By Lewis Schiff, the Armchair Millionaire
NEW YORK (Armchair Millionaire)
Dear Armchair Millionaire: My husband and I are seriously considering relocating to another country for retirement. What are the financial issues we should consider in this kind of move? -- Ready to Retire
If you do end up retiring abroad, you may find that you have plenty of American neighbors. Because the U.S. does not track the number of its citizens who leave the country, it's tough to get an exact number of how many Americans retire overseas. However, the U.S. State Department estimates that there are about 4 million U.S. non-military citizens living abroad, and that about a quarter of them are retirees.
Our recent question about retiring abroad to members of the Armchair Millionaire community revealed some interest there, too. Here are a few of the comments we heard:
"Yes, I have thought of moving to another country. Costa Rica would rank right up there at the top because of its beautiful climate, scenery and cheaper cost of living." -- John C.
"New Zealand. Just a beautiful, lush countryside. English-speaking. Dollar is strong. Imagine California with only a population of 3 million instead of 33 million and coastline on the north, east, south and west." -- Joey
"I consider moving out of the States all the time. Contrary to what many Americans believe, there are now several countries -- including Canada, the Nordic nations, and other parts of Western Europe -- that now boast a higher standard of living than we do (not to mention superior healthcare for the dollar). Also, more than ten countries now tout more civil rights and freedoms than we do (disappointingly ironic when you consider the label, "Land of the Free"). And for retirees, there's always the option of taking your American dollars where they buy more. -- Jon
Pulling up roots and moving to a new country is obviously a huge step, so above all else you should make the decision carefully. There are dozens of issues to consider, from cultural and language issues to the weather. My checklist zeros in on the key financial issues you should consider.
The Armchair Millionaire's Checklist of What to Consider Before Moving Abroad
What is the real cost of living? While the lower cost of living in many countries is one of the primary things that makes living abroad attractive, you need to figure in additional costs that you might occur abroad that you might not here in the U.S.
Travel back and forth between your adopted country and the U.S. is one obvious cost that will offset the lower cost of living, but you will also want to look at whether the exchange rate is favorable to you or not.
How will you obtain health care? Medicare does not cover health services outside of the United States, so you will need to explore how your medical needs will be taken care of.
Some countries with government-sponsored health insurance also extend coverage to resident foreigners. In other countries, you may need to purchase private health insurance. As a last resort, you may need to rely on a U.S. health insurance company that will provide coverage for Americans living abroad.
What will you pay in taxes? As a U.S. citizen, you still have to pay taxes on your income regardless of where in the world you may be living.
However, living abroad may qualify you for various deductions and credits that you would not otherwise receive. So consider whether your tax liability will substantially change if you choose to live abroad.
How are the communications? While we take reliable phone and Internet links for granted here in the U.S., they do not exist every where.
Given that you'll probably want to manage your U.S. banking, investments and bill paying activities online from your home abroad, you'll need access to a good telecommunications system.
Can you buy a home? Many countries do not allow foreigners to buy real estate, or place restrictions on which property you may buy.
If buying a retirement home is in your plans, be certain to understand any restrictions in the country of your choice in advance.
THE BOTTOM LINE: Moving abroad -- whether for retirement, a new job opportunity or just to sample another way of life -- can be a complicated and costly step. Be sure you understand exactly what you're getting yourself into before making the move.
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