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10 Financial Risks and Rewards of Retiring Abroad

February 17, 2022

Written by Cameron Huddleston

Edited by Melanie Grafil

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If your retirement dreams include making a home in a new land, you’re in good company. In the post-pandemic world, 12% of America now aspires to live abroad when they’re done working, according to the Aegon Retirement Readiness Survey 2021.

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While that might sound like a pipe dream for people who feel like they’re not even prepared to retire where they are, a little can go a long way once you leave the States. Many parts of the world allow you to retire comfortably on much less than you could in the U.S. — but it’s not all peaches and cream. Growing old in another country comes with quite a few cons.

If you’re part of the growing slice of America with overseas retirement dreams, here’s what you need to know.

Financial Rewards of Retiring Abroad

While you should always look to stretch your dollars once your earning years have passed, never retire abroad for the sole purpose of saving money. There are plenty of cheap countries to live in outside of the U.S., but the tradeoff is almost always a change in the day-to-day standard of living.

“If you’re only going to save money, and you want the place you go to be just like the U.S., you are not going to be happy,” said Jennifer Stevens, executive editor at International Living.

If you are up for embracing a new lifestyle, on the other hand, then it is possible to plan for a low-cost retirement overseas.

You Might Be Able To Live on Social Security Alone

With the exceptions of Cuba, North Korea, and a handful of other countries — mostly Central Asian countries like Uzbekistan and Turkmenistan — you can still collect Social Security while living overseas.

“In many countries, you can even have your check directly deposited into an account,” said Sally Hurme, author of “ABA/AARP Wise Moves: Checklist for Where to Live, What to Consider, and Whether to Stay or Go.”

Considering that the average monthly retirement benefit is just $1,613.77, Social Security alone is not enough to sustain you in retirement in the U.S. — and it was never meant to. That’s not the case, however, in some other countries.

“You can have a decent, respectable life on your Social Security,” said Akaisha Kaderli, who retired with her husband, Billy, at age 38 and writes about their experiences at RetireEarlyLifestyle.com. “The message given in the states is you can’t retire. It’s going to be the pits for you. No one ever mentions there are other places to go.”

You Can Live Better on Less

If you do have enough money saved to retire comfortably in the U.S., then you might be able to live like a rich person overseas, according to Stevens. You could live very well on $4,000 or $5,000 per month in countries like Mexico, Costa Rica, Cambodia and Thailand, she said.

For example, you could hire a housekeeper, gardener or nurse in Guatemala at 25 percent of the cost you’d pay in the U.S., said Pauline Paquin, who writes about early retirement at ReachFinancialIndependence.com. She left the corporate world at age 29, became financially independent through saving and real estate investing around 32, and now lives in Guatemala.

“You can get a full-time staff for around $300 a month,” Paquin said adding that you can hire a live-in nurse to provide round-the-clock care for about $500 a month. The median cost of a home health aide in the U.S. is $3,813, according to SeniorCare.com.

Healthcare Might Be Cheaper

The lure of inexpensive healthcare is one of the top reasons for living abroad. Even working Americans travel to other countries for medical procedures to save money. Billy Kaderli said both he and his wife have benefited from low-cost, quality medical care overseas.

For example, he said paid $320 to have a colonoscopy done in Thailand — which included a private taxi ride home after the procedure as part of the cost. The average price for a colonoscopy in the U.S. is about $3,600 and can exceed $8,000, according to Health Affairs. In Mexico, he paid $250 for a dental X-ray and porcelain crown replacement. In the U.S., the average cost for a porcelain crown is $1,000 – $3,500 per tooth, according to the Consumer Guide to Dentistry.

In general, the care the Kaderlis have received outside the U.S. has been better, he said. The doctors speak English, and there is often no wait to see a specialist. According to Billy Kaderli, he and his wife are able to pay out of pocket because the costs are low.

You’ll Save Money on Transportation

The annual cost to own and operate a car in the U.S. is $9,666, according to AAA. When you retire abroad, you might not need a car because public transit is more common and reliable. “There are all sorts of ways to get around that are easier than in the States,” Akaisha Kaderli said, adding that the costs are low.

Even private transportation like taxis costs less in many countries. “You can take a taxi across town for $1.50,” Stevens said.

Because many foreign cities are more pedestrian friendly than U.S. cities, Americans who retire abroad walk more — and lose weight, Stevens said. As a result, their health improves, and they can stop taking some medications, which reduces healthcare costs.

Long-Term Care Can Be Cheaper

You could wipe out your savings paying for long-term care in the U.S. unless you have long-term care insurance to help cover the cost. The median yearly cost for an assisted living facility is $51,600, according to the Genworth Cost of Care Survey. The median cost for a private nursing home room is $105,850 per year.

