Dreaming of Retirement Abroad? Here’s What You Need to Know

For many people, travel is a top goal for retirement. For others, those travel plans include relocating to a different country. Expatriating can be an exciting and rewarding experience — but it’s one that may also bring a lot of unforeseen headaches. That’s why it’s important to understand the “ins and outs” of retiring abroad before you book that one-way plane ticket. Here are some of the most important factors to consider if you’re planning to retire outside of the United States.

Scout Out a Location

If you’re considering a retirement outside of the U.S., the first step is to pick your paradise. Costs and lifestyles vary widely across the world. Where you’d like to retire will have a big impact on how much you’ll need to save before you can make the move to your new locale. Some of the best resources for cost-of-living information are forums and websites that cater to the expatriate community, such as Expat Arrivals. These resources also provide insight into what to expect from the culture and lifestyle in the country you’re considering. For information about the political environment within a country, the U.S. Department of State offers quick and helpful fact sheets.

Determine If You Need to Become a Citizen

Once you’ve settled on where you would like to live, it’s time to consider how long you would like to stay in your adoptive country. Restrictions on how long Americans can remain in a foreign country vary. In many countries, Americans can stay up to three months without applying for a visa.1 Some countries offer special visas to retirees who can provide documentation supporting a certain level of income or assets.2

If you’d like to stay for an indefinite amount of time, you’ll likely have to become a resident or citizen of your new country. This can be a lengthy and grueling process, so it’s imperative you understand the requirements for residency and citizenship before you choose to pursue those options.

Research Your Housing Options

If you’re planning to stay in a foreign country for more than a couple weeks, you’ll want to make arrangements for long-term lodging. While buying a villa in Provence may be your dream, the laws governing real estate transactions can be drastically different in foreign countries. Many countries restrict foreign ownership of real estate within their borders. Mexico, for example, prohibits foreign ownership of property within 31 miles of its coastlines.3 This doesn’t eliminate the possibility of purchasing property on the shores of Mexico, but there are extra legal complications to consider.

If you decide that renting makes more sense, be aware that in many countries, contracts are only legally binding if they’re written in the country’s primary language.2 Whether you rent or buy, it is always a good idea to seek the counsel of an attorney familiar with your adoptive country’s property and contract laws prior to signing anything.

Consider the Tax Implications

Some internationally-minded retirees seek to spend retirement abroad with the hope of escaping the U.S. tax system. Alas, the U.S. is one of the only countries in the world to levy taxes on its citizens’ worldwide income. When a U.S. citizen moves abroad, the U.S. tax system moves with them. In fact, they may have tax obligations to their adoptive country in addition to their tax obligations to the U.S.!

But there is some tax relief for expatriates. Most other countries operate on a territorial tax system, only taxing income earned within their borders. The U.S. foreign tax credit is designed to complement the divergent tax treatment abroad, alleviating double taxation for most taxpayers. The U.S. also has tax treaties with many foreign countries that offer preferential tax treatment for certain types of income. Due to the layers of tax complexity that are inevitable with expatriating, you should consult with a qualified CPA before making your move abroad.

Get Your Financial House in Order

Another aspect of life that will be affected by an international move is your personal finances. Not only will the cost of living vary from your experience in the States, but your process for paying bills will also change. Retirees can elect to open new financial accounts in their adoptive country or keep their assets in the U.S. Be aware that many foreign banks are hesitant to open accounts for U.S. citizens due to the mandatory reporting requirements it subjects them to under U.S. financial regulations. U.S. citizens who are able to open foreign accounts are then required to file certain IRS forms annually to report those assets. Failure to comply with this can result in stiff penalties so make sure you understand your reporting requirements!4

Many foreign banking institutions also lack the protection of U.S. institutions, particularly for ordinary checking and savings accounts. U.S. banks are insured by the FDIC for deposits up to $250,000 per individual, a level of security that isn’t offered in many other countries. Due to the complexity involved in moving financial assets abroad, it often makes the most sense for U.S. citizens to leave the bulk of their assets in U.S. institutions. The ubiquity of online banking makes this option easier to execute than in the past. Expats can access cash worldwide through ATMs, although transaction fees can be heavy. To avoid that pitfall, consider opening accounts at a U.S. institution that has no foreign ATM fees and a favorable currency exchange rate.

Think Twice Before Cutting Ties to the U.S.

While it might seem like you can avoid a lot of headaches by not being a U.S. citizen, there are significant hurdles to severing your connection to the U.S. Renouncing your U.S. citizenship not only impacts your ability to cross international borders, but it also can trigger a hefty tax from the IRS.5

In addition, U.S. regulations restrict access to U.S. securities markets by foreign individuals. This means a large portion of your investment portfolio may have to be sold when you give up U.S. citizenship.6 Add to these issues the inability to enter the U.S. at will, the forfeiture of Social Security and Medicare benefits and the outside potential of becoming a stateless individual, and it becomes clear why renunciation of U.S. citizenship is a pretty rare phenomenon.

If you’re dreaming of a retirement abroad, it’s important to start planning early. Reach out to a qualified financial advisor to begin the conversation. They can walk you through the complexities of life as an expatriate, and create a comprehensive financial plan to help make that dream a reality.

Thinking about retiring abroad? Contact our team for help with navigating the planning process.

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services and fees is set forth in Wipfli Financial’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Leah Schmid
Leah Schmid

CPA | Associate Advisor

Leah Schmid, CPA, is an Associate Advisor with Wipfli Hewins Investment Advisors in Madison, WI. Leah primarily focuses on personal financial planning, tax planning and charitable giving strategies for families and individuals nearing retirement.

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Dreaming of Retirement Abroad? Here’s What You Need to Know

time to read: 5 min