The Financial Nuts and Bolts of Retiring Abroad – What Do You Need to Know?

Thousands of US retirees are waving off traditional retirement plans and embracing the golden sunsets of countries abroad. Goodbye Florida, hello world! Over 400,000 of them have already settled in greener pastures synonymous with affordable living, travel, hiking, and days spent on pristine white beaches sipping pina coladas.  

There are similar ongoing retirement plans by over 3 million baby boomers who are set to retire in less than a decade. The opportunity to stretch their retirement dollar while seeing the world cannot have come at a better time.

The Unending Perks of Retiring Overseas

  • The icing on the cake is often the perfect weather coupled with friendly locals. Add that to the allure of experiencing firsthand a foreign country’s enchanting history, culture and religion, and many a retiree is sold.
  • A second close is the desire to escape from high taxation rates and untenable insurance as well as medical costs back home.  An analysis from the Journal of the American Medical Association reveals that the US healthcare system is the earth’s most expensive. The average American will spend twice in healthcare what his counterpart from any other high-income country will pay in his lifetime.
  • The global financial meltdown’s decimation of home values in the US has left retirees having a more abundant life in cities like Lisbon that not only offer an excellent tax package but fantastic real estate values.  

The rising worldwide adoption of technology and the fantastic bargain power of the dollar have played a huge role too. Add that to the rapidly falling costs of international travel and the great retiree migration is all but set to bloom.

The Big Picture on Retirement Abroad

American economist Dr. Olivia Mitchell of the International Foundation of Employee Benefit Plans defines retirement as “a great insecurity that we face rather than retirement security.” Retirement packages are no longer what they used to be.  Being abroad without proper financial planning can aggravate this distress further.

In this article, Kathleen Peddicord, the author of  How to Retire Overseas, cautions against romanticizing the idea. Retiring abroad can get pretty hard once you make the move. An overseas retiree needs to embrace a brand-new set of financial rules to enjoy their sunset years.

Financial Rules for the Retiree Abroad

Yes, you can collect your social security checks while abroad
Soaking up the sun is fun if you are doing it without any financial worries and a social security check can go a long way in alleviating that worry. An eligible retiree living abroad will enjoy this benefit depending on the number of work credits they have amassed over the years as well as their retirement age.

There is a caveat though. A US retiree who has settled in North Korea, Cuba or any country under U. S sanctions cannot collect their dues. The funds are withheld till they move to politically favorable climates.

The good news is that your social security check or deposit can afford you a modest life in many parts of Asia and Latin America.  The standard of living is not off the roof unlike that of cities like London. In London for example, you will need more supplemental income from a good retirement account to live modestly.

You social security deposits will be availed to you through;

  • A deposit to your US bank account, which you can transfer to an account in your country of choice.
  • A paper check requested from the Treasury Department.
  • A local checking account in one of the 76 countries that have an agreement with Social Security over international direct deposit checking.

 Yes, the Tax Man Will Still Come Calling

A US citizen is taxed on the basis of citizenship rather than residency, so your tax obligations will follow you to paradise. The key is to file in with the IRS annually. If you land a job as an expat remember that your income will be taxed over the US foreign earned income tax credit of$100,800.

You are also expected to file paperwork on your foreign accounts that hold more than $10,000. A financial expert should help you out with the additional reporting requirements where necessary.

Ensure too that your tax obligations to your country of residence are met since some base their taxes on residency rather than citizenship. The US has varied tax treaties with some countries that ensure that residents get tax breaks or exemptions. Your financial advisor should advise you if such advantages are accrued to you in your chosen country of residency.

 Medicare Will Not Work Abroad

One of the perks of retiring abroad is that medical care is more affordable than it is in the US. Which is a good thing because Medicare is not recognized outside of the US borders. If your chosen country of residence has a national health program, take steps to enroll as a resident. If not, purchase a health insurance coverage for treatment and possible evacuation to the US.

A Good Credit Card is a Gem

Your plastic wallet could incur between 1-3% foreign transaction fees on all purchases made. This is a ghastly amount one you can escape if you settle on the right credit card facility.

On Real Estate Purchasing

Where possible avoid the purchase of real estate overseas because a mortgage will be difficult to come by. You do not want a large amount of your savings tied up there impeding your flexibility. Rent your home for a time before purchasing it to ensure that you have some roots there and pay a local attorney for the paperwork and title deed to your property.

How Can a Retiree Abroad Access Credit Financing?

Credit financing for retirees is hard to come by and more so in a foreign country. Kathleen Peddicord outlines some of the few available credit options for retirees:

  1. Bank financing
    This would be most beneficial to a retiree, but in most countries, a resident would need to prove a source of income to qualify. For a non-resident, this is close to impossible, but countries like Panama and Mexico may offer an opportunity.
  2. Credit on your home
    If you have your property in the US, you can get a HELOC credit line to purchase a house in your adopted country.  Its rates can be as low as 1.9%. The traditional second mortgage or standby mortgage refinancing are good bets too.
  3. Developer financing
    Developers in countries like Brazil, Belize, and Panama do offer developer financing to foreign buyers. If you settle on this route for funding, make your bid as soon as the property is on the market for the best deals.
  4. Credit on your retirement accounts
    You can use the funds in a 401(k) plan or retirement account to purchase your home abroad. The IRS limits a 401(k) loan and other without credit check loan to 50% of vested interest or $50,000, whichever is lower. If this amount is sufficient, then your property abroad is yours to use as you see fit. Borrowing from your retirement accounts can have a disastrous effect down the age lane, so seek the services of a financial planner before biting the bullet.

The Final Word

Retirement should herald the happiest phase of adulthood. From freed schedules to empty nests that speak of extra pennies to spend, you really are free from the stress of your working years. If you are planning to retire abroad, make the best financial decisions today to reap the fruit into your golden years.

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