More American retirees are trying out new lives abroad, particularly in warm southern climates where living is cheaper.
[A total of] 373,224 retired Americans were living abroad in 2013 — an increase from the 346,216 reported in 2011, according to the Social Security Administration.
The largest number, 68,054, live in Canada, followed by Japan with 32,143, Mexico with 27,512, Germany with 24,499 and Britain with 22,729. Other nations with a large number of retired Americans include Greece, Poland, Italy, Israel and the Philippines.
The appeal of a new, adventurous life is huge; even the challenges and constant learning are part of the fun. But don’t leave home wearing rose-colored glasses. Make sure you can answer these seven questions before you relocate:
1. Do you know what you’re getting into?
Life being what it is, your new life is likely to include ups, downs and obstacles. Maximize your chances of success by anticipating the biggest issues. For example, research the cost of living by visiting a few times before you move.
Learn from the experience of others by visiting online expat forums and online publications. Transitions Abroad is a portal for expats with lots of links and resources, including:
An American who retired with her husband to a small Welsh village told The New York Times that “she has found that expatriate blogs written by fellow Americans are ‘phenomenal’ for advice and insights on matters like taxation, health care and insurance.”
- “The Biggest Expat Regrets About Moving to France” in The Local, an English-language publication in France.
- “What You Need to Know Before Retiring Abroad” from MarketWatch.
- Merrill Lynch’s list of things to consider when retiring abroad.
2. What’s your disaster plan?
It’s hard to read cues in another culture. Don’t assume a place is safe (or dangerous) from appearances alone. Be alert, bone up on current issues and have backup plans in case of trouble.
Research your destination. The State Department’s Office of American Citizens Services and Crisis Management has detailed, current information about crime, kidnappings, civil unrest by country and often by city. You’ll find emergency phone numbers for the countries you’ll visit, and you can read up on local health, transportation, and laws and criminal penalties.
Here’s one example of the level of detail you’ll find, from the site’s advice on traveling in Ecuador, a popular retiree destination:
Remain vigilant when contracting professional services for assistance with Ecuadorian visas, real estate transactions, or customs brokering for imported household effects.
U.S. citizen retirees regularly complain about unethical practices by lawyers, real estate agents and others who have taken advantage of their lack of knowledge about local language, laws and culture, resulting in costly losses and little hope for a remedy through the local judicial system.
Carry emergency contact information. Keep a paper copy of your emergency contact numbers in your wallet. Also, add your emergency contact information to the spot provided in your passport. Consider using the State Department’s Smart Traveler Enrollment Program to store your location information so a U.S. embassy or consulate can reach you or your emergency contacts if necessary.
Copy your passport. Photocopy the data page of your passport and give it, with your emergency contact information, to one or two people you trust, one in your new home and another in the U.S.
Have a communications plan. Designate someone to be your family’s contact in an emergency. Even when local phones aren’t working, you may be able to call outside your area. If you become separated from family or friends in a disaster or emergency, everyone can report in to your central contact who relays messages.
3. Are you realistic about real estate?
Wait to buy. Wait at least a year before buying real estate to learn more about your new home, its real estate market, the pros and cons of various neighborhoods, and to find out if you really like it enough to stay.
Be wary of helpful strangers. Scammers and con artists prey on real estate shoppers. When looking at property, take nothing you’re told at face value until you’ve confirmed it, wrote Kathleen Peddicord, author of “How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad,” in an article in U.S. News & World Report. Peddicord points out that overseas real estate markets don’t always have the legal regulation found at home. Her tips:
- Research a property’s title thoroughly.
- Vet a developer.
- Learn any restrictions on foreign ownership of property.
- Learn the best way to take title.
- Have an exit strategy.
- Budget for all the costs involved.
When purchasing, use an independent real estate attorney who represents no other parties in the transaction.
4. Have you met with an accountant?
Taxes and financial management can be complex when you live abroad. To learn the rules, have at least one consultation with an accountant or tax attorney who works with Americans abroad.
Federal income tax. Even when living abroad, you are still on the hook for U.S. income tax. “Your worldwide income is subject to U.S. income tax, regardless of where you reside,” says the Internal Revenue Service website on Taxpayers Living Abroad. Details are in IRS Publication 54 (2013), “Tax Guide for U.S. Citizens and Resident Aliens Abroad.”
Individual taxpayers get an exemption of about $100,000, says The Wall Street Journal article “Offshore Accounts: What to Do Now.” It says Americans “also can claim a credit for foreign taxes paid on both earned and unearned income — such as that from investments — though the credit may not completely compensate for double taxation.”
State income tax. Check with individual states about state income tax requirements.
5. Are you up on U.S. financial reporting laws?
In recent years the U.S. government has imposed two complex rules that affect Americans who live or bank abroad:
- Report of Foreign Bank and Financial Accounts (FBAR). File a FBAR report if you have “a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country, the value of which exceeds $10,000,” the IRS says. “FBAR requires Americans — whether they live in Boise or Bangkok — with foreign accounts that have $10,000 or more held in them to notify the IRS annually of that year’s highest balance,” says USA Today.
- The IRS Foreign Account Tax Compliance Act (FATCA). This law requires Americans abroad, and their banks, to report on their overseas financial accounts to the IRS. FATCA is a complex and controversial law meant to stop companies and individuals from hiding taxable assets. FATCA affects “everything from retirement savings to investments to divorce settlements,” says the detailed Wall Street Journal report, “Offshore Accounts: What to Do Now.”
6. How will you manage your finances?
Before moving abroad, decide how you’ll manage your assets, transfer money and do banking in your new home. You’ll need to be able to get at your money easily while avoiding or minimizing bank fees. Banking is becoming more difficult for Americans abroad as some foreign banks are declining or limiting American’s accounts because of the U.S. financial reporting requirements, USA Today says.
- “7 Financial Tips to Help Expatriates Prepare for When Danger and Disaster Strike Abroad,” at ExpatExchange.
- Transitions Abroad‘s tips on managing finances abroad by travel writer Rick Steves and others.
- “5 Credit Card Mistakes Expats Should Avoid,” at CreditCards.com.
7. How will you pay for health care?
Medicare generally does not cover heath care outside the U.S. (Medicare explains the rules.) Besides the 50 states and Washington, D.C., Medicare covers health care in Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa.
Kiplinger describes strategies for accessing health care abroad, including private insurance, paying out-of-pocket and health care insurance policies designed for expats.
Also, think as you would when moving within the U.S. about the quality and expense of medical care in your new home and how easily you’ll be able to reach doctors and hospitals. FutureExpats says:
If living in a bustling metro area is not your taste, how fast and easy is transportation to those areas you’re considering? Use your common sense – if your dream retirement is on a remote beach or mountaintop retreat that’s an eight-hour drive over mostly dirt roads to get to the nearest city, that will be an issue in accessing quality health care.
Here are more resources to help with your planning:
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