A fi­nan­cial guide to re­tir­ing in a far­away land

The Washington Post Sunday - - BUSINESS - BY JONNELLEMARTE jon­nelle.marte@wash­post.com

Is it your goal to spend your golden years liv­ing in a hut on the beach of a Caribbean is­land?

Or do you dream of a sec­ond act run­ning a vine­yard in Tus­cany? Re­tir­ing over­seas can be more en­tic­ing and more af­ford­able — depend­ing on the lo­cale— than re­tir­ing in the United States. But a smooth tran­si­tion re­quires care­ful plan­ning.

“When you just be­gin think­ing about it at a su­per­fi­cial in­fat­u­a­tion level, it’s a very ex­otic, ro­man­tic, sexy idea,” says Kath­leen Ped­di­cord, pub­lisher of Live and In­vest Over­seas, which an­nu­ally rank­ing of the best places to re­tire over­seas. “But the truth is that once you get into it, it’s not easy.”

Not all of the lifestyle changes that come with mov­ing over­seas will be ideal. Re­tirees will want to re­search how the move could af­fect their cost of liv­ing, tax bill and health. Some fac­tors to think about be­fore you sell your be­long­ings and buy a one-way ticket:

Res­i­dency. Some coun­tries are ex­tremely wel­com­ing to re­tirees from the United States, lur­ing them with tax breaks, prop­erty rights and other perks. In parts of Latin Amer­ica, “pen­sion­ado” pro­grams may let re­tirees live in the coun­try in­def­i­nitely and im­port prop­erty such as a car to the coun­try tax free, Ped­di­cord says. The ini­tia­tives typ­i­cally re­quire re­tirees to show they have a cer­tain amount of monthly in­come — a thresh­old that can of­ten be reached with So­cial Se­cu­rity ben­e­fits, she says.

Other coun­tries have a higher bar for res­i­dency, re­quir­ing re­tirees to have siz­able sav­ings as proof that they can sus­tain them­selves and won’t be­come a bur­den. In some coun­tries, the min­i­mum may be about $250,000, Ped­di­cord says. Re­tirees may also start by get­ting a tem­po­rary visa be­fore es­tab­lish­ing long-term res­i­dency.

Cost of liv­ing and lifestyle. One of the big­gest fac­tors mo­ti­vat­ing peo­ple to re­tire abroad is the re­al­iza­tion that their sav­ings may go a lot fur­ther in another coun­try, Ped­di­cord says. The av­er­age rent bill in some ma­jor U.S. cities may be enough to cover a month of hous­ing, food, util­i­ties and en­ter­tain­ment abroad. For in­stance, in the Algarve re­gion of Por­tu­gal, named the most at­trac­tive place to re­tire abroad by Live and In­vest Over­seas, a re­tiree could live on $1,410 a month, in­clud­ing $600 for rent. One of the more af­ford­able cities, Da Nang, Viet­nam, re­quires $840 to­tal monthly to cover hous­ing, food, util­i­ties and other bills.

But re­tirees need to keep in mind that those lower bills usu­ally mean mak­ing changes when it comes to lifestyle. Some­one liv­ing cheaply in a third-world coun­try may have to deal with the power go­ing on and off, the wa­ter dis­con­nec­tions and lim­ited ac­cess to ap­pli­ances they might be used to hav­ing back home, says Ben Gur­witz, a fi­nan­cial ad­viser with Fi­nan­cial Life Ad­vi­sors.

“If you’re try­ing to bring Amer­ica some­where else, you’re go­ing to be dis­ap­pointed,” he said. “If you em­brace what the lo­cals do, you’ll be hap­pier with the move.”

Health care. Medi­care, the health in­sur­ance most Amer­i­cans rely on in re­tire­ment, won’t cover you out of the coun­try. Peo­ple liv­ing out­side of the States will gen­er­ally need to buy a health in­sur­ance pol­icy that pro­tects them in what­ever coun­try they’re in, Ped­di­cord says. Or they can buy an in­ter­na­tional plan that cov­ers them in mul­ti­ple coun­tries, in­clud­ing the United States, she adds. (Those will gen­er­ally cost more, as health care in the United States tends to be more ex­pen­sive than in other coun­tries.) In some coun­tries with low health-care costs, re­tirees may be able to skip in­sur­ance and pay out of pocket for rou­tine doc­tors’ vis­its and ba­sic treat­ment, Ped­di­cord says. Peo­ple go­ing this route can buy a plan with a high de­ductible that would help cover costs af­ter a ma­jor ac­ci­dent or emer­gency, she says.

