Retiring Abroad
After years of working and saving, possibly supporting a family all the while, you finally have time to think about yourself and how you’d most like to spend your golden years. Perhaps you always wanted a rustic villa with Old-World charm or dreamed of long evening strolls on a shimmering beach. Retirement can be an opportunity to embark on the adventure of a lifetime and forge a new dream home abroad. Now more than ever, global infrastructure and technology are aligning to make this a less daunting choice than it once seemed. As many as 3.3. million baby boomers are considering retirement in another country1. Certainly, there are challenges to permanent or part-time foreign settlement, but with the right planning and guidance it is within reach of many Americans who have even modest retirement savings.
Define your must-haves and comfort zone
Certain considerations are a matter of personal taste: a dynamic urban hub or quaint countryside? Distinct seasons or the humid embrace of a tropical climate? A significantly different culture or America-lite?
There are also social factors to weigh, such as how far you are willing to be from US-based friends and family and how often visits can be arranged. Many places have thriving expat communities which organize group activities while other places would allow for more organic interactions with locals, some offer both. Depending on how much you have travelled previously, you might have reservations about needing to learn another language or sacrificing your current standard of living. Yet retiring abroad doesn’t necessarily entail either of these things. There are desirable retirement destinations where all signs are in English and you can afford to go out more, as well as enjoy indulgences beyond your current budget in the USA.
This is a unique chance to choose the perfect place for you. Being as authentic as you can about your own desires is important. It is equally important to get a sense of what a given locale is like at different times of the year, during the vibrant tourist months as well as during quieter and perhaps less amenable seasons. Beyond considerations of personal taste and comfort, there are several major areas of practical concern: finance, taxes, health care, and visas.
Financial Implications
The financial motivation is a major one for most people considering retirement abroad. According to the U.S. Bureau of Labor Statistics (2017), the average American 65 years or older spends about $3,800 per month. In the surprisingly affordable destination of France, a couple could live on half of that amount per month, and in the increasingly popular retirement haven of Vietnam it can even be a third. Before running to book your ticket, it is necessary to ensure ample funds are available for an emergency exit plan, should you decide to repatriate to the USA.
Social Security
Depending on your work history, you may also be factoring in a social security check when the time is right. In 2020, the Social Security Administration reported 707,238 retired workers receiving their social security benefits abroad2. Some countries are in bilateral agreements with the US so these benefits can be directly deposited into foreign accounts. Whether the country you choose has such an agreement, or not, opening a foreign bank account will be advantageous.
Foreign banking
Opening a bank account as an expat is usually a straightforward process, though some countries, especially in Europe, have residence requirements. This can be fulfilled by purchasing or leasing property, or simply by demonstrating presence in the country for so many days in the year. Even if your Social Security check or IRA distributions aren’t deposited directly into this foreign account, you may use one of the many online fund transfer platforms to fund this account from your domestic one at a fraction of the cost of an international wire transfer. Making frequent transfers to cover month to month expenses not only allows you to continue growing your savings in US Dollar accounts, but can also shield you in case of regional financial crises. Not every country has a SEC and FDIC, as some retirees in Cyprus painfully learned in 2012. As part of the fallout from the Greek dept crisis and overexposure to questionable investments, the second largest bank in Cyprus was forced to close and all individual deposits over €100,000 were seized. Let this stand as a cautionary tale. Another motivation to keep foreign bank balances low is reporting. Regardless of tax status, any foreign account owned by a US Citizen with a balance in excess of $10,000 must be reported to the IRS (form 8938) according to the Foreign Account Tax Compliance Act of 2010. Which leads us to the final and perhaps most important financial consideration. . .
