Planning for retirement involves thinking about a lot of details, including where you’ll live. For retirees who weren’t able to travel frequently while a part of the workforce, a popular option for retirement is moving abroad. There are several benefits of retiring abroad, such as lower costs of living and healthcare. However, there are a few details to consider before you finalize your decision to retire in another country. Here are some key things you need to know if you’re retiring abroad.
There are many advantages to retiring abroad, such as getting the opportunity to explore new places and cultures. When you retire in a foreign country, you’ll have the freedom to travel to neighboring areas and see more of the world, as you’ll have more time to spend on trips now that you’re not working full time. Similarly, you’ll be able to meet new people and learn about their cultures, try foods you’ve never tasted before, and experience new kinds of weather.
Another huge benefit to retiring abroad is the lower cost of living you can often find. For instance, many retirees move to regions like Asia or Central America, where it’s much more affordable to purchase a house or rent an apartment. This will give you more financial freedom to spend money on luxuries and traveling, so you can treat yourself to purchases and trips that you may not have been able to budget for while living in the United States and working a full-time job.
Similarly, healthcare is often much less expensive in countries other than the United States. For example, the average cost of visiting a general practitioner in Mexico is around $15, while the same visit in the U.S. can cost up to 10 times this amount. Many countries also have universal or public healthcare that retirees can access free of charge, even if they’re not native residents.
What Are the Tax Implications for Expat Retirees?
Even if you retire in a country far away from the U.S., you’ll likely have to pay U.S. taxes well into your retirement. This is because U.S. citizens maintain responsibility for U.S. taxes, regardless of where they permanently live. While the taxes on your income, such as money you receive through an annuity or a 401(k), remain largely the same, there are a few key differences that come with taxes for retirement.Â
For example, if you opt for a foreign pension in the country where you retire, you likely won’t get the tax breaks you’d get in the U.S. This means your contributions may not be tax-deductible, and you might be taxed on the plan’s growth even if you don’t take any distributions.
However, if you get income from a foreign retirement plan and pay income tax on that money, you might qualify for tax credits like the Foreign Tax Credit. This tax credit deducts income tax you’ve paid on foreign income from the tax you owe to the U.S. In terms of eligibility, American retirees are eligible for the Foreign Tax Credit if they meet key requirements, such as earning money abroad, maintaining U.S. citizenship, and paying income taxes to their current country of residence.
Does Retiring Abroad Affect Your 401(k) or IRA?
When you retire abroad, you’ll still be able to take distributions from your 401(k) or IRA in the same way you would if you retired in the U.S. However, there are a few cases where moving abroad can affect your retirement accounts. For instance, some retirees decide to transfer their 401(k)s to a plan with an overseas company, which can result in higher taxes and disqualify the transaction from counting as a rollover. You may also experience an early withdrawal penalty.
How Can I Guarantee Income if I Retire Abroad?Â
When investing for retirement, you can guarantee regular income well into the future by buying an annuity. This is a contract that involves you contributing a specific amount of money to an insurance company that, in return, pays you a regular income for a pre-determined period of time. Even if you retire abroad, you’ll be able to reap the benefits of annuities, as they won’t be affected by your moving out of the country. This means if you purchase a fixed annuity before retiring and move abroad, you’ll still receive a steady income.
This has been an overview of the considerations to keep in mind before you decide to retire abroad. While you’ll need to think about details like how you’ll do your taxes and whether to transfer your 401(k) to a plan with an overseas company, there are several advantages to retiring abroad. As long as you plan carefully and take time to balance your finances before you leave, you can enjoy a relaxing retirement in a beautiful place, giving you the chance to explore your surroundings and see more of the world.Â
