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“We’re 66 and 64. Our Social Security checks would go a lot further overseas. We want to sell the house and go. What are we missing?”
Let’s say that’s Rick and Donna. They’re a hypothetical couple, but it’s a question plenty of retirees ask.
I’ve been a CPA since 1981, and moving abroad can work. But Rick and Donna are thinking about what they’ll gain. They also need to think about what they’ll leave behind, and what Uncle Sam will still expect from them.
Start with the good news. The Social Security Administration says, “If you are a United States citizen, you may continue to receive payments while outside the U.S.” (1) There are exceptions, though, and I’ll get to them.
Now the bad news. In the same publication, SSA says, “Medicare generally does not cover health services you get outside the United States.” (1)
Then there’s the penalty that’s easy to miss.
Medicare.gov says that if you go without Part B when you could have had it, and you don’t qualify for a Special Enrollment Period, you’ll pay “an extra 10% for each year you could have signed up for Part B, but didn’t.” (2) For most people, that’s a lifetime penalty. (2)
And the IRS says that as a U.S. citizen, you’re “subject to tax on worldwide income from all sources,” whether you live in the United States or abroad. (3)
Here are six things Rick and Donna need to settle before they book one-way tickets.
1. Make sure your new country can get your check
Social Security follows most Americans abroad, but not everywhere.
SSA says the Treasury Department “prohibits making payments to persons residing in Cuba or North Korea.” (1) It also generally can’t send payments to people in Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan or Uzbekistan. (1)
SSA has an online Payments Abroad Screening Tool that “will help you find out if your retirement, disability, or survivor’s payments will continue indefinitely.” (4) Run it for any country on your list.
2. Plan for Medicare to stay home
Since Medicare generally won’t pay for care you get overseas (1), Rick and Donna need a plan for health care where they’re going: local insurance, a national health system they qualify for, or paying out of pocket.
Get real quotes before you move, not after. At 66, health coverage could be one of the biggest lines in your new budget, and you don’t want to learn the price after you’ve sold the house.
3. Decide about Part B before you go — it could cost you for life
This is the trap. Part B has a monthly premium. (2) If you’re living abroad and Medicare won’t pay for your care there, dropping it looks like easy savings.
But if you ever come back, the late penalty can follow you. SSA warns that if you sign up later, “you will pay a 10% higher premium for each 12-month period you could have been enrolled but were not.” (1)
Medicare.gov’s own example: wait two full years to sign up without qualifying for a Special Enrollment Period, and you’ll pay a 20% penalty, “10% for each full 12-month period that you could have signed up.” (2)
Go without Part B for 10 years, and by that same math, your premium could be 100% higher, for as long as you have Part B. (2)
Plans change. Family, health or plain homesickness can bring you back. If there’s any chance you’ll return, run the numbers on keeping Part B before you drop it.
Quick gut-check — if your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and writing about money since before the internet existed. Sign up for the free Money Talks Newsletter and get expert advice that’s been tested by time.
4. You’ll still file a U.S. tax return
Leaving the country doesn’t mean leaving the IRS. U.S. citizens abroad “must report all taxable income and pay taxes according to the Internal Revenue Code,” the agency says. (3)
The IRS adds that the rules for filing income, estate and gift tax returns “are generally the same whether you are in the United States or abroad.” (3)
Your new country may want to tax you, too. How the two systems interact depends on the country, and this is not the place to guess.
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5. Open a foreign bank account? Know the $10,000 rule
Once Rick and Donna move, they’ll almost certainly open a local bank account. That triggers paperwork.
The IRS says a U.S. person must file a Report of Foreign Bank and Financial Accounts if “the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.” (5) It’s filed with the Treasury’s Financial Crimes Enforcement Network on FinCEN Form 114. (5)
That’s on top of your tax return, and the IRS says it applies “even if the accounts don’t generate any taxable income.” (3)
6. Try it before you sell the house
This one is my advice, not a rule. Before you sell everything, rent in your target city for a few months, ideally during its worst season.
You’ll find out what things really cost, how far the doctor is, and whether you still love it in the rain.
A scouting trip doesn’t have to be expensive.
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Bonus: Update your estate plan for two countries
I was the executor of my parents’ estate, and I can tell you that settling an estate takes real work, even when everything is in one country. Add a second country, foreign accounts and maybe foreign property, and your heirs’ job gets a lot harder.
Before you go, make sure your will and beneficiary designations are current, and ask whether you’ll need documents in your new country, too.
A will locks in exactly who gets what, and a trust can control how and when heirs inherit. Trust & Will lets you create a will online for $199, with trusts starting at $499. Get started here.
My take
Rick and Donna’s plan isn’t crazy. For the right couple, a cheaper country can turn a tight retirement into a comfortable one.
In my view, the smart move is to plan for the trip home before you leave. Keep a foot in the door with Medicare, keep the IRS happy, and test-drive the new life before you sell the old one.
Adventure is a great retirement plan. A one-way ticket is not.
Sources: 1. Social Security Administration (Your Payments While You Are Outside the United States); 2. Medicare.gov; 3. IRS (U.S. Citizens and Resident Aliens Abroad); 4. Social Security Administration (Payments Abroad Screening Tool); 5. IRS (FBAR)
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