Taxes
As a proud US citizen your tax obligations follow you to every corner of the Earth. If it is within your means, a CPA who specializes in expat finances could be your best friend in facilitating foreign settlement. All world-wide income, including withdrawals from your various saving accounts and even a percentage of your social security check, are subject to taxation by the IRS. If you continue to own property in certain states, you may also be subject to state-level taxation. On the bright side, the U.S. has treaties with 65 countries3, including Mexico and Canada, to help you avoid any double taxation. You may also be able to get a foreign tax credit if you are obliged to pay taxes in you new country of residence. In most cases, sought-after retirement destinations are popular because of the low additional tax burden they place on retired expats living off of savings. If you are able and willing to work in your foreign residence, the foreign earned income exclusion (FEIE) protects $107,600 of your foreign income from Federal income tax4.
Healthcare
While a country like Colombia may get you thinking of Pablo Escobar and guerillas, it should be more well-known for excellent health care. In a WHO study5 on Health System performance which ranked 191 countries, the USA came in at 37 and Canada at 30, while Colombia ranked 22nd. In the same study, Portugal, which tops multiple lists of prime retirement destinations, came in 12th and France came in at number one. Rankings aside, in most countries, quality healthcare can be covered out-of-pocket or through affordable national healthcare schemes. Even though Medicare doesn’t cover you abroad, it might not be wise to stop paying your premiums once you leave, depending on your retirement trajectory and any plans to eventually return State-side. Medicare Plan B premiums increases 10% for every year you could have been enrolled but weren’t, so stopping payment, then starting again 10 years later, could end up being more costly than paying a lower premium from age you initially qualify..
Visas and other regulations
Ah, the visa dance. From a global perspective, an American retiree with plenty of savings is spoiled for choice when looking for welcoming countries. Even in situations where long-term visas are not possible, a seasonal visa run can be worked into your retired life rhythm. There are other regulations to consider, regarding buying property, inheritance, etc. as well as whether you would be allowed to continue working, should you wish. These factors are often interrelated as some visas aimed at foreign retirees ban their entry into the local labor market and can require substantial investment in property or government investment schemes. These so-called “golden visas” can be a ticket to low-maintenance, long-term residence. Schemes vary drastically country by country, but it is worth noting that qualifying as a resident retiree can have huge benefits. For example, in Panama and several other Latin American destinations there are Pensionado6 programs which offer a stunning array of discounts from doctor visits to hotel stays.
Finally, before packing your bags you need to make sure that your estate plan, will, POA etc. are all valid abroad as sometimes simply moving out of state may invalidate them. You can contact the US consulate of your chosen location or American Citizens Abroad to get a list of local attorneys who will be able help you.
Country Overviews
There are several Global Retirement Indices which can be found online, the most comprehensive being that produced by the French firm Natixis7. It is aimed at people who desire the best of the best, regardless of cost. Other indices give more preference to frugality, while also weighing access to health care and quality of life8. Below is a geographically grouped country-by-country overview of some of the best retirement destinations, as featured on multiple compilations.
Europe
France
Have you a romantic heart or gourmand palate? Perhaps France may attract you as a surprisingly affordable retirement destination, as long as you are willing to settle outside of Paris and can stomach a bit of bureaucracy. The undeniable perks are superior healthcare, abundant places of historical and cultural interest, and state-subsidized wine.
Estimated cost for two people (per month): $2,000- 2,500
Taxes: France has a tax treaty with the U.S. While you do have to declare worldwide income, retirement income is only taxable in country of origin (U.S.). Property tax is 1%. Beware that there is a complex inheritance tax appliable to French property.
Visas: Long-term residents can apply for a visa/carte de séjour temporaire (a residence visa for retirees). You need proof of financial means ($1,025/mo single; $1590/mo couple) and are not allowed to work in France, but it is readily granted if you have all the supporting documentation. It is renewable and valid for 10 years.
Spain
With varied terrain, vibrant culture, and life-loving people it is no wonder that Spain remains Europe’s staple summer get-away and is steadily attracting retirees from across the pond. While taking a three-hour break in the middle of the day is not for everyone, for some people it is exactly what retirement should be.
Estimated cost for two people (per month): $2,500
Taxes: Low property tax. Income taxed if more than $24,000/yr. Steep IVA (VAT) for many goods. Capital gains tax is 19% and inheritance tax applies to property owned by expats.
