By ALAN KONDO, CFP, CLU
Perhaps you have always dreamed of retiring in a chateau in Paris, or maybe on an island in the Caribbean. Retiring overseas is a wish shared by thousands of Americans. If you are thinking of enjoying your golden years in another country, be sure to understand the hurdles you may have to face.
The following considerations will help you lay the groundwork for a smooth transition and avoid any unpleasant surprises that might otherwise arise after the big move.
In general, the Social Security Administration allows eligible individuals living outside of the United States to collect Social Security retirement payments in their country of residence. There are exceptions to the rule, however. For example, your eligibility to collect Social Security benefits overseas may be affected by your foreign citizenship status and by whether or not you receive dependent or survivor benefits.
Regardless of your citizenship, the U.S. Treasury Department forbids the Social Security Administration to make payments in certain countries, including Cuba, North Korea, Cambodia, and Vietnam.
Unfortunately, living abroad does not absolve you from paying U.S. taxes. As far as the IRS is concerned, out of sight is not out of mind. You will need to pay tax on income — including taxable distributions from employer-sponsored pension plans and pensions — regardless of where you live when you receive the money.
The United States has signed tax treaties with approximately 50 nations around the world. In part, these treaties are designed to help taxpayers avoid double taxation (i.e., paying full taxes on the same income to two different governments). You should consider working closely with a tax advisor who specializes in international taxation to learn exactly how your benefits payments will be taxed in the country where you plan to live.
If your retirement assets are denominated in U.S. dollars, then you will need to consider the implications of spending and budgeting in a foreign currency. For example, you could opt to convert U.S. dollars to cash on an as-needed basis, or choose to make purchases on a U.S. credit card that automatically “translates” the amount back into dollars on your statement. In either situation, it pays to research which financial institutions offer the best exchange rates and lowest transaction fees.
Just as important, however, is the need to understand how currency fluctuations can affect your budget, particularly if you are living on a fixed income. If the value of the U.S. dollar declines against the currency of the country in which you are residing, the purchasing power of your U.S. income may drop significantly.
Medicare and Other Insurance
Medicare coverage usually ends when you set foot on foreign soil. If it is impractical for you to return to the United States for medical treatment, then you should consider purchasing additional health insurance policies. Remember, too, that moving to a country with universal health coverage does not necessarily mean you will be immediately eligible for such coverage. Learn the rules before arriving in your new country.
You should review any U.S. insurance policies that you plan to keep in place after a move. For example, if your U.S. homeowner’s policy requires the residence to be owner-occupied, then a relocation could jeopardize your existing coverage.
Finally, do not overlook the immigration policies of the country you hope to call home. The expenses and waiting periods associated with submitting your paperwork may be significant, and ignoring them could result in an unfriendly “welcome” from the local authorities on moving day.
The opinions expressed above are solely those of Kondo Wealth Advisors, LLC, a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, LLC nor its representatives provide legal, tax or accounting advice.