The lure of an affordable cost of living and temperate climates is leading a growing
number of Americans to retire abroad. Many others are looking at the financial aspects
of the idea. In some cases it may be a return to one’s native country or that of
one’s forebears. Perhaps it’s to a place where one once worked or studied. As proof
that the attraction of foreign countries is strong, over 400,000 Social Security
checks are mailed abroad each year, according to The Only Retirement Guide You’ll
Ever Need by Kathryn and Ross Petras (Simon & Schuster).
The trend is likely to continue, according to a recent article in The New York Times.
In 2006 the first of the baby-boomers begin to reach age 60, at a rate of more than
4 million people a year.
Are you considering the possibility of retiring overseas? The following considerations
should be examined carefully prior to any decision to have a foreign retirement.
Your place of destination
If you are not completely familiar with the strength of the foreign country’s government
or its financial institutions, make that task your starting point. Stability is
the key, says John Briley, senior managing editor for iJet Intelligent Risk Systems,
an organization that monitors security around the world. Briley recommends that
retirees should consider issues such as racism, police corruption, organized crime
With regard to real estate, Briley notes that although home prices may seem very
attractive by comparison with the U.S. market, you should make certain that the
amenities that you seek are available where you ultimately will make your home.
U.S. taxes are payable on pensions sent abroad. An exclusion does apply up to a
certain limit for income earned abroad. Depending upon your state, you may not be
liable for state taxes.
Foreign taxes vary enormously, depending upon the country that you choose. Tax treaties
between the U.S. and other countries often determine the amount payable. You can
obtain a list of treaty countries and tax rates by obtaining IRS Publication 901
(U.S. Tax Treaties), available at www.irs.gov/pub/irs-pdf/p901.pdf or by calling
1-800-TAX-FORM (1.800.829.3676). Provincial or local taxes also may apply.
For example, Canada’s federal and provincial tax bite can be as much as 50%. Don’t
forget about inheritance taxes. Many countries have strict rules regarding disposal
of an estate upon death.
Hint: You may be able to shelter some pension funds from foreign taxation by rolling
the assets into an IRA. Check with your accountant or a foreign tax specialist to
determine whether the foreign country would view a rollover as nontaxable capital.
In most cases Social Security checks will continue to be issued. However, there
are exceptions for residents of certain countries. In the past these tended to be
the communist countries, but those on the government’s list of terrorist hotspots
also may be restricted.
Medicare doesn’t cover care outside the U.S. and its territories, except for certain
Canadian and Mexican facilities. Because many employers’ health-care insurance plans
are tied to Medicare, such plans may change for participants who move abroad. The
solution can be insuring yourself with the national insurance of your country of
residence. This insurance (particularly in Europe) may be relatively inexpensive.
Check with the country’s embassy to find out more.
If the local currency is low against the dollar, your pension payments (in dollars)
will buy more local currency. But the opposite always can be true in a changing
global money market. Protections? Invest some money in local currency, such as money
market or mutual funds, as a hedge against upward swings. Or think about an interest-bearing
account in the U.S. that pays interest in foreign currency. This account also may
maintain the protection of FDIC insurance, which you lose overseas. In either case,
you may wish to invest with a U.S. company’s branches abroad or with large multinational
Still and all, for those with the will, the way and the resources, the world is
your oyster at retirement. To help you plan, here’s a short checklist of important
• Make sure that you have revisited the country and locale at least once close to
the time of your retirement.
• Apply for a residency visa and other documents early. Be mindful of fraud if you
choose a private emigration service.
• Research shipping methods and firms. If duty-free entry is not so compelling,
consider what you’ll want to sell and repurchase abroad (washing machines, TVs,
• Inventory in writing exactly what you are taking.
And most important: Bon voyage! Don’t forget to revisit us soon.