings in another country. Exposure to the volatile currency markets on a daily basis can add up quickly in the form of unwanted fees.
The first such fee is what's known as a transfer fee, which can cost $15 to $100 per transfer of money to the foreign location of your choice. If there are regular transfers on a monthly basis, those fees will rapidly add up. But the biggest expense factor can be the exchange rate itself. Currency specialists, such as USForex offer tools and calculators to structure and protect nest eggs against currency exposure. But you will want to shop local services and solutions, because these may prove more or less expensive. Be careful, though, because unexpected and undisclosed costs are, sadly, common in the currency exchange industry.
Reporting
The United States wants to prevent citizens from hiding money in overseas bank accounts, so there are special reporting requirements. If you have $10,000 or more in a foreign bank account you will have to fill out an annual Report of Foreign Bank and Financial Accounts (FBAR) with the Department of Treasury. FATCA (see above) also has its own reporting requirements. If you are married and have a foreign account with more than $400,000 at the end of the year (or more than $600,000 at any time during the year), you will need to file a special form with your income taxes. If you don't comply with the requirements, you could face stiff penalties.
Taxes
Moving to another country doesn't mean you don't have to pay taxes in the United States anymore. All U.S. citizens have to pay taxes, regardless of where they live, and if you still have a residence in a U.S. state, you may also have to pay state taxes. In addition, you will likely have to file a tax return in the country you are living in. If you pay taxes to a foreign country on a source of income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for the foreign taxes paid. For more information, click here. It is important to consult with a tax professional who is familiar with taxes in the country you are moving to.
Investments
You may want to invest some money in the local currency so that your assets keep pace with cost-of-living increases. Having investments in the currency of the country you are living in also protects the value of your investments from drops in the value of the dollar.
Real Estate
Purchasing real estate is not always straightforward in another country. Before deciding to buy, it is important to understand the rules of the country you are moving to. For example, in Mexico foreigners are prohibited from owning property within 31 miles of the coast, so property is often held inside corporations or trusts, which can create tax issues for U.S. citizens. In addition, there may also be different inheritance laws that could affect property. For example, in France children have priority over a surviving spouse.
Health Care
Most countries have a national healthcare system that covers all residents, and monthly premiums are often less than $100. It’s relatively easy to become a resident of another country, which typically involve proving you’ll have at least a modest amount of income, perhaps $1,000 a month. Traditional Medicare does not provide coverage for hospital or medical costs outside the United States, so if you are retiring in another country, you will need to purchase health insurance from another source.
Quality of health services varies, so research carefully, especially if you have medical problems. Even in countries with well-rated health care systems, the best services are centered around metropolitan areas. Emergency care and emergency response time may be important considerations when considering the idyllic village off the beaten path.
Regardless, Medicare may remain an important part of your health care plan, however, because If you return to the United States, you will still be covered by Medicare Part A, which covers hospital stays. Unless you paid the premiums for Medicare Part B while you were away, however, you may have to pay a penalty to enroll in Medicare Part B. Of course, you could continue to pay the Part B premium. For more information about Medicare while traveling or living overseas, click here.
Safety and Security
Consider carefully safety and security issues too. Use the State Department’s Retirement Abroad advisory for information for country-specific reports on crimes, infrastructure problems and even scams that target Americans abroad.
Retirement funds are an attractive target for charlatans and scammers who make false promises of romance, friendship, or financial gain. Scammers operate primarily through the Internet, email, and phone, but personal targeting at airports, bus stations, and market places are also common. For more information, review the State Department's information on International Financial Scams. Information on scams common in your destination country can also be found in each country's Country Specific Information.
Accessibility and Accommodations
If you have mobility difficulties or use a wheelchair, determine access to areas such as swimming pools, public facilities, restaurants, bars, toilets, etc. Determine if shopping and entertainment are accessible. For more information, check out the State Department's section on Traveling with Disabilities.
Prepare for Emergencies
Leave emergency contact information and a copy of your passport biographic data page with family and trusted friends. Carry emergency contact information for your family in the United States with you when you travel (be sure to also pencil it in the emergency contact information section of your passport). Know the contact information for the nearest U.S. embassy or consulate and provide that information to your family and friends. If there is an emergency where you are staying, such as civil unrest, disrupted transportation, or a natural disaster, prevent undue worry or concern by contacting your family and friends as soon as possible.
A secure way to maintain your emergency contact information is to enroll with the Smart Traveler Enrollment Program. Your information is stored securely and enables the Department of State, U.S. embassy, or consulate to contact you, your family, or your friends in an emergency according to your wishes.
For more information, consider International Living's "Best Places to Retire." AARP also writes about retiring abroad and Expatinfodesk.com publishes relocation guides.
Updated 4/1/2015