Visas: For a Spanish “Golden Visa” you must make a € 500,000 investment . In return you will get 10 years of access to the EU which also extends to family. After 10 years of permanent residency, you can apply for citizenship if you so desire.
Portugal
This smaller Iberian country has recently become a hot-spot for retirees who have eyes for a warm and rustic European home. The growing expat community cite friendly locals, low crime, affordability, and great healthcare as reasons to settle down in Portugal. Their Golden Visa scheme has already brought €4 billion into the Portuguese economy and while adjustments to the policy are ongoing, it doesn’t seem under threat of being axed entirely any time soon.
Estimated cost for two people (per month): $2,500 – $3,000
Taxes: No wealth tax on properties under € 600,000, all foreign earned (i.e. US based) income exempt from taxes for first ten years of residence if you qualify for Non-habitual Residence (NHR) status.
Visas: “Golden Visa” (Residence Permit Program)9 available through several different investment schemes starting at € 250,000 ($295,000), € 500,000 if investing in property, which must be maintained for five years. There is a stay requirement, but it is only seven days the first year and 14 days in the following two years. This also allows you to travel visa-free in the EU Schengen Area and family members receive the same rights as the Golden Visa holder.
Another option is to apply for a three-month Stay Visa, which can be extended, upon demonstrating a monthly income of at least $1,070.
Malta
Come wander through cobbled alleys under an azure Mediterranean sky on this tiny island nation with 265 sunny days a year. Malta is a unique island where the local language is a mix of Arabic and Italian and the people have the hospitality of both cultures. Conveniently, English is also an official language. The Knights of Malta still operate here where Caravaggio once sought their absolution and the island currently boasts a fine collection of this hot-tempered (but brilliant!) artist’s work. While you still have to board a plane to visit the rest of Europe, you may just as well visit Tunis or Cairo. Malta has been keen to attract foreign retirees, hence it offers a whole suite of tax incentives.
Estimated cost for two people (per month): $2,600- $3,000
Taxes: Like the US, Malta does tax world-wide income, but only at a flat rate of 15%. Add to that a dollar for dollar Foreign Tax Credit from the IRS and the complete absence of wealth tax, gift tax, and inheritance tax and you can start to understand why all those yachts are in Valletta’s harbor.
Visas: There are several schemes available all the way up to a “Golden Passport” available upon roughly a million-dollar investment. To qualify for the ordinary residence scheme, you only need to demonstrate that you have $25,000 ($31,000 for couple) in a bank account, a clean criminal record, proof of health insurance, and a lease agreement in Malta. Upon meeting these requirements, you will be granted an e-Residence card which will give you travel access to the entire Schengen zone of the EU. This residence permit can be renewed for five years, after which you may apply for permanent residence.
Asia
Malaysia
Right at the heart of South-East Asia, Malaysia is a multi-cultural treasure trove with astounding bio-diversity. For lovers of pan-Asian cuisine, Malaysia offers a smorgasbord of Malay, Chinese, and South Indian delights. It has increasingly attracted Medical tourists and now tropically inclined retirees are trickling in to take advantage of this rapidly developing, yet affordable locale. Many of the larger cities such as Kuala Lumpur and George Town, offer all modern amenities with a vibrant Malaysian flair yet there are also more rustic places to be found along the thousands of miles of tropical coast. Due to its colonial history, English is still widely spoken in Malaysia, thus language is less of a barrier than in similar Asian destinations.
Estimated cost for two people (per month): $1,500-$2,500 (varies widely depending on standard of living you desire)
Taxes: No taxes on foreign sourced income and no gift, estate, or capital gains tax. There is a Sales and Service Tax (SST) on most consumer goods and services of 5-6%.
Visas: Malaysia has an accessible long-term visa for expats and retirees alike known as
“Malaysia My Second Home” or MM2H visa. It is a 10-year visa which automatically renews itself and can be acquired by either investing $35,000 in a Malaysian Bank or by proving a monthly income of $2,340. For those 50 years and above, you are even allowed to work up to 20 hours a week if you’re so inclined.