“In the States, assisted living and long-term care is a huge expense,” Akaisha Kaderli said. In Mexico, where she and her husband live now, there are several assisted-living facilities that charge $1,500 to $2,000 per month, she said.

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Financial Risks of Retiring Abroad

Retiring abroad doesn’t guarantee a lower cost of living, of course. Where you decide to live will greatly affect how much you spend on housing and other basic needs, as well as on things like entertainment.

Here are the financial considerations you need to be aware of when planning for retirement abroad.

You Can’t Escape US Taxes

If you think you’ll lower your tax bill by retiring overseas, think again. You still have to pay U.S. taxes. Even if you move your assets to accounts in your new country, you will be required to file an annual tax return, according to the U.S. Department of State.

You might also have to pay taxes in your new country, Hurme said. The U.S. does have treaties with some countries — including Canada and Mexico — that prevent double taxation. But the country you want to retire to might not.

“You need to know in advance what the potential requirement for paying taxes in the new country will be,” Hurme said. She recommends hiring an accountant or financial advisor in the country where you want to retire. Or look for a U.S. professional who has experience working with Americans living overseas.

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Visa and Residency Requirements and Costs Vary

If you want to spend just part of the year living abroad or are willing to move from country to country, most countries offer a three-month tourist visa. In some places, such as Mexico, you can get a six-month tourist visa, Stevens said. This route usually isn’t expensive or complicated.

If you want to set up permanent residence abroad, however, you might have to jump over more hurdles and pay more. This depends on where you want to retire. For example, it’s much more difficult and expensive to get a long-term visa in Europe than in countries that are enticing retirees to move there like Mexico or Panama, Stevens said.

Some countries even require retirees to show they have a regular source of income to get a residence visa, Hurme said. Check with the embassy of the country where you want to live to see what the requirements are, she said.

Paquin cautions that you might need to hire an immigration attorney to help you with the process, which can be expensive.

You Can’t Use Medicare Overseas

No matter your Medicare eligibility age, you can’t use this government-run health insurance plan overseas. “Your healthcare is not going to follow you,” Hurme said.

“Of course, there are various kinds of U.S. health insurance plans for international health coverage,” Hurme said. “And some countries have national healthcare systems you might be able to take advantage of or private insurance you can buy. Nonetheless, if you don’t plan to pay for care entirely out-of-pocket, you need to know what health insurance is going to be available to replace your Medicare coverage,” Hurme said.

If you decide to return to the U.S. after living abroad, you might have to pay a penalty if you want to enroll in Medicare, Hurme said. The monthly premium for Medicare Part B — which covers doctor visits, services like lab tests and surgeries and medical supplies — goes up 10% for every year you could have had it but didn’t sign up.

“If you’re thinking you’re coming back to the United States, you’re going to have issues and expense getting Medicare coverage back — unless you want to continue to pay your Medicare premium while you’re out of the country,” Hurme said.

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You Have To Consider Currency Exchange and Foreign Transaction Fees

You likely won’t have trouble accessing your money in a foreign country thanks to ATMs, Hurme said. However, if you travel often, then you know it is possible to incur foreign transaction fees on top of ATM withdrawals. If your bank or credit card charges foreign transaction fees, consider switching to ones that don’t before moving overseas.

You might also want to open an account with a bank in your new country, Hurme said. You’ll want an account that lets you transfer money easily from your U.S. accounts, but you probably won’t want to transfer all of your money. That’s because U.S. law requires you to report if you have more than $10,000 in an overseas account on any one calendar day in a year, she said.

Keep in mind that cash is king in many countries, and it’s better to deal in the local currency. Even if stores and establishments allow credit cards, some will add an extra charge — some as high as 20%, according to Billy Kaderli.

You’ll Need New Estate Planning Documents

If you own property or have assets in your new country, you’ll likely need to hire an attorney in that country to help draft an estate plan, Hurme said. That’s because any documents that you had drafted in the U.S. — such as a will, trust or power of attorney — might not have any effect overseas.

“You’re going to need legal advice both in the U.S. and your new country as to how your assets are going to be distributed at your death,” she said. That’s an added cost and complication you need to consider when planning for retirement overseas.

Also, realize that not all countries recognize a healthcare power of attorney, which gives someone the right to make healthcare decisions if you can’t. And many countries don’t have a living will concept, Hurme said. The doctor decides whether you should get life-prolonging treatment.

Remember, even if you feel the financial rewards outweigh the risks, you should not move abroad just for a lower cost of living. “You can live cheaply in the Midwest and not have to uproot yourself,” Paquin said. And while it is possible to live better for less in some other countries, “being far from friends and family is something to take into account,” she said.

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John Csiszar and Andrew Lisa contributed to the reporting for this article.