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Want to retire abroad? You aren't alone.
Roughly 13% of Americans are looking to leave the United States and enjoy their retirement overseas. Whether they want to extend their retirement funds or simply fulfill a lifelong dream of international living, the choice to leave everything behind for a foreign country is becoming more and more appealing.
However, before taking that giant leap into a new adventure, there's a lot of paperwork and planning.
Living abroad isn't as simple as picking up your bags and moving to another state. Several factors could affect your quality of life and your retirement funds.
There are a few things everyone thinks about when considering whether or not to retire overseas:
What rarely comes up, at least at first, is the cost of property maintenance or rent, the dollar's value against local currency, and local income taxes.
That’s why before moving abroad, every potential expat retiree should be able to answer these 6 questions:
Typically, many retirees are focused on deciding where they want to move instead of where they can afford to move.
Sure, you could buy a €280,000 Golden Visa in Portugal. But will your remaining funds last? After all, the Euro is currently stronger than the US dollar. You will only get 0.91 EUR for every dollar before the conversion fee.
This is why many choose a retirement destination that's easier on their wallet.
Countries like Mexico, India, and Indonesia have weaker currencies than the dollar. However, just because these countries are more affordable doesn't mean that you will be able to maintain the same standard of living.
Depending on the country, you may still have to deal with poor infrastructure, disparate medical care, language barriers, fewer amenities, local inflation rates, and be subject to international taxes.
Once you leave the US, your investment opportunities shift. For example, you may need to open an international brokerage account, especially if you no longer have a US address.
Once you live outside the United States, you cannot buy or sell mutual funds. Depending on your location, your Roth IRA may be subject to taxes. You may also be required to submit local taxes on your social security benefits.
Furthermore, you may not be able to access US-based investments, including fixed-income investments. This can severely limit your ability to save and spend. If your new country has a volatile economic situation, you may be able to make significant gains. But you can also lose it just as quickly. Meanwhile, those with slow-moving economies, such as in Europe, will offer fewer high-growth investments.
Much of what happens to your money depends on country-specific tax treaties with the United States. This includes whether your social security benefits are taxed, what kind of tax credits would be most beneficial, and other considerations.
But regardless of where you live, you will need to file an FBAR if you have more than $10,000 in a foreign bank account or investments. You will likely cross this threshold if you are living at your retirement destination year-round/
Another often overlooked consideration is healthcare. How accessible is it for you to get quality healthcare?
While many countries have universal healthcare coverage, others do not. Even though medical care is often more affordable abroad, it's critical to understand whether or not the treatments offer the same level of comfort or availability. And given that nearly 70% of Americans over the age of 65 require some form of long-term care, medical considerations become even more important.
Every time you send money back and forth to another country, you pay conversion fees. You may struggle to send money from your new country back to the United States in some cases. A clear strategy for accessing your US-based capital is another essential factor, as frequent and high conversion fees can dent your retirement savings.
Each country defines permanent residency a little differently. But to fully take advantage of local investments and spending, you often need to be considered a permanent residence.
In many cases, you'll be buying a Golden Visa for immediate residence. Depending on your new country's visa regulations, this may last a year or a few years. The cost of a golden visa is also different depending on the nation, starting as low as $30,000 in Thailand to $2 million in the United Kingdom.
Residency in your retirement destination is again relevant to your taxes. To retain your permanent residency, you must often live in the country for a certain amount of time every year. You may also be subject to different rules. For example, if you have an entrepreneurial spirit, you may find yourself forbidden to work and follow your passion based on your visa.
Before doing anything else, you'll want to sit down and sketch a plan for your big move. Whether you plan to live in Europe, Southeast Asia, South America, or Africa, taking a peek at your potential financial future is the first step toward being able to retire overseas.
To get a firm foundation for your move, it's important to lay the groundwork. Because until you know where you may want to move to, the financial implications won't be clear.
First, you'll want to consider all the potential options for moving and living abroad. International living includes numerous changes.
Outside of reviewing the different visa regulations and residency requirements, consider how often you plan to return to the United States. You'll also want to consider the standard of living, language barriers, making friends, climate, and other day-to-day interactions.
It can help to check our different online forums and speak with people who have already made the move.
There are generally two types of visas an American retiree can apply for:
Sometimes called a passive-income visa, a non-lucrative visa, or an elective residency visa, a retirement visa is based on the concept of simply living abroad. To qualify, foreign retirees have to prove to the host country that they have enough assets to take care of themselves. This varies per country.
For example, to acquire a retirement visa from Mexico, you need to show an annual income of $25,000 or $85,000 in assets. However, Spain requires potential expat retirees to have an income of $30,000 per year and expects them to purchase private health insurance in Spain.
Not every country has a retirement visa, however. This is why an American retiree might opt for the Golden Visa.
A Golden Visa is essentially an investment visa. Expat retirees are required to purchase property worth a certain amount of money to obtain this visa. This can be a residential purchase in some countries, but others require that the money be spent on commercial development.
Portugal's Golden Visa requires more than a €280,000 investment but requires residency. Meanwhile, Ireland has fewer requirements but requires a minimum €1 million investment while having a total net worth of €2 million in assets.
There are other avenues, depending on your personal situation. For example, if you aren't ready to fully retire, you could volunteer or work abroad to get an idea of the local culture before moving. Or, if you are married to a foreign national, you may be eligible for a spouse visa.
If you plan to retire abroad but don't have enough for a retirement visa or a golden visa, the best avenue is to work in your chosen country until you can apply for citizenship. Generally, it can take up to 10 years to become eligible for foreign citizenship.
Once you have your top countries ready, it's time to speak with your CPA, tax professional, and financial advisor. Your financial support system can help you better understand your liabilities once you move abroad.
You're likely to include one other professional in this mix–your visa agent. While it's possible to complete the visa process independently, you will likely have an expat agency helping you understand the legal requirements. As an expert in permanent residency abroad, your agency should be able to help you navigate the complex world of foreign taxes and retirement savings.
Once you factor in how your destination's income tax, investment options, and exchange rate will affect your finances, you will have a better idea of whether or not the move is viable.
In addition to the potential taxes and lost revenue from your passive income, you'll also want to look at the costs of:
Spending one's golden years on an adventure abroad doesn't have to be a dream. But it can become a nightmare. Recovering from financial hardship is far more difficult abroad than at home.
But if you take the time to plan your retirement with experts and loved ones, it’ll be much easier to see whether you should live abroad–or just take an extended vacation.
You can book a complimentary session
or call me at +1 (828) 884-8840.