Vietnam
For those with an adventurous spirit and a wish to be dazzled by idyllic scenery, Vietnam is worth considering for retirement. Several factors, such as visas and restrictions on Foreigners owning land, make Vietnam more suitable for a part-time, rather than permanent, home. Places like Hanoi and Da Nang have substantial expat communities and the local population is known for being friendly. The cuisine is also an exquisite blend of Cambodian, Thai, Chinese and French! Aside from the abundant natural beauty and cultural offerings, the chance to simply reduce cost of living attracts many to retire in Vietnam.
Estimated cost for two people (per month): less that $1,500
Taxes: If you live in Vietnam more than 183 days per year, then you qualify as a tax resident and may be obliged to pay taxes. Income tax operates on a progressive scale up to 35%. Non-residents are not obliged to pay taxes on income originating outside Vietnam. There is property tax at the municipal level, as well as estate and gift tax. All these tax burdens do need to be borne in mind, though the favorable exchange rate with the Vietnamese Dong (VND) means your US dollar will go a long way.
Visas: As of yet, Vietnam offers no specialized retirement visa or resident permit aimed at self-financing foreigners. This means that you would have to leave the country every three months to renew your visa or pay a fee to do it within the country. Thus, Vietnam is ideal for those inclined to split their time between two or more places.
Bali (Indonesia)
Derived from the Sanskrit word for “offering”, Bali is a living offering to the senses and spirit. It is the only predominantly Hindu island in Indonesia, reflecting a heritage of cultural syncretism that goes back almost 2,000 years. If you haven’t heard of this Indonesian province, now would be a great time to google it. See, paradise on Earth. As Bali is still relatively inexpensive, it has drawn retirees who are not only enamored, but who aim to retire in a warm climate on a limited income. Though foreigners can’t own property on Bali, one can acquire leaseholds for 30+ years and let their imagination soar.
Estimated cost for two people (per month): $1,500-2,500
Taxes: The USA and Indonesia have a tax treaty so you will avoid any double-taxation on your retirement income. Interest earned on Indonesian investments are taxed at a flat 20% rate. VAT is 10%. There is no sales tax, but there is a 10% on tourism tax on hotels, restaurants, etc. Sale of domestic property incurs a 5% tax.
Visas: The Indonesian government has a Temporary Stay Visa for Retirees – C319 aimed at self-financing foreigners over 55. It would also allow you to live in Jakarta, Java, or any other part of the sprawling nation. It is valid for one year and can be renewed for up to 5 years, after which you may apply for permanent residency. The basic requirements are that you have an Indonesian “sponsor” (agency), demonstrate a monthly pension of $1,500, have a monthly lease of $500 or invest $35,000 in a property (lease-hold), and employ at least two Indonesians. This last requirement is not as steep as it might sound: a gardener and a cook, each coming several times a week, will only set you back $100 a month or even less. This visa prohibits work, but allows you to open a local bank account and apply for a driver’s license. For couples, only one needs to meet the criteria for this visa and the other may stay on a more general residence permit (KITAS).
https://www.imigrasi.go.id/apply_ri/retrirement
Americas
Mexico
With delicious food, multiple climates, and rich cultures, our neighbor to the south has attracted approximately one million American retirees. Sometimes it is easy to overlook what is nearby, yet Mexico’s proximity can be a huge boon to American retirees who still want to visit family regularly or even continue to receive medical treatment in the US. That said, in certain regions, high-quality health care is available in Mexico and you can be insured for less than $1,000 a year.
Estimated cost for two people (per month): $1,500 to $3,000
Taxes: If you qualify as a resident in Mexico, you are required to report and pay taxes on world-wide income. Mexico does have a double taxation agreement with the USA, so you can claim Mexican tax credits against US income taxes paid. Mexico is otherwise a country of minimal tax burden.
