How to Successfully Retire as an American Overseas
Retiring abroad from the United States can be an exciting adventure, offering new experiences, exposure to a different culture and the potential to lower your cost of living. However, as an American moving abroad, careful financial planning is critical to ensuring a smooth transition and a comfortable retirement. Following are some essential financial tips to help you successfully retire abroad as a U.S. expat.
#1 – Research your new country of residence.
The first step toward successfully retiring abroad is to thoroughly research your new country of residence. Understand all relevant factors, such as the cost of living, the quality of healthcare, safety, tax regulations and visa requirements. Research the local housing market and identify neighborhoods and options that fit your lifestyle and budget requirements.
#2 – Create a comprehensive retirement budget.
It’s important to establish (and stick to!) a realistic retirement budget. Consider the cost of housing, healthcare, transportation, groceries, daily living expenses, travel, and any additional hobbies or activities you plan to pursue. Compare this budget to your retirement savings and income sources to determine if you’ll have enough to live your desired retirement lifestyle. Make sure to also revisit your financial progress to stay on top of how you’re managing your finances.
#3 – Understand your potential tax liabilities.
Before making a move overseas, be sure to consult with a tax advisor who specializes in international tax laws to gain an understanding of your tax obligations as a U.S. expat retiring abroad. You may be able to avoid double taxation by moving to a country that has a tax treaty with the United States.
However, because different countries have different treaty provisions, it’s important to be well informed prior to making a move. You should also familiarize yourself with tax reporting requirements and incentives as well as any potential exemptions that may apply to your specific situation.
For example, Roth IRAs are a great way to save for retirement and avoid future taxation in the United States, but the unique tax-exempt nature of Roth accounts isn’t recognized in many countries, including Germany, Portugal and Japan. On the other hand, the UK and France fully recognize the tax-exempt nature of Roth accounts under the terms of their double taxation treaties with the United States.
#4 – Evaluate your healthcare options.
As an American retiring overseas, it’s important to ensure the healthcare system in your new country of residence is adequate to meet your needs. Take time to understand what medical services and private insurance options are available to you as a foreigner. You may need to find an international policy to cover yourself if you’re ineligible to participate in your new country’s healthcare system. Or, you may determine the cost of healthcare in your new country is low enough that you can comfortably pay out of pocket for any necessary expenses.
It’s important to understand that Medicare typically won’t cover you while living in a foreign country. However, you may want to continue maintaining it for visits home and in case you decide to move back to the United States.
#5 – Continue to maintain U.S. investment accounts.
There are several reasons why it’s important to maintain investments in U.S.-based brokerage accounts. One of the most important reasons is to ensure compliance with U.S. tax laws. As an American citizen, you’re required to file a U.S. tax return, regardless of where you’re currently living. Maintaining accounts with U.S. investment institutions can help streamline your tax reporting process and ensure you remain in compliance with U.S. tax reporting requirements.
Maintaining U.S. investment accounts can also help you avoid investing in passive foreign investment companies (PFICs), which are non-U.S. registered mutual funds taxed very punitively by the United States. In addition, U.S.-based accounts offer various protections not found in many other countries, such as FDIC and SIPC coverage.
But before you move abroad, make sure your financial institutions will still work with you while you have a non-U.S. address. Contact the institutions to notify them of the upcoming move and ensure you can continue using your existing accounts as an U.S. expat living abroad.
#6 – Understand your Social Security and pension benefits.
If you’re eligible for Social Security or employer-sponsored pension benefits, it’s important to consider how these benefits may be impacted when you retire overseas. You’ll need to be ready to navigate various reporting requirements as well as make decisions regarding practical matters, such as whether it makes more sense to receive benefit payments via international wire transfer or direct deposit.
#7 – Update your estate plan.
Your estate plan may not hold up well once you move abroad. For example, many trusts no longer operate as intended once the tax and probate laws of another country become applicable. Before you head overseas, consult with your wealth manager and estate planning attorney to make any necessary adjustments to your estate plan in order to ensure your assets will be passed along according to your wishes should you pass away while living overseas.
Your advisor should also offer guidance on how to handle inheritance laws in your new country of residence.
#8 – Work with an experienced expat financial advisor.
It’s difficult enough to successfully retire as an American citizen living in the United States. Retiring abroad presents a whole new set of financial complexities, including multi-jurisdictional tax requirements, investment restrictions and ever-changing regulatory and reporting requirements. One of the best ways to avoid common financial pitfalls is by working with an experienced financial advisor with expat experience who can help you navigate the specific challenges you face as a U.S. retiree living abroad.
Could you use some help planning for your overseas retirement? Creative Planning International is here for you. We specialize in helping U.S. expats and cross-border families maximize their wealth and avoid costly mistakes. We understand the complex interactions of multi-jurisdictional tax and regulatory regimes and help clients develop operationally and financially efficient retirement and wealth management strategies. Because we serve in a fiduciary capacity, you can be confident we’re acting solely in your best interests.
For more information, request a meeting with a member of our team.
