Retiring abroad gives you a chance to explore new cultures, and it might even reduce your cost of living. But it can also bring some significant financial challenges, particularly as they relate to taxes and traditional United States retirement benefits, like Social Security and Medicare.
It's possible to overcome these issues, but you need to start planning well in advance of your retirement. Here are three of the most common problems you could run into.
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1. You could owe taxes in two countries
Even if you retire abroad, you'll still owe U.S. taxes on any retirement savings in tax-deferred accounts, like traditional IRAs and 401(k)s. You earned this money in the United States, and though your retirement accounts enable you to defer taxes on these funds until later, you can't put them off indefinitely.
You could also face some taxes, like property taxes, in your home country. This could affect how far your savings go in retirement and the type of lifestyle you can afford.
You might be able to reduce the amount of U.S. taxes you owe by building up your Roth savings now. You fund these accounts with after-tax dollars so the IRS doesn't tax your withdrawals as long as you're at least 59 1/2 years old and have had the account for at least five years.
You'll have to investigate the tax laws in the country you plan to move to in order to figure out what you might owe there. Consult a tax professional in that country if you want advice on your particular situation.
2. You might have a hard time getting your Social Security benefits
Typically, you can still receive Social Security benefits when you retire abroad, but it depends on the country you move to. The U.S. government won't send checks to residents of Cuba or North Korea, and residents of the following countries can only claim benefits if they agree to restricted payment terms:
- Azerbaijan
- Belarus
- Kazakhstan
- Kyrgyzstan
- Tajikistan
- Turkmenistan
- Uzbekistan
If you do move to one of these countries and are unable to receive benefits, the Social Security Administration will pay you all the benefits it withheld should you decide to move back to the United States or to another country the U.S. pays benefits to. If you have any questions about how retiring abroad might affect your benefits, it's best to contact the Social Security Administration for more information.
3. You'll have limited access to Medicare
Medicare forms the backbone of most American retirees' healthcare plans, but its coverage outside of the U.S. is limited. It will only pay for your foreign hospital bills in the following three situations:
- You're in the U.S. when you have an emergency and the foreign hospital is closer to you than the nearest U.S. hospital that can treat you.
- You're traveling through Canada without unreasonable delay by the most direct route between Alaska and another state when an emergency occurs and the Canadian hospital is closer than the nearest U.S. hospital that can treat you.
- You live in the U.S. and the nearest foreign hospital is closer to your home than the nearest U.S. hospital that can treat you, regardless of whether you have a medical emergency.
For most people, unless you plan on moving just over the border into Canada or Mexico, these things probably won't apply. So you'll have to seek out health insurance on your own in your new country. This could bring an additional expense you need to budget for in your retirement plan.
Investigate the healthcare options in the country you plan to retire in to see how its costs and insurance coverage compare to the U.S. Use this to guide your retirement savings target, and be sure to keep current with any healthcare-related changes in the country you plan to retire in.
It's a good idea to keep tabs on any new laws that could affect your retirement abroad. If something changes, you can adjust your retirement plan as you go so you don't find yourself facing unexpected bills or taxes.