Some peo­ple will still want to en­roll and pay for Medi­care, even if they are liv­ing abroad, Gur­witz says. That will en­sure they are cov­ered if they need to re­turn to the States for surgery or other treat­ment, he says. Sign­ing up when they be­come el­i­gi­ble can also help peo­ple avoid late en­roll­ment penal­ties if they de­cide to move back to the United States later. (Those penal­ties typ­i­cally in­crease monthly pre­mium costs by more than 10 per­cent.)

Where to keep your money. The ideal strat­egy may re­quire at least two bank ac­counts: one in the United States where you keep the bulk of your sav­ings and one in the for­eign coun­try where you keep your spend­ing cash, says Scott Bishop, di­rec­tor of fi­nan­cial plan­ning at STA Wealth Man­age­ment in Hous­ton. Re­tire­ment sav­ings in a 401(k) or an IRA should be kept in the States, be­cause oth­er­wise the ac­count may need to be cashed out, an event that would re­quire peo­ple to pay taxes on all of their sav­ings at once, he says.

Hav­ing a U.S. check­ing ac­count will make it easy to re­ceive So­cial Se­cu­rity ben­e­fits and sim­plify mat­ters for taxes. You can trans­fer a few months’ worth of spend­ing money into a lo­cal bank ac­count, which might be eas­i­est for with­draw­ing cash and hav­ing money in the lo­cal cur­rency, Bishop says. That for­eign check­ing ac­count may need to be reg­is­tered with the In­ter­nal Rev­enue Ser­vice, headds. And re­tirees should fac­tor in the fees for trans­fer­ring cash and any for­eign trans­ac­tion fees they might face for with­draw­ing money from a U.S. bank ac­count while

abroad, he says.

So­cial Se­cu­rity. Most of the time, U.S. cit­i­zens find that their So­cial Se­cu­rity ben­e­fits will fol­low them wher­ever they land. There are ex­cep­tions, how­ever. The So­cial Se­cu­rity Ad­min­is­tra­tion won’t send pay­ments to ben­e­fi­cia­ries in Cuba and North Korea. It also won’t send pay­ments to peo­ple in Ge­or­gia, Kaza­khstan, Kyr­gyzs­tan, Moldova, Ukraine, Uzbek­istan and Viet­nam. (Check with the So­cial Se­cu­rity Ad­min­is­tra­tion and the Trea­sury Depart­ment, which pe­ri­od­i­cally up­date the list of coun­tries with re­stric­tions.)

Some peo­ple can qual­ify for ex­cep­tions if they agree to cer­tain rules, such as pick­ing up their checks in per­son each month at the U.S. em­bassy. But, gen­er­ally, the ad­min­is­tra­tion will with­hold pay­ments un­til a U.S. citizen moves to a coun­try where ben­e­fits are not re­stricted.

Taxes. Mov­ing to, say, Belize won’t of­fer an es­cape from the dreaded April 15 dead­line. Re­tirees liv­ing abroad still have to file a tax re­turn ev­ery year. Many re­tirees will re­ceive cred­its for the taxes they pay to other coun­tries, help­ing them to avoid dou­ble tax­a­tion, Bishop says. Re­tirees need to re­search the rules for the places they think they want to move to es­ti­mate taxes and fac­tor the costs into their plan­ning, he says.

Prop­erty. Real es­tate can of­ten be much more af­ford­able out­side of the United States, es­pe­cially af­ter you ac­count for the dol­lar’s re­cent rise against the euro and other cur­ren­cies. But peo­ple look­ing to es­tab­lish a per­ma­nent abode for them­selves in another coun­try may find that they’re re­stricted from buy­ing prop­erty. In Mexico, for ex­am­ple, for­eign­ers can’t buy prop­erty near the coast un­less they do it through a cor­po­ra­tion or trust, ac­cord­ing to Live and In­vest Over­seas.

Many coun­tries, in­clud­ing France, Spain, Por­tu­gal, Italy and the Do­mini­can Re­pub­lic, al­low for­eign­ers to buy prop­erty as any citizen would, the re­port notes. If own­ing your home is im­por­tant to you, look up the rules. One op­tion is to rent out your home in the States to pay the last of your mort­gage or to pro­vide rental in­come that can pad your liv­ing ex­penses over­seas.


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