5 Tips for a Happy Retirement Abroad
January 14, 2015 | Enjoying Retirement
It’s easy to see why many people find the idea of retiring abroad appealing. In addition to the adventure of living in a foreign country, many Americans are drawn to the prospect of enjoying a richer retirement lifestyle at a lower cost than may be available here at home.
“Retirees in the States right now face a serious dilemma,” writes travel expert Kathleen Peddicord in the introduction to her book, How to Retire Overseas—Everything You Need to Know to Live Well Abroad For Less (Penguin Books). “The cost of quality retirement living choices in the United States is escalating rapidly.” Yet Peddicord believes retirees don’t need to resign themselves to a lower standard of living. “All you have to do is think outside the box and beyond your own borders.”
While retirement in a foreign country can be exciting, it also can be complicated. If you’ve ever wondered how to take the first step to making your retirement dream a reality, Ruthann Driscoll, Director of Advanced Planning for Northwestern Mutual, offers the following five quick tips.
1. Carefully consider your options. There are parts of the world where your money stretches further than it can in the U.S., says Driscoll, but don’t assume that life overseas is cheaper in every country. “Look beyond headlines that claim you can retire abroad for $1,000 or less a month, and create your own retirement budget. Carefully research the cost of everyday goods and services in various countries, then add in your specific plans for entertainment and other activities once you stop working.” To make sure your budget is realistic, Driscoll encourages pre-retirees to also consider the impact of inflation on the cost of living overseas. “The financial landscape can shift quickly in certain foreign countries. You want to be sure you understand how rapidly rising costs could affect your retirement security and your ability to remain in the country of your choice.”
2. Take into account the cost of travel. Moving to a foreign country means leaving behind your support system of family and friends. Think about what this will mean to you … and to them. Travel to and from your new home may be time consuming and expensive, limiting the number of opportunities you may have to spend with your loved ones. To help ensure you remain connected, be sure to add the cost of airline tickets, rental cars, family visits and other expenses to your budget.
3. Evaluate your health care options. Medicare won’t cover you in another country. This means you’ll need to either return home for your medical needs or obtain health coverage wherever you decide to live. The good news is there are many international health care options for expat retirees who are willing to do their research. “What’s key is that you have sufficient coverage should you find yourself needing medical attention abroad,” said Driscoll.
Because retirees living abroad cannot use their Medicare benefits, some elect not to take Part B (which covers the cost of doctor’s visits), thus eliminating the monthly premium that is automatically deducted from Social Security. Driscoll cautions pre-retirees to think carefully before doing so. “If you decide to move back to the U.S. and want to start Part B coverage, the premium could be 10 percent higher for each 12-month period that you could have been enrolled but weren’t. And there is a limited window each year, from Jan. 1 through March 31, when you are allowed to re-enroll.”
4. Do your homework when it comes to taxes. The U.S. is one of the few countries that tax their citizens no matter where they live. Fortunately, the U.S. government has agreements with many countries that prevent expats from being double taxed on any earned income here and in their adopted homes. In 2013, expats received a $97,600 Foreign Earned Income Exclusion (FEIE) from the IRS for all income earned overseas. However, interest from savings, dividends, pensions or annuities are not exempt. “International tax issues are complicated,” cautions Driscoll. “If you’re planning a move overseas, you should get help from a tax advisor to understand the tax situation here and in the country where you’re intending to retire before making your move.”
5. Arrange for Social Security. If you’re entitled to Social Security, you’ll have a couple of options for receiving your benefits while living abroad. One option is a debit card under the Direct Express Card program; the other option is electronic payment. Electronic payment can be made to a U.S. or foreign bank account in a broad range of countries. To see if any country restrictions apply, go to the Social Security Administration’s interactive tool.
Moving to another country is not something to be taken on lightly. That’s why Driscoll suggests you “test the waters” by taking a few extended vacations to get acquainted with the place where you’d like to retire. The only way you’ll really know if a destination makes sense for you is if you spend time there experiencing the culture, the language, the food, the weather and the people—not just as a tourist, but as a potential resident.
Retirement abroad can be the adventure of a lifetime, but it pays to give this move careful thought before selling your home and buying plane tickets. If, after doing your research, you find that living in a foreign country is right for you, chances are you’ll be able to make it work. After all, these are your golden years; why not spend them somewhere that will make you happy?