Retiring Overseas: What to Consider Before You Take Off

A retired couple smiles as they ride their bikes in their new home where they plan to enjoy retirement overseas.

The thought of retiring overseas certainly has an appeal. You could live someplace you’ve always wanted, experience a new culture, and potentially stretch your retirement savings further in the process. Perhaps that’s why the number of U.S. retirees moving and living abroad has increased by nearly 40% over the past decade.

If you have dreams of spending your second act in a foreign country, you’ll have a few additional things to consider than if you remained stateside. Before you begin packing, determine how living abroad will impact some critical components of your retirement plan, including your income, taxes, and healthcare.

Explore the following five items to ensure your move is as seamless as possible.

1. The Residency Rules of Your New Home Country

Wanting to retire in a foreign country and being allowed to are two separate things. Each country has rules for residency and long-term stays. Some countries are keen on U.S. retirees and provide incentives for people to retire there, while others have laws that make doing so difficult or even not possible. Belize offers a prime example of the former. The country has a Qualified Retirement Person program, which allows anyone age 45 or older to reside in the country and receive significant tax benefits as long as they have an income of more than $2,000 a month. The program exempts participants from income tax as well as import duties on items they bring with them. On the other hand, retirees considering New Zealand may face some challenges. The country requires that you invest more than $600,000 there in order to obtain a retirement visa.

2. The Impact of the Move on Your Taxes and Income

If you’re a U.S. citizen, then you’re still able to collect your Social Security income even if you move out of the country. What’s more, the U.S. has agreements with 25 other countries that enable retirees to combine benefits and perhaps receive even more than they were anticipating. In terms of taxes, you’ll still need to file a U.S. tax return, even if you don’t owe any taxes on your retirement income. Depending on the country you choose, you may also need to pay taxes there. The U.S. does have tax treaties with multiple countries, which permit U.S. citizens residing there to pay a reduced tax rate and sometimes impact the taxes you pay to the IRS. The bottom line: Investigate the tax requirements specific to your destination to make sure you're not taking an unexpected hit on your income. Beyond taxes, also consider the cost of living. A country that’s much more expensive than where you currently live will affect how long your retirement savings last—and vice versa, an inexpensive country may make it possible to afford more luxuries in your later years.

3. Whether There Are Restrictions on Property Ownership

Different countries have different rules regulating how and where foreigners can purchase property. Research the real estate laws in your retirement destination if you’re planning on buying a home. For instance, real estate transactions in the U.K. are pretty similar to those in the U.S. However, in Mexico, non-citizens can only purchase a small amount of land within so-called security zones on the coastline. To do so, they also need to own the property via a bank trust. In Honduras, non-citizens are only allowed to purchase 3,000-square-meters of personal property and many areas are off-limits altogether. If you're planning on buying property, work with a real estate firm that’s well-versed in international transactions. The realtors can help you navigate the local laws and make sure you don’t land in legal trouble.

4. How You’ll Obtain Healthcare

The quality and affordability of healthcare can vary widely by country, but it's something you need to keep in mind. A Fidelity study reports that a 65-year-old couple retiring last year could anticipate $265,000 worth of medical expenses over the span of their retirement. Many retirees depend on Medicare for some or all of their healthcare coverage. That's why it's important to know that Medicare doesn’t transfer very well to other countries. Most retirees living abroad end up piecing together a variety of insurance plans, perhaps drawing on a national health plan, if one is available and supplementing it with private insurance. The cost of plans also ranges depending on where you live. For instance, plans may cost less in Central and South American countries than they do in Europe.

5. The Relevancy of Your Estate Plan

Once you’ve finalized some of the financial basics of living abroad, you’ll also want to look ahead. Sixty-six percent of Americans over age 65 have a will. But how your estate plan works within another country is another story. For example, domestic trusts often don’t operate as intended in foreign places. You may also find that your assets are subject to country-specific estate taxes that you hadn’t accounted for while in the U.S. To prevent any surprises, work with an estate attorney that understands the estate planning laws in your new home country—and can amend your plan accordingly.

Moving abroad is a dream come true for many retirees. With a little preparation, you can account for the financial realities this dream entails, and keep your move as smooth as possible.

Transcript available below graphic

The views expressed by the author are not necessarily those of Fifth Third Bank, National Association, and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, Member FDIC.