Visas: There is a retirement visa for those who can show a monthly retirement income of $2,300/month or an average annual investment balance of $93,000. A Temporary residence visa (up to 4 years) can be obtained by demonstrating a monthly income of $1,400 or owning a home in Mexico worth $200,000 or more.
Costa Rica
Have you ever met a Costa Rican outside of Costa Rica? They have the lowest emigration rate of any country in the Caribbean Basin for a reason. Two tropical coasts sandwich lush jungles and a population so friendly that they disbanded the army. It is also a progressive country which aims to protect its rich environment and legalized same-sex marriages in 2020. So, no matter who you love, your nuptial union will be respected and you can enjoy green vistas for many years to come.
Estimated cost for two people (per month): $ 2,000 – $2,500
Taxes: Income tax only applies to income generated within Costa Rica, so anyone living off of US-based savings won’t be taxed on that income. There is a goods and services tax of 13%, but it doesn’t apply to food and medical services. Low property tax of 0.25%.
Visas: Costa Rica boasts the oldest Pensionado Program in the Americas which was designed to attract US retirees, though it no longer features certain tax breaks. To qualify you only need to demonstrate a minimum monthly income of $1,000 from a pension or retirement plan. There are also several other visas which are investment-based or reliant upon demonstrating a lump sum of unearned income.
Panama
Panama has many of the same appeals as Costa Rica, being its southern neighbor, though the cost of living is slightly higher. Your extra dollars will not be spent in vain, as Panama has more developed infrastructure, is considered safer, its currency is the US Dollar, and English is widely spoken. Panama City, its capital, is often compared to Miami and will appeal to those who thrive on a sleek urban buzz. Yet there are also many a quiet beach town on either coast, so Panama has a lot to offer people of varying tastes.
Estimated cost for two people (per month): $2,600 to $3,500
Taxes: Panama is a well-known tax haven, like a tropical Switzerland and income tax only applies to Panamanian sources. This is one area where you are unlikely to have much tax burden above what you owe the IRS.
Visas: Panama also has an appealing Pensionado Program which can be obtained upon showing a minimum monthly income of $1,000 from pension sources. Once on this program, you are also eligible for a wide array of discounts.
Colombia
Admittedly for the more adventurous and people who thrive in a foreign culture, Colombia has made significant strides in the past few decades to become safer and more developed. As stated above, their health care system is ranked significantly higher than the USA’s and is considered the best in South America. There is a growing number of expats in the city of Medellin which enjoys a year-long spring and has a population of 2.4 million. It still has pockets with a small-town, community feel and many people note how friendly and welcoming Colombians are. Knowing Spanish isn’t a must, but would definitely help you be more integrated.
Estimated cost for two people (per month): $1,050 to $2,750
Taxes: Colombia is less tax-friendly than most of the other countries on this list. If you live in Colombia more than 183 days in a year and have an income above $14,000, then you will have to file taxes here as well as with the IRS, as there is no tax treaty between the countries. There is also a 19% VAT (IVA) tax on most goods. Still, the cost of living is low enough to make this additional tax burden less of a burden.
Visas: Colombia offers an M-11 (pensionado) visa valid for up to 3 years. To obtain it, you must have proof of health insurance and a minimum monthly income of $703. You are not allowed to work in Colombia on this visa.
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Hopefully this list has given you some food for thought. Please reach out to Willow Grove Advisors if you would like help with the necessary financial planning and strategic investment which could secure your ideal retirement here or abroad.
1 https://www.travelmarketreport.com/articles/Overseas-Retirement-Boom-Is-Gray-Gold-for-Agents
2 https://www.ssa.gov/deposit/foreign.htm
3 https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z
5 https://www.who.int/healthinfo/paper30.pdf
6 https://www.embassyofpanama.org/retire-in-panama
7 https://www.im.natixis.com/us/resources/2020-global-retirement-index-full-report
8 https://internationalliving.com/the-best-places-to-retire/
9 Portuguese government website: https://imigrante.sef.pt/en/solicitar/residir/art90-a/