(For readers not even close to being ready to retire thinking about living abroad, this can also be a good start!)
You’ve worked hard for decades, investing your money strategically and spending it wisely. Now the ultimate goal of retirement is finally within range, and it’s time to make plans for the rest of your life. If you hope to retire abroad, you have more factors to consider than most retirees.
While retiring abroad is an exciting and alluring goal, it can only be successfully achieved with diligent research and preparation. Here’s what you should know before purchasing your international flight tickets.
Costs of Retiring Abroad
Before anything else, you must consider the costs involved in retiring abroad. If you can’t afford your new international home, your retirement will end before it has a chance to begin.
Start by using the Social Security Administration’s Retirement Estimator to get a clear estimate of your future Social Security benefits. Add your other sources of income and savings into the equation, subtract your debt, and you’ll get a rough idea of what you can afford to spend each month in retirement.
Some of the most idyllic areas in the world have a much lower cost of living than the United States, while others cater to the most exclusive of the upper class. List the costs involved in retiring in your top three dream destinations to better determine which are within your budget.
Be sure to include these cost considerations:
- Travel to visit family and friends in the U.S
Research the Climate
When picking the place where you’ll spend the next few decades of your life, it’s important to consider the climate. Do you prefer cool, clean mountain air? Heat and sunshine near the beach? Four predictable seasons? Make your decision, then select the locations that offer both the climate and budget you desire.
Managing Assets and Currency
Managing your assets is often complicated enough from the U.S, but retiring abroad creates a new level of potential complexity. Luckily, having the foresight to tackle this issue with the help of a financial adviser can make your journey much easier.
Take these considerations into account:
- Open a bank account in your new country of residence to pay for monthly expenses and use a debit card without foreign transaction fees.
- Keep an account open in the U.S to pay taxes and accept retirement account or Social Security benefits
- Arrange regular quarterly transfers from U.S bank account to local international account to minimize fees
- Initiate other transfers when exchange rates are favorable
Property and Tax Laws
Property and tax laws can get hairy overseas. They become even more complicated when you still have assets in the U.S. The Foreign Account Tax Compliance Act (FACTA), for example, requires overseas banks to report to the IRS foreign assets held by U.S taxpayers.
Under FACTA, all U.S citizens living abroad must also report their holdings in foreign accounts, including investment accounts, if the total funds exceed $300,000 (for single filers) at any point during the year or $600,000 (for married people filing jointly). The U.S Treasury Department also requires a Report of Foreign Bank and Financial Accounts for all people whose total assets in foreign financial and investment accounts exceed $10,000 during the calendar year.
As a result, it’s very important to pre-plan your accounts and taxes with a professional. That way you never miss an essential tax filing, treasury report, or property payment.