Five Things to Consider Before You Retire Abroad
These Preparations Will Make for a Smoother Transition to Your New Home
Where in the world would you live if you could? Have you always dreamed of retiring abroad? You’ve worked hard for decades to reach retirement, now it’s truly within view and this may be your chance! An exciting new chapter is opening up that will allow you to focus more on enjoying life. Some want an adventure, others a lower cost of living whilst ex-pats might wish to return to their native land.
Whatever the reason, if this is your dream, you are not alone. For the past decade, retirement has also meant a move abroad for a growing number of Americans. If you’re considering leaving behind the daily grind as well as your roots on U.S. soil, consider these five things before taking the plunge.
1. Determine a Destination
The sky is the limit when it comes to what country to relocate to in retirement. While much depends on your personal preferences and priorities, you can whet your appetite with this list of desirable retirement destinations from the U.S. News & World Report. Ask yourself questions like: Do you want a warm climate? Do you wish to be near a beach? Is the city living your ideal, or do you prefer a quieter locale? Once you’ve considered the options and narrowed your choices, you’ll want to visit at least once before deciding to pack your bags permanently.
Keep in mind that this choice isn’t solely about the new location. It’s also about what you’re leaving behind. Distance from grand-kids and family is important to consider, as well as whether you’re hoping to find a burgeoning community of American ex-pats. (If this is the case, Canada, Japan, Mexico, Germany, and the United Kingdom are your best bets.)
2. Prepare for a New Language and Culture
If you’re serious about retiring abroad, be prepared to completely immerse yourself in the language and culture. Prepare beforehand by taking classes at a nearby college or university or consider hiring a personal tutor who can help you learn the native vernacular. If you prefer to go it alone at your own speed, you can also use one of these popular language apps to make the process easier.
If you aren’t particularly apt at language and prefer to avoid having to learn a new one, you’ll obviously want to choose an English-speaking country or at least one where English is a strong second language. Check out this English Proficiency Index to help with your planning.
3. Pay Attention to Tax Laws Abroad
Regardless of the country you choose, you’ll ultimately have to assess the impact on your taxes. Wherever you are, you’ll have to honor your federal tax filing obligation, but you may only need to pay state taxes if you maintain a U.S. residence, too. Since some countries assess a residency tax, you could end up being taxed more in certain locales. Luckily, the U.S. has income tax treaties in place with all of these countries.
Don’t get tripped up by the foreign earned income exclusion, as many retirees do. While it allows you to exclude up to $107,600 from your taxable income in 2020, you must be actively working to qualify. If you are truly retired, you cannot rely on this tax break.
It’s crucial to understand the tax system you’ll be walking into and, while many jive nicely with U.S. tax law, some can actually result in double taxation. It is important to plan with a tax professional or financial advisor familiar with deciphering international tax law and cross-border issues before taking action.
4. Consider How Retiring Abroad Will Affect Health Care
Whether you’re fit as a fiddle or battling a chronic health condition, we all tend to require more access to quality health care as we age. While Americans are eligible for Medicare beginning at age 65, it does not apply to foreign medical services. Medicare Part A charges no premium, so you should keep it in place. Still, you’ll need to decide whether opting out of Medicare Part B, C and D is the right move for you, as you’ll be hit with higher premiums if you move back to the U.S. and want to sign up later. Some retirees pay the premiums and travel back to the US for treatment.
Some employer-based retiree health plans will pay a portion of foreign medical expenses.
Moreover, many Americans find affordable, high-quality health care abroad. For example, Costa Rica boasts a health care system with a renowned reputation, and it is considerably less expensive than American health plans – sometimes by as much as 70 percent.
5. Review and Shore Up Your Estate Planning
Estate planning is necessary even if you retire in your current city, but the stakes can feel a bit higher – and the prices may match – when you’re living abroad far from your loved ones. you’ll want to update your will, health care proxies, trusts, and powers of attorney prior to leaving the country. However, be aware, you may need separate estate planning documents and strategies for separate jurisdictions. For instance, a California Living Trust can cause punitive tax issues in the UK so it is important to work with attorneys in both jurisdictions who are knowledgeable on cross-border issues and who work closely together. Be aware, that some foreign jurisdictions have hefty legal bills for even simple documents like a durable power of attorney so monitor expenses closely and keep things simple.
Experienced cross-border financial advisors and tax advisors can also help you research and expedite this.
Taking the time to thoroughly consider your desire to retire abroad – and planning accordingly with the appropriate financial professionals – will ensure you’re prepared for this exciting new chapter. The more you can learn and prepare for ahead of time, the smoother your transition to your new home will be.
If you’d like to discuss your plans to retire abroad, WellAcre Global is here to help. Click here to schedule a meeting today.