Raise your hand if you've ever made it through a
particularly stressful day at the office by doing a Google
image search for "Tropical Island." Me too. In fact, if I type
the letter "a" in the search bar, Google automatically thinks
I'm looking for "Aruba." B is Belize, C is Curaçao and so on
through Zanzibar. There's just something about our fast paced
lives that make a simple life in an exotic locale sound pretty
appealing. Before packing the snorkel and sun block and buying
a one way ticket to retirement paradise, however, it's
important to do your homework and determine if the expat life
is right for you.
Retirement Budget
No matter if you retire in the States or abroad, much of your
planning will revolve around your retirement budget. It will
influence how much you need to save, when you can afford to
retire and what types of things you can afford to do. One of
the appeals of retiring overseas is finding a location with a
lower cost of living than the U.S. This is particularly true
the last few years as the poor economy has battered retirement
portfolios. If you're ready to retire, but your nest egg isn't
as big as it used to be, one option is to delay retirement and
give your portfolio a chance to recover. Another option would
be to move to a location where your dollar traditionally goes
farther. The website www.xpatulator.com will help you analyze
how far your dollar will take you in hundreds of different
locations.
Healthcare
Most retirees in the U.S. rely on Medicare to cover a majority
of their health related expenses. Unfortunately, Medicare will
not provide coverage for U.S. citizens living abroad. That can
seem like a deal breaker to many, but there are alternatives to
Medicare. The most obvious option would be to self-insure.
Healthcare costs can be significantly less in some countries
and it could make sense for a healthy individual to pay for
care out of pocket on an as needed basis. Another option is to
purchase local coverage (which can be very reasonable, if
available) or buy an international health policy through a
company like Aetna International or ihi Bupa. If quality of
care is a concern, visit www.jointcommissioninternational.org
to learn about internationally accredited and certified health
care organizations in the country that you are considering.
Keep in mind that if you eventually move back to the United
States and want to sign up for Medicare, you will pay stiff
penalties for waiting past age 65 to enroll.
Social Security
Unlike Medicare, your Social Security check can follow you
beyond U.S. borders (assuming you don't decide to retire to
sunny North Korea or some other restricted country).
Practically speaking, it may be easier to have your check
deposited into a U.S. bank account and then access your funds
using your ATM card abroad. This can help you avoid certain
delays and fees if you try to have the check deposited directly
into your foreign bank account. For more information, read
Social Security Administration Publication 05-10137.
Taxes
Calculating your tax liability can be difficult under the best
of circumstances. Add foreign residency into the mix and things
can get downright complicated. Generally speaking, you will be
subject to the same income taxes abroad that you would be
within the U.S. You may also be subject to State taxes if you
are still considered a resident of a state because you maintain
a house or bank account there.
If you get a job overseas to supplement your retirement income,
you may be able to exclude up to $95,100 of that income from
your U.S. tax bill by claiming the Foreign Earned Income
Exclusion (FEIE). This can help you avoid paying taxes to both
the U.S. and your new country of residence on the same income.
Before moving overseas, meet with a trusted tax advisor who is
experienced in foreign tax issues so you can minimize your tax
bill and stay within the good graces of the IRS.
Working
Many countries require you to obtain some form of work permit
or visa before you will be able to legally work in that
country. Keep that in mind as you consider where to retire. If
possible, design your retirement budget so that it is not
dependent on income from working. If you do decide to work,
consider jobs where expats have a competitive advantage such as
teaching English as a second language (ESL).
Buying Property
Buying property in a foreign country can be complicated. Some
countries prohibit ownership by a foreigner altogether. Because
of this, renting may be a better option. Either way, you should
work with a local real estate agent and local attorney to make
sure that any contracts are in order and that the transaction
goes smoothly.
Retiring overseas isn't for everyone, but it can be a great fit
for some. If your dream retirement includes Panama instead of
Pennsylvania or Uruguay instead of Utah, just make sure to do
your homework and work closely with your advisers to ensure a
seamless transition.
FPA member Joseph R. Hearn is the Vice President at
Teckmeyer Financial and author of the books
If Something Happens to Me
and
The Bell Lap: The 8 Biggest Mistakes to Avoid as You
Approach Retirement.