There’s something undeniably appealing – both pragmatic and poetic – about the idea of moving to a foreign country and living an expatriate adventure in retirement. Before you pack your bags and buy that Rosetta Stone program, make sure you have considered everything.
Relocating to another country isn’t easy. You’ll need to consider a range of factors, from your destination country’s political stability to the logistics of managing your assets from afar. Retirees need to plan carefully and consider the following questions:
Moving to a foreign country can change family dynamics. Understand the impact your move will have on your relationships. Make sure your spouse is as invested in the idea as you are. That way, when unexpected issues arise, you won’t have the added complications of resentment and blame.
How will you handle health care needs?
Access to quality health care is paramount in retirement, so be sure to understand the relative cost and quality of care in the country where you hope to retire. Research local physicians and facilities, then plan accordingly. Make sure quality remains on par with what’s available in your home country. If it doesn’t, budget for the possibility that you may need to return home for certain medical procedures.
Given that Medicare doesn’t cover health services outside the United States, you may want to look into private health insurance or seek out a country that allows those holding permanent residence visas to join its national health plan. Keep in mind that if you return home later in retirement and sign up for Medicare, your premium will be 10% higher for each year you could have been enrolled but were not.
Are you looking for a tax advantage?
The IRS taxes U.S. citizens on income no matter where they live. Even if you relinquish your citizenship, you’ll owe income tax as a nonresident alien. The U.S. also has laws to collect income tax from retirees who move their assets to a foreign country; however, many countries have tax treaties with the U.S. that prevent double taxation, and the same goes for the U.K.
There are no EU-wide rules that say how EU nationals who live, work or spend time outside their home countries are to be taxed on their income. Each country in the EU has its own definition of tax residence. You can be considered a tax-resident in the country where you spend more than 6 months a year, and if you spend less than 6 months a year in another EU country, you will normally remain tax-resident in your home country. However, you should check tax rates and speak with tax authorities to be sure before moving to a foreign country.
A beachfront home in Mexico may cost less than its U.S. counterpart, but you need to consider your entire budget. For example, relocation costs may be higher than if you moved somewhere domestically. And the costs of groceries, electricity, and transportation may equal what you’re currently spending.
Will you be able to work?
Many of today’s retirees hope to work during their retirement, but living in a foreign country may complicate employment. Consider the job prospects for people with your experience in that country.
How will you manage your assets?
If finances can be comfortably managed from afar, expat retirees can keep most assets in their home country. A local account will prevent currency exchange fees and ATM withdrawal charges. You may want to explore proactively addressing cash flow issues — like having your account automatically frozen when you repeatedly access your credit card from a remote location.
Talk to your financial advisor about how to hedge against exchange-rate fluctuations by setting up a local account and making regular transfers from your account to cover everyday expenses. It’s a good idea to know whether these transfers might incur their own fees, and to ensure that legal documents will be enforceable in your destination country.
When moving assets abroad or acquiring new investments in another country, consult a lawyer to determine whether those assets will be subject to local estate tax rules.
Can you adjust?
After the fantasy of moving to a foreign country becomes reality, some expats find themselves feeling isolated. Consider living somewhere with a vibrant expatriate community. Spend a few months in a potential destination before making a permanent move.
How will you connect with family and friends?
E-mail and video services make it easy to stay in touch with family and friends back home, but if you want to see them regularly, choose a destination that will enable you and your loved ones to travel easily and affordably. Starting a brand-new life is appealing, but retiring abroad adds a layer of complexity to many aspects of retirement planning. So do your homework, and make the decision about moving to a foreign country with your eyes wide open.
Information for this article contributed by Merrill Lynch.