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Retiring overseas is possible with careful financial planning

Kimberly Clouse Covestor Advisory Board Chair and Chief Client Advocate Covestor

Retiring overseas is a “Money Milestone,” an exciting life event that will have a major impact on your financial situation. Reaching a Money Milestone should trigger a comprehensive review of your finances and possibly the implementation of some new strategies. Retiring is a milestone as is moving to another country; so retiring in a foreign country is a double-milestone.

More and more Americans are considering spending their retirement years abroad. At a time when nest eggs aren’t hatching like they used to, and Social Security doesn’t provide as much security as many had hoped it would, living for less in a foreign locale might make sense. Of course, there’s a lot to consider, including distance from loved ones, bureaucracy, language barriers, and culture shock as well as better climates and adventure.


Do take a broad view of what “overseas” could mean to you

Many retirees consider Mexico and Central and South America and then put away their atlases. But there are affordable places in Southeast Asia and Europe, particularly Portugal, the provinces of France and Southern Italy.

Do determine what is most important to you in retirement

The International Living's Global Retirement Index ranks the 22 countries most popular with American retirees according to eight categories. Of the eight, International Living most heavily weights cost-of-living when compiling its list of top retirement havens. Using this metric, Ecuador ranked highest overall on the index; the Dominican Republic came in 22nd. But what if quality of health care is most important to you? (International Living’s eight categories are real estate; special benefits for retirees; cost of living; ease of integration; entertainment and amenities; health care; infrastructure; and climate.)

Do learn about residency requirements

Of course, each country will have its own requirements to become a legal resident. The primary requirement is proof of income, and income requirements vary by country. Foreign governments want some assurance that you won’t be taking a job away from a local and/or become a “ward of the state.”

Do claim your Social Security benefits

You can still get your Social Security benefits if you live overseas. Many expats have their Social Security and pension checks deposited into their U.S. bank account and withdraw money at local ATMs (at favorable exchange rates) as needed. U.S. regulations intended to help combat drug and terrorist activities have made it much more complicated for American expats to open accounts abroad, and in some cases, to keep their U.S.-based accounts open.

Do learn about foreign taxes, including the VAT

The U.S. tax system is complex and subject to change; international taxes can also be complex and subject to change. It’s best to consult a local tax attorney regarding income, capital gains, and property taxes. In general, property taxes are similar in the U.S. and Europe and much lower in Latin American. However, Latin American capital gains rates can be high.

One tax that is new to most Americans: the value-added tax (“VAT”). The VAT is a form of consumption tax, and to the buyer, it is a tax on the purchase price. VAT is assessed and collected on the value of goods or services that have been provided when there is a sale or purchase. The seller charges VAT to the buyer, and the seller pays this VAT to the government. In many countries, a VAT tax is a key revenue source as high unemployment and low per capita income render other income sources inadequate. In Europe, 15% to 21% VAT is added to nearly everything, except food.

Do establish online financial accounts

Make sure you establish financial accounts (checking, saving, investment) that you can access any time, any where, over a secure Internet connection. Most people - retirees included - do not want time differences or the cost of international calls to stand between them and information about their money. There are a number of online asset management companies, such as Covestor, that enable investors to select, monitor, and re-position portfolios online, around the clock, worldwide


Do not rely on Medicare for health insurance

Medicare coverage is one thing you can’t take with you. The U.S. generally prohibits Medicare from covering medical expenses for retirees outside the the country. Some people opt to join the national health care system while others buy an insurance policy from BUPA International, which provides health insurance in 190 countries to 800,000 people.

Your health care needs should inform your decision of locale. For example, many expats in Mexico regularly make “Medicare runs” to the U.S. and can do so because it’s geographically feasible. 

Do not forget about Uncle Sam

The United States taxes citizens on worldwide income, regardless of where they reside. In addition to reporting worldwide income, you must also report on your U.S. tax return whether you have any foreign bank or investment accounts. However, the U.S. government has agreements with several countries in order to protect expats from having to pay income tax to the IRS and to the government of their adopted home. The Association of Americans Resident Overseas estimated that in late 2011, there were over 6 million Americans (including military personnel), living in 160 countries, not all of them retirees, to be sure, but they are a source of tax revenue that the IRS does not want to “give up.”

Do not limit your “research visits” to high season

Spend time in an area during its worst season before you make a move. Go to the beach during their summer to find out if 100% humidity is for you. Being a resident and being a vacationer are two very different things.

Do not forget to budget for airfare back to the States

Depending on your family - and medical - situation, you may find yourself heading back to the U.S. frequently, for the expected and unexpected. As you think about the potential cost savings associated with moving overseas, don’t forget to add back travel expenses plus a cushion.

Jumping cartoon

Retiring abroad should make sense both financially and personally. For many, moving overseas provides lower healthcare costs and a higher quality of life. Before making this Money Milestone move, make sure you have your financial house in order so you can fully enjoy your expatriate existence.

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Photo Credits: Happy senior couple walking together - © dubova -; Check Man, Cross Man and Jump Man © ioannis kounadeas -

Kimberly ClouseCovestor Advisory Board Chair and Chief Client Advocate

Kimberly Clouse is Covestor’s Advisory Board Chair and Chief Client Advocate. She partners with families, family offices, and foundations to help them navigate investment advice and make more informed decisions. A seasoned financial services exe...

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