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By Grace S. Yung, CFP
Retiring abroad has become a popular option for those who are seeking the unique experiences that other areas of the world can offer. Doing so can also be a way to potentially lower your living expenses, especially if can gain access to more affordable healthcare.
If you plan to move to another country, though, it is important to have a good understanding of the various issues you may face, such as the country’s regulations for non-citizens, as well as U.S. tax and financial regulations. And if you are in a same-sex marriage, it is also imperative that you know whether your union will be recognized in your new home.
Ensuring that Your Income Remains Steady
In retirement, one of the key issues is ensuring that you’ll have enough income to live on, as well as having funds available for emergencies and for fun. So if you’re heading out of the United States, be sure that you will have access to the money that you’ll need, when you need it.
This can include making sure that any interest or dividend income you have from accounts in the United States can be obtained on a regular basis without having to pay exorbitant foreign transaction fees. Depending on how long you plan to remain abroad, it could make sense to set up investment accounts in your new country of residence.
While it may not be the source of all of your retirement income, Social Security is a major component of incoming cash flow for U.S. retirees. The good news is that this retirement income can follow you even if you leave the United States. But getting your payments isn’t automatic—and there are certain countries where Social Security payments cannot be sent, due to U.S. Treasury regulations.
In general, though, provided that you don’t move to a country where banking is restricted, you will be able to continue receiving your benefits for as long as you are eligible for payments. This includes continued payments even if you become a citizen of certain countries such as Germany, Ireland, Japan, Austria, Canada, France, and the United Kingdom.
If, however, you do not plan on remaining a U.S. citizen—and you don’t qualify for an exception for continued Social Security income receipt—then your Social Security income will stop after you have been outside of the United States for six full calendar months. If this occurs, your Social Security income cannot be started back up again until you come back and stay in the U.S. for a full calendar month. According to the Social Security Administration, this means that you must be in the U.S. on the first minute of the first day of the month, and remain through the last minute of the last day of that month. You may also be required to provide proof that you were present in the U.S. during that entire time frame.
Organizing Your Banking and Investing Matters
Since having money available to you will be key (both for your day-to-day living expenses and the occasional emergencies), it can be helpful to open a bank account in your new location. When you find a bank, make sure that your new account will be able to accept transfers from your current bank account in the States.
Today, with most banks and financial institutions offering online access, it can be fairly easy to check your account balances, pay your bills, and manage your money while you’re abroad. However, there may be restrictions and fees involved when transferring money to and from certain countries.
Also, having a major credit card like a VISA or MasterCard can be helpful for making purchases just about anywhere, as they are accepted in numerous locations around the globe. Before using your card in another country, though, be sure that you contact your credit-card company and make any adjustments that may be needed. Some credit card companies will block foreign transactions in order to deter identity theft, so letting the issuer know that you are moving abroad can be crucial in avoiding surprises down the road. (In addition, some credit cards charge a foreign transaction fee.)
If you opt to move your investments and/or other assets to your new country of choice, be sure to work with an attorney and/or tax advisor in determining if and how these financial vehicles may be taxed.
Health and Long-Term Care Issues
Healthcare is another key component of any overall financial plan—and having access to the care you need is essential. Be aware that there are many U.S. insurance companies that will not provide you with coverage while you’re living abroad—and this includes Medicare.
Depending on where you plan to reside, the healthcare may be so affordable that you won’t need health insurance. However, some foreign healthcare may not be up to the same standards that you are accustomed to the in the U.S. In any case, it is important to make sure that you, as a foreign resident, will have access to the same care—for the same fees—as the residents of that country have. You may find that it is to your benefit to return to the United States if you require certain surgeries or major medical procedures.
Also, as we age, we come to rely more on long-term care services—even if you just need assistance with basic living activities like bathing and getting dressed. Because Medicare and regular health insurance pay little to no long-term care expenses, long-term care insurance could be one way to help cover these costs. However, if you have this type of coverage, you might not be able to access the benefits when you’re abroad—or the benefits you can access will be limited. (Look for details in the Exclusions and Limitations section of your policy. You might find that you can use your coverage only in certain countries, such as Canada and the U.K. If you already have long-term care insurance, you should inquire with your insurance carrier about what, if any, coverage can be used in specific countries.
In many areas of the world, long-term care costs are folded into their government-provided universal healthcare coverage, so the need for long-term care insurance will be nonexistent.
If you are considering the purchase of a long-term care insurance policy, be sure that you go with an insurer that provides benefits in the country you intend to reside in. Other considerations here include whether to purchase a policy offering reimbursement of your actual expenses—up to a certain daily or monthly limit—or a policy with an “indemnity” benefit that pays you a set dollar amount per day or month, regardless of how much your care actually costs. In many cases, getting a policy that pays based on indemnity can be the better way to go, especially from a money-management standpoint.
What About Taxes?
Throughout our lives, the United States tax system plays a major role—and, unless you renounce your U.S. citizenship, it will continue to do so even if you move to a foreign country.
Anyone who remains a U.S. citizen will still be required to file an annual income tax return with the IRS—which includes declaring funds that you withdraw from your retirement accounts. The rules for filing income, estate, and gift-tax returns, as well as for paying estimated taxes, are generally the same regardless of whether you are living in the U.S. or abroad. Because you are still subject to taxation, it would be wise to stay in contact with your U.S. advisors, especially since tax rules can change over time.
Ensuring Recognition of Same-Sex Marriage Abroad
If you are in a same-sex marriage, it is also important to know whether or not the country where you plan to reside will recognize your union. Both tolerance and legal protections for same-sex marriages can vary substantially from one country to another. In fact, there are currently more than 75 countries that consider consensual same-sex relations to be a crime that may involve steep penalties. So prior to moving ahead, be sure that you get as much information as possible—directly from the foreign country’s LGBT community, if possible—as this could have a major impact on your lifestyle and safety.
The Bottom Line
Regardless of where you plan to retire, ensuring that you are set financially is crucial to your wealth, your health, and your overall happiness. So prior to making a big move abroad, it is essential to do your homework so you are well prepared for the hurdles you will face.
For those in the LGBT community, it can be beneficial to work with an advisor who is experienced in financial and retirement planning issues that are specific to both single individuals and same-sex couples, and who can keep you informed of any tax, legal, and/or financial-related changes as they come up.
Personal finance-related questions may be emailed to [email protected].
Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the 2014 September issue of Texas Monthly.