
By Cheryl Winokur Munk
Aug. 9, 2024
For more Americans, retiring outside the U.S. has become a reality and not just a pipe dream.
The number of retired workers receiving Social Security benefits overseas increased from about 320,000 in 2009 to about 450,000 in 2022, according to the Social Security Administration. The ranks of all adults who would like to make a move are growing, too. Thirty-four percent of Americans who responded to a recent Monmouth University poll expressed interest in settling outside the U.S. That is roughly triple the percentage 50 years ago.

Dreamstime
Yes, moving to a Portuguese fishing village or town in Tuscany can be a dream come true, but failing to plan ahead—a process that can take 18 months or more for immigration, tax planning, and financial planning—can have unforeseen, and potentially devastating, consequences.
That’s because there are specific rules and regulations based on jurisdictions, treaties, and individual circumstances such as the amount of time spent in a country, the level of wealth, and the types of assets held. These rules take time to navigate and there can be a lot of paperwork and advance tax and estate planning required.
“Planning to be a U.S. citizen living abroad or as an expatriate is so complicated,” says Susan Black, managing director and wealth manager at Boston Financial Management. “It should not be a capricious act taken on an emotional whim.”
Here are eight considerations for people contemplating an overseas retirement:
Tax planning is critical. One of the biggest mistakes people make is failing to understand that they are likely to have a new tax residency. They assume the way they were taxed in the U.S. is the way they’re going to be taxed in another country, says Alex Ingrim, senior investment analyst at advisory firm Chase Buchanan. Each country has its own rules on what fulfills the requirements of tax residency, so understanding the minutia is important, he says.
If someone does fulfill the requirement of tax residency, the next step is to refer to the double taxation agreement between the U.S. and that country to understand which country has the primary right to tax under different circumstances. It’s important to find competent advisors, with local expertise to guide you. “The rules are really intricate, especially in some countries,” he says.
Here’s just one example: If you have a Roth IRA and move to Canada, the government there will consider your account a “pension” and in most cases won’t subject it to taxes. But it’s crucial that you file a one-time election after you arrive to defer taxation on any income accrued in your account before your move. You must also stop contributing to the account once you arrive in Canada. Otherwise, you can be subject to annual taxes on income accrued in your Roth after your first contribution in Canada.
Maintain access to the U.S. financial system. For a host of reasons, including access to retirement assets, people retiring overseas will likely still need to keep some of their assets in the U.S. This, however, may require them to switch banking or brokerage providers because some providers won’t work with people who don’t have a U.S. address, Ingrim says.
A client who signed on with Ingrim after moving overseas was recently told by his U.S. financial provider that his brokerage account was being liquidated and the proceeds would be deposited into his banking account with the same company. Advance planning can reduce the potential for tax or other financial consequences, Ingrim says.
Understand the potential investing ramifications. Some investments that people have held for years may no longer be available if they retire overseas, says Stephan Shipe, owner of Scholar Financial Advising in Winston-Salem, N.C.
He worked with a couple who had sold their house in the U.S. and were living in Spain. They wanted to open an investment account in Spain, but they didn’t have access to the index funds they had when they were in the U.S. because they no longer had an address there. Shipe came up with a workaround that allowed the couple to buy a basket of stocks to mimic the desired index funds. But he recommends people moving abroad consider the potential investing ramifications ahead of their move to avoid headaches and potentially tax issues.
Currency translation. Another consideration could be the retiree’s buying power in another country, based on currency rates, with the understanding that rates tend to fluctuate, Shipe says.
He has a client who chose his desired location based on where the dollar was then strongest. A few million in the U.S. was the equivalent of $20 million or so from a buying perspective. Although that sounds good, people have to consider whether the exchange rate is likely to last and what it will mean to their portfolio if the tide shifts, Shipe says. The client had flexibility to move if the situation warranted, but Shipe tells people to stress-test their financials to make sure their retirement nest egg will be protected if something changes unexpectedly.
Don’t be rash in renouncing your U.S. citizenship. Black worked with a couple planning to renounce their U.S. citizenship after moving to Europe. She advised them to reconsider because doing so would have left them with a tax bill of several hundred thousand dollars based on their real estate holdings and exit taxes. They took her advice and avoided the severe tax consequences.
Health and Social Security benefit considerations. If you’re thinking of living abroad, Black recommends consulting the IRS, Social Security and Medicare websites to get specific information on how your benefits could be affected.
Many people just assume they can go back and forth between the U.S. and their new country as often and for as long as they want, but that may not be the case. It depends on the country and can be very nuanced, she says.
Couples also have to think about the quality of healthcare in the new country given that more health issues tend to crop up later in life.
Know what you’re getting into with life insurance. Black worked with a couple who loaded up on U.S. life insurance before moving to Europe, thinking the proceeds would go tax-free to their children upon death, similar to if they had stayed in the U.S. But they didn’t consider the possibility that beneficiaries might have to pay an inheritance tax, which can be the case in certain countries, she says. “Don’t make assumptions,” she cautions.
Pay attention to estate planning. Estate planning can also be complicated by moving overseas. Some countries have restrictions on who can inherit, for example, and it’s a bad idea to leave that to chance, Black says.
Shipe routinely tells clients that foreign countries have “no incentive whatsoever to follow U.S. law. You’re playing by their rules; they’re not playing by your rules.”
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