How-to Guides

Retiring in a foreign country is a dream shared by thousands of Americans. Yet the number who actually pack their bags and cross the border to enjoy a life of leisure in a foreign country is difficult to gauge -- neither the U.S. Census Bureau nor the Social Security Administration maintains comprehensive data about retirees abroad.

For those who do make the move, however, the key to financial success is planning -- above and beyond the type of planning normally required to accomplish a successful retirement at home. The following considerations will help you lay the groundwork for a smooth transition and avoid any unpleasant surprises that might otherwise arise after the big move.
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In general, the Social Security Administration (S.S.A.) allows eligible individuals living outside of the United States to collect Social Security retirement payments in their country of residence. There are exceptions to the rule, however.

For example, your eligibility to collect Social Security benefits overseas may be affected by your foreign citizenship status and by whether or not you receive dependent or survivor benefits. And regardless of your citizenship, the U.S. Treasury Department forbids the S.S.A. to send payments to retirees living in Cuba, North Korea, Cambodia, Vietnam, or certain countries that were once part of the Soviet Union.
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As far as the IRS is concerned, out of sight is not out of mind. Or, to put it in the government's own words: "If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income." (Source: IRS Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad.") That means you'll need to pay tax on income -- including taxable distributions from employer-sponsored pension plans and pensions -- regardless of where you live when you receive the money.

But it's not necessarily that simple. The United States has signed tax treaties with approximately 50 nations around the world. In part, these treaties are designed to help taxpayers avoid double taxation -- i.e., paying full taxes on the same income to two different governments. You should consider working closely with a tax advisor who specializes in international taxation to learn exactly how your benefits payments will be taxed in the country where you plan to live.
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This example illustrates how the purchasing power of your U.S. dollars could decline after six months of declining currency exchange rates. (This is a hypothetical example for illustrative purposes only. It does not reflect the actual exchange rate of any country.)

January 1
If the exchange rate for purchasing Country X dollars with U.S. dollars is 1.50%, then:
$1,000 (U.S. money) x 1.50% = $1,500 (Country X money)

July 1
If the U.S. dollar has weakened against the Country X dollar since January and the exchange rate has fallen to 1.28%, then:
$1,000 (U.S. money) x 1.28% = $1,280 (Country X money)

As you can see, even though the amount of your U.S. income has not changed, a weaker U.S. dollar has caused you to "lose" $220 in local currency during each conversion.
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If your retirement assets are denominated in U.S. dollars, then you'll need to consider the implications of spending and budgeting in a foreign currency. For example, you could opt to convert U.S. dollars to cash on an as-needed basis, or choose to make purchases on a U.S. credit card that automatically "translates" the amount back into dollars on your statement. In either situation, it pays to research which financial institutions offer the best exchange rates and lowest transaction fees.

Just as important, however, is the need to understand how currency fluctuations can affect your budget, particularly if you're living on a fixed income. If the value of the U.S. dollar declines -- i.e., "weakens" against the value of the local currency -- then the purchasing power of your U.S. income may drop significantly. (See examples above.)

There is nothing you can do to control exchange rates, but you may want to set aside some extra money to supplement your monthly or annual budget in the event that a currency devaluation causes you to "lose" money during future conversions.
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Medicare coverage usually ends when you set foot on foreign soil. If it's impractical for you to return to the United States for medical treatment, then you should consider purchasing additional health insurance policies.

Remember, too, that moving to a country with universal health coverage does not necessarily mean you will be immediately eligible for such coverage. Again, it pays to know the rules before arriving in your new country.

You should also review any U.S. insurance policies that you plan to keep in place after a move. For example, if your U.S. homeowner's policy requires the residence to be owner occupied, then a relocation could jeopardize your existing coverage.

Finally, don't overlook the immigration policies of the country you hope to call home. The expenses and waiting periods associated with submitting your paperwork may be significant, and ignoring them could result in an unfriendly "welcome" from the local authorities on moving day.
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