Help Expats Keep Retirement Dreams, Plans in Check

Clients retiring abroad must evaluate residency, Social Security, tax and healthcare implications.

Interest in retiring abroad has skyrocketed in recent years for several reasons – whether economic, political or simply more people looking to fulfill a lifelong dream. Whatever the motivating factor, advisors should be prepared to help these clients navigate the complexities that come along with this new phase in life.

Depending on the chosen location, retiring abroad can help your clients’ money go much further than it would in the United States. People are often pleased to find that expenses for housing, food, clothing, and other everyday essentials are much lower outside of the US. For those retiring on a fixed income or receiving Social Security benefits, which most expats are still entitled to, this is especially important.

Do Your Homework

Choosing to live abroad as a retiree is a big decision. Your clients will need to do their own homework before committing, but they will understandably come to you for your input and advice.

The first step we like to take is to make a wish list – do they prefer the beach, urban life, or the mountains? How close do they want to be to family? What kind of home are they imagining themselves in?

Once we have a wish list established, then it’s time to take a realistic look at their budget to see how feasible achieving the list is. What kind of income is coming in and what have they saved so far? What can they afford to spend every month? Will they be buying or renting their home? What about health-care options?

No advisor wants to crush the dreams of their client, but it’s our responsibility to keep dreams and plans in check. By answering these questions up front we can help ensure our clients are not getting themselves into a situation that could ruin them financially, or otherwise dampen the mood of their retirement.

Residency

Check on residency requirements since they will vary by location, and be sure to account for any fees that may be associated. Also, make sure your clients understand the differences between temporary residency, long-term residency, and permanent residency, and what those differences mean for them financially.

One other critical point to keep in mind is that establishing permanent residency does not necessarily grant citizenship. Interestingly enough, however, is the fact that several countries offer different “Citizenship by Investment” (CBI) programs that allow people to invest money in order to obtain citizenship in another country. According to the 2021 CBI Index, an annual report published by Professional Wealth Management magazine, the following 14 nations have CBI programs established as of last year: Antigua and Barbuda, Austria, Bulgaria, Cambodia, Dominica, Egypt, Grenada, Jordan, Malta, Montenegro, St Kitts and Nevis, St Lucia, Turkey, and Vanuatu.

Investment amounts and other requirements will vary by location, but let’s take Dominica as an example, which placed at the top of the CBI Index for the fifth consecutive year. Its CBI program requires a minimum contribution of USD $100,000 to the Economic Diversification Fund, or alternatively by investing in various government-approved real estate development projects.

Taxes

It should come as no surprise that U.S. citizens are unfortunately still required to file taxes with the I.R.S., even if they have retired in a different country. Pensions, 401(K)s, and Social Security benefits remain taxable, even though your client may no longer be working.

Again, the rules are different depending on where they live, but they may also have to pay taxes in their new home country depending on their circumstances. The good news is that the U.S. has tax treaties with some countries, allowing expats to be either taxed at a reduced rate or entirely exempt from foreign taxes. Additionally, the U.S. has established a system designed to offset tax obligations through a series of credits and exclusions.

Social Security

Social Security payments can be a significant portion of a retiree’s income, so knowing the rules for eligibility before moving abroad is crucial. Luckily for expats, they can receive Social Security payments as long as they continue to meet the two necessary requirements: meeting eligibility standards to receive payments and being located in a country where payments can be sent.

In order to determine eligibility, the Social Security Administration will send out questionnaires to beneficiaries living outside the U.S. Benefits will be revoked if a client fails to return the requested information. They are also required to report any paid work they have done abroad, as well as any major life changes that have taken place like marriage, divorce, death, or new address.

Healthcare

Healthcare is arguably the most important consideration for older clients moving abroad. The good news is that unlike the U.S., many other countries offer low- to no-cost healthcare to residents. In some cases, retirees can utilize a mix of Medicare and international private healthcare insurance to cover their healthcare costs. Evaluate health coverage options for wherever they are considering since these expenses can easily eat away at retirement savings and reduce quality of life.

Once someone is a resident of certain foreign countries, they may qualify for national health insurance, or may be able to buy private health insurance as an alternative. Knowing the specifics about different options will help ensure that coverage will be adequate and affordable for your clients.

For those living abroad, Medicare will typically not cover their medical expenses, but it’s still important to have the discussion with clients about whether or not they should consider enrolling. Most U.S. citizens over the age of 65 will qualify for Medicare Part A, receiving benefits at no cost. But those living abroad and paying for Part B may find that it is not worth the additional cost.

Additional Reading: Three Critical Conversations to Have with Near Retirees 

Whether an international move was built into the retirement plan all along, or if it was a spur of the moment decision, understanding the variances between countries, and how they will affect your clients financially, will help them make the most of their new adventure.

James “Beau” Henderson is the founder of RichLife Advisors LLC, a wealth and retirement planning firm that provides pre-retirees and retirees with holistic wealth management services. His firm provides provides investment advisory services through Fiduciary Capital, Inc. Beau is a licensed insurance professional in Georgia and holds RICP, CLTC and Certified Financial Fiduciary licensing.

 

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