We have a client at the firm who has been planning for years to retire to Costa Rica. Another client has moved to Mexico where she enjoys the fruits of her labor from a little house surrounded by, well, fruit. As the snow piles up every February here in Boston, the whole idea of escaping to another life sounds more appealing. Even those of us who can't imagine not having some sort of work during retirement are tempted by the idea of retiring to a whole new adventure. And in some cases, moving to another part of the world promises a better standard of living. So what are the practicalities of a retirement outside your home country?
Retiring abroad almost always means having financial transactions going on in two countries. Fortunately, our global banking systems have made this significantly easier than it once was. Like most immigrants/expats, you will want to do some careful planning with your cash flow. Start by keeping a U.S. bank account open to receive your social security checks (in most cases, you are still eligible while living abroad), pension checks or any other income. The same account can automatically pay any expenses you have left in U.S. dollars—these might be related to insurance policies, properties you own in the U.S., cash support for family still in the states, or just having your favorite U.S. peanut butter shipped over once a month.
Keeping all of that income and expense in the same (U.S.) currency saves you the added expense of currency exchange—and that can be a big savings. On the other side of the financial border, figure out what your monthly budget will be in your adopted country and have that automatically deposited in a local account once a month (but be sure to account, again, for the exchange rate and any bank fees).
Speaking of your monthly expenses, expect the unexpected in your new life. On one of our family's first trips to Singapore, we plunked ourselves down for lunch at a cafe designed for tourists on the island of Pulau Ubin. After giving three rambunctious children and four hungry, tired adults license to order anything and everything they wanted, we ended up with two tables overflowing with food and specialty drinks...all for a tab of about $14 bucks.
On the other hand, owning a little tin can of a car in Singapore will cost you a small kingdom. My point? Look carefully at what is and isn't expensive in your new home. Your housing or groceries might be ridiculously cheap compared to what you had at home, but your utility bills or transportation might be higher than you ever dreamed possible. And as an aside, don't expect to find cheap food in Singapore anymore—inflation can happen anywhere.
This one has been a big factor for U.S. citizens. In fact, our astronomical insurance premiums and health care costs in this country have made it almost inevitable that Americans save money on health care by going just about anywhere else in the world (why this hasn't been a red flag for us, I don't know). And the quality of health care in other countries hasn't been much of a compromise either. But you do need to know what the arrangements are in your new country before you move. Keep in mind that Medicare will not cover you abroad.
Some nations let immigrants participate in the national health system; others offer private health alternatives (often still cheaper than what we have here). Make sure you look into eligibility requirements and take into account your particular health care needs when choosing where in the country you will live; as is the case here, cities often offer more sophisticated care. And if you still need more coverage, look into international health insurance, which will cover you just about anywhere in the world (with the frequent exception of—you guessed it—the U.S.).
Surely this is the least appealing part of retiring abroad! If you are a U.S. Citizen, you will almost certainly need to keep filing a U.S. tax return, even if you don't owe anything. And you will have local taxes to think about. If your new home country has a tax treaty with the U.S., you might be able to avoid paying income taxes in both countries simultaneously. But there are all sorts of taxes to think about. For those in retirement who are buying property in their adopted nation, estate taxes are likely to be a concern. And if you have more than $10,000 during the year in almost any sort of account abroad, including an insurance policy, make sure to file an FBAR (Report of Foreign Bank and Financial Accounts). Even if you were one of those people comfortable doing her own tax returns and estate planning before, taking on the taxes and procedures of two national treasuries will probably require some professional help.
An Extra Seat At The Table
Ready to start planning your second life as an immigrant to some charming foreign nation? Research thoroughly, plan carefully and most of all, be flexible. And one more thing, make sure there's extra seat at the table for friends and family visiting from back home. After all, it gets pretty cold here in February.
The Secretary of State's Bureau of Consular Affairs has a web page to guide you through the basics of planning a retirement abroad.