5 Things to Know Before Retiring Outside the U.S.

Do the homework. Before pulling up roots, it’s important to thoroughly research the foreign locale you’re considering. This includes understanding the neighborhoods where you might want to live, safety considerations, and the cost of living, which could be vastly different from what it might be if you stayed put. Don’t forget to factor in food, shelter, transportation, healthcare, and taxes so you are confident you can afford the new location on a retiree’s budget, advisors say. To get a sense of culture and other issues that can come up, it can be helpful to thumb through a copy or two of International Living and browse around online at Expat Exchange. There also may be social-media groups of people who have made similar moves and can serve as good information sources. 

“Don’t just say, ‘The market is hot. I want to sell my home and move to Costa Rica,’”says Beau Henderson, chief executive of RichLife Advisors in Gainesville, Ga. “It’s important to map out a process. This is a major life transition.” 

Understand the banking options. Part of the planning-ahead process should include making sure you know how you are going to bank and access your money, Henderson says. Otherwise, you may run into unexpected roadblocks. He offers the example of a client who was testing retirement life in Mexico and requested that funds be wired from her U.S. bank to a local institution. The Mexican bank balked, citing a requirement for documentation that the client could only obtain from within the U.S. Luckily, the client found another way to access her funds, but the example underscores the need to plan ahead, Henderson says.

Even if you expect to transfer most of your savings to the new country, some funds can’t be deposited directly into foreign accounts. These include retirement account distributions, Social Security, and pension plan payouts, he says. 

Take a test-drive. Advisors recommend clients take an extended vacation in the location they are considering before settling there permanently. This could mean renting, maybe over the summer or for a six-month stretch. Henderson’s client did this type of trial run, renting out her Atlanta house for six months to defray the costs of an exploratory stay in Mexico. During this time, she realized she didn’t want to live in the area she had initially expected to love. Only when she decided with more certainty on the Mexican community she wanted to be a part of did she put her house in the U.S. on the market, Henderson says.

Consult with an international tax expert. Even if you live full time in a foreign country, you’ll likely still have to pay taxes in the U.S., says Rodrigo Faro, CEO of Brainvest Wealth Management in Miami. That’s because according to IRS rules, worldwide income of U.S. citizens or resident aliens living outside the country is subject to U.S. income tax, regardless of where they live.

There are also differences in how foreign investment funds are taxed, and there can be reporting requirements based on how much money you hold in foreign bank accounts, he says. “Financial planning, tax planning, and succession planning: Those are three things you can’t ignore before you go. They might even determine where you are going to live,” he says.

Because each county has its own tax rules, it behooves investors to find an expert in the country they are considering, says Judi Leahy, senior wealth advisor, Citi Global Wealth. “It’s country-specific. One person may be great for Mexico but is not great for Germany,” she says.

Think long term. Many couples retire to a foreign country when they are healthy. But they don’t always think ahead to what will happen if one or both of them need long-term care. How much this could cost, the types of facilities available, and whether they will have family nearby to help, if needed, are all important considerations, says Dan Casey, investment advisor and founder of Bridgeriver Advisors in Bloomfield Hills, Mich.

Medicare is another important factor to consider. Some people may decide not to sign up for it when they are eligible because of plans to move permanently outside the U.S. This can be a mistake, because they can’t be sure they will never need it, Casey says. Even though Medicare premiums can cost several hundred dollars a year, signing up on time avoids hefty penalties associated with doing so later, he says.

Depending on where they move, retirees may need to be comfortable with socialized medicine, which could mean waiting longer for certain procedures. This is an important consideration especially as retirees age and their healthcare needs increase, says Max Wasserman, co-founder of Miramar Capital in Northbrook, Ill. Private insurance may also be available in some countries, for an additional cost, which needs to be factored into their budget, he says.

These issues aren’t necessarily showstoppers, Wasserman says, “but they are things you have to process properly when you are thinking about a move.”

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