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Pros and Cons of Retiring Overseas

Expats enjoying the pros of retiring overseas

If you’ve thought about retiring overseas, you’re not alone. According to federal government data, over half a million people who live outside the U.S. receive some Social Security benefits. That number includes retirees and those nearing retirement. 

Charting an international path on a tight budget in retirement is complex and foreign to most. To help, we‘ve enlisted ex-pats and money management experts to help map out the perks, trade-offs, and financial implications. 

Open for a New Experience

“One of the biggest benefits that I’ve seen my clients enjoy is the new experiences that they’ve taken on since they moved,” says New York investment manager Ted Capwell, who works with several clients who moved from the U.S. to international destinations.  

That adventurers’ list of experiences includes new cultures, customs, cuisines, topography, interests, activities, and of course, people. 

Another big lifestyle plus: weather. 

“By having the autonomy to move abroad, you can really pick and choose which places are ideal for your well-being,” Capwell asserts. 

An Ex-pat Point of View 

Freelance writer and illustrator Elena Zimmerman is moving to France next year with her parents, newcomers to living abroad.  

The virtues of French life—a large middle class, high standards of living, free education and healthcare, healthier diets, and excellent, affordable public transportation—first attracted Zimmerman, who’s spent the last 11 years in Berlin. 

Her mother is retired, and her father, an engineer, and small business owner, plans to retire this year. 

“Overall benefits of living abroad are numerous,” extolls Zimmerman, who grew up in Massachusetts and Connecticut. “Towns and cities, in general, are much more walkable and designed to be accessed by foot, not car. In Europe, the life expectancy is slightly higher, and overall health is better.” 

The Other Side of the Coin

It’s not all roses on the other side of the North Atlantic, though. 

“There are, of course, negative trade-offs to consider as well. Including learning foreign languages, higher income tax rates, and protecting against double property taxes,” cautions Zimmerman. 

The U.S. is also one of the only countries in the world to tax ex-pat income, including Social Security retirement benefits, regardless of location, residency, or citizenship status.  

“So you might end up paying taxes both to the U.S. government and to the host government,” Capwell warns. 

Zimmerman accepts the trade-offs. “In the end, the cost of living in Europe at a middle-class status is considerably lower than in the United States,” she says. 

Retirees on fixed-income feeling the pinch of inflation can significantly lower living costs abroad while improving their quality of life, contends Joyce Little, who lived and worked in Los Angeles, Florida, and Toronto before relocating to Southern Spain in 2017. 

As director of Cloud Nine Spain, she helps international buyers purchase property in the Spanish coastal city of Marbella. 

“Our North American buyers love the lifestyle, weather, and vibrant international community they can join here,” Little said. “The Costa del Sol is very much like Southern California. Since I was my happiest living in Los Angeles thanks to lifestyle, climate, weather, landscape, etc., I immediately fell in love with this area and all that it has to offer. I am finding many retirees from the U.S. are following suit.” 

Healthcare and Taxes  

Derren Joseph recently picked up a custom-molded mouth guard from his dentist in Portugal for 21 euros (about $21). That price included the fitting and the dental surgeon’s time. When he was pricing that out in Miami, it was $1,100 or more.  

“The delta between the cost of health care outside of the U.S. and within the U.S. is astronomical,” says Joseph, an international tax advisor for private clients, ex-pats, nomads, and cross-border Investors. 

Portugal’s Golden Visa program—which allows non-European Union residents over 18 to make qualified investments in real estate, venture capital, private companies, and donations, among other areas, in exchange for residency, including family members—is one of the most popular of its kind in the world. 

Portugal granted more than 100 visas to U.S. residents last year, according to media reports.     

On the tax front, retirees on a fixed income should get a net benefit abroad compared to stateside. Particularly those living in jurisdictions with tax treaties, Joseph explains.   

“But the disadvantage would be typically the higher costs of compliance,” he cautions. 

Getting your taxes done for $200 or less, common at retail tax service providers nationwide, isn’t really an option in other countries. 

Professional tax teams, like Joseph’s, which analyze domestic trade tax and treaty implications, foreign bank accounts, and other financial documents and disclosures, will run a few thousand dollars annually. 

Consider it money well spent. 

“The IRS tends to be arguably more aggressive when it comes to transgressions and international tax than domestic tax,” Joseph said. 

Returns and Exchanges 

Relocating back to the U.S. could present a new set of financial and tax challenges. 

Retirement planning is one of the biggest issues facing ex-pats upon their return, according to finance coach and retired financial planner Michael Ryan. “If a person has been living abroad, they may not have contributed to a retirement plan in the United States.”  

Depending on the U.S. location, living expenses could be higher and some may take a tax hit returning stateside.  

“Depending on the time a person has lived abroad, they may be taxed on their worldwide income,” Ryan says. “There are many trade-offs to consider when deciding whether or not to move abroad, particularly in retirement.” 

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