When considering retiring abroad or investing in foreign real estate, financial planning issues including taxes, insurance, investments and estate plans must be addressed before leaving the shores of America.
Here are some things to consider when looking to retire overseas and abroad:
EXPERT ADVICE: The first thing that is required, is to seek out experts who can help you with the questions you have as well as help you with the questions you need to be asking.To protect yourself, your spouse and your most important years, one must speak with an expert who has experience in Real Estate and Tax Law for expatriates.
Taxes can be complicated so it is prudent to meet with a tax adviser who has experience in foreign tax issues. This is especially true if the person plans on working part-time and has a potential tax liability both in the U.S. and their new country of residence.”
TAXES: Assuming you haven’t renounced your U.S. citizenship, there will still be two certainties in your life-death and taxes. Regardless of where you live, as long as you are a US citizen you will still owe income taxes on all income earned. However, the good news is that certain tax treaties and foreign earned-income exclusions and deductions are available, but for most it is difficult to decipher and utilize these deductions and properly without help.
The U.S. provides a foreign tax credit to at least partially mitigate the double-taxation burden of paying taxes to a foreign government and the U.S., however, you will likely still owe taxes in the US. Even though you retire abroad, you may still owe State Taxes. But if you’ve established a residence in a no-tax state ahead of your overseas move, you could position yourself to save thousands. Check also whether interest paid on a foreign property is tax-deductible in the U.S.
HEALTH CARE & INSURANCE: How you will pay for health care is also a concern. Most employer-provided retiree health plans don’t have or have very limited overseas coverage and Medicare won’t provide coverage for U.S. citizens living abroad.
That only means you will need to self-insure, buy coverage in your new country, or buy an international policy. The also good news on this front: In many destinations you can buy health insurance that is as good or better than your current provider and get it for a fraction of what you pay now.
For instance, in many destinations, Americans will have access to excellent health care services, delivered by physicians who are US or European trained. Your health care could cost you about half, or less, than what you pay today. Furthermore, because a visit doctor visit in say Panama or Ecuador is only going to cost you around 25-50 dollars, many will simply choose to pay out-of-pocket.
In less developed countries, obviously the quality of your health care will have to be considered. Even though Expats are eligible for Social Security benefits which can be directly deposited to an U.S. bank account, retirees may incur certain fees for transferring money to a foreign bank account and converting U.S. dollars to local currency. There are some costs, but in most cases, you can get your Social Security forwarded overseas.
INVESTMENTS: Because taxation on investments in a foreign country can be complicated and some countries outright ban ownership by foreign nationals, retirees planning to invest in properties or securities in a foreign country need to consider working with a reputable attorney and other financial professionals.
Most countries do not have strong regulatory agencies like we do here in the US. Agencies such as the ‘Financial Industry Regulatory Authority’ and the ‘Securities & Exchange Commission’… so great care must be taken if you plan to invest in the country in which you reside:
REAL ESTATE: An issue that seems to catch many Americans off-guard are the different property ownership rules in foreign countries. Many Americans falsely assume that the right to own property is the same elsewhere as it is here in the U.S. Not True. For example, in Central America, what people may think of as real property may actually be shares in a corporation. In that case, no real property ownership exists, so if the corporation fails, the entire investment may be lost.
A good rule of thumb for those who wish to retire abroad, is to determine how easy it is for an American to sell a property overseas. Some governments are happy to have Americans invest, but they are unhappy to allow profits to be ‘exported’, so they impose restrictions on the transfer of cash and other assets from the country. Investing overseas can be an enjoyable experience. Basically, it comes down to knowing the rules, laws, and regulations of the foreign country.
ESTATE PLANNING: U.S. courts generally don’t have jurisdiction over the transfer the passing down to the next generation of a foreign asset owned by a U.S. citizen. Trusts drafted in the U.S. usually cannot contain foreign assets. Retirees need to consider working with a local estate attorney for the proper transfer assets, as well as estate planning. One must understand whether or not existing wills, durable powers of attorney and advance health-care directives are they recognized by the foreign government.
In order to provide for the distribution of both any U.S. property, and your foreign property. An update of your wills is a good idea, especially if you own foreign Real Estate. You may even need a foreign will to handle your foreign assets, or simply adjust your U.S. will, to provide for the disposition of your foreign property. Have your ‘powers of attorney’ checked out by a local attorney, especially since it will be the local hospital that will be looking at the medical power of attorney if you become incapacitated.
ALTERNATIVES: For those who want to move somewhere exotic but not deal with the tax issues or the potential estate-planning problems, you may want to consider Panama, Ecuador, Guam, Puerto Rico and the U.S. Virgin Islands. Things are