By Sonya Stinson | Key Bank
Retiring abroad can be a rewarding and life-changing adventure. But the financial, logistical, and lifestyle considerations can be complicated. Here’s a beginner’s look at everything you’ll need to help you prepare for the move.
Exploring the Possibilities
Before you move abroad, test drive the lifestyle by spending some extended vacation time in the area. That will give you a chance to get acclimated to the weather, the culture, and the tasks of day-to-day living. Try to venture outside of the tourist zones — noting the types of housing available and their proximity to shops, healthcare facilities, and other necessities.
If you’re thinking of moving to a country where you don’t speak the primary language, you might consider taking an intensive language course and using your vacation time to practice before you relocate.
Your preliminary exploration should also include research of the legal requirements for the move. Remember that international travel, immigration, and residency laws vary widely. If you’ve traveled previously to the country where you want to retire, you’re already familiar with its rules regarding visas for temporary visitors. If you’re going for the first time, you’ll need to find out the requirements well in advance of your trip by contacting the embassy or consulate of your destination country. If you’re planning to work once you move abroad, you’ll need to obtain a separate work visa.
Budgeting
Whether you’ll be working to earn extra income after retiring abroad or living off of your savings, you’ll need a budget — and your foreign residency can impact some key expenses. Medicare, for instance, doesn’t cover healthcare overseas, so you’ll likely need some type of private health insurance. In some countries, you may be able to save money because of the comparatively low cost of healthcare.
If you’re thinking of buying a home abroad, now’s the time to start thinking about international property taxes. You may also want to take a fresh look at your estate plan. Since most other countries don’t recognize U.S. wills and trusts, you may need a second set of those documents to address how you wish to pass on your overseas property.
Don’t forget to build some cushion into your budget for inflation, exchange rate fluctuations, and an emergency exit fund — in case health problems, political unrest, or other events force you to return to the States unexpectedly.
Tax Planning
Income taxes are another budget item to account for when planning a move abroad. You will still have to file annual tax returns with the IRS, and you may face additional income taxes in your country of residence. You may be able to lower your U.S. tax bill if you qualify for the foreign tax credit.
If you’re a working expat, you may be eligible for the foreign earned income exclusion, which exempts a portion of your income from U.S. taxes. The maximum exclusion for the 2018 tax year is $104,000.
In a small number of countries that have an income tax treaty with the United States, taxes will be removed from your Social Security benefits. The Social Security Administration’s website has information about the rules and processes for payments to retirees who live abroad.
Long-range planning is the key to any successful retirement. If you’re dreaming of retiring abroad, talk to a financial planner about creating an investment and money management strategy to make that dream possible.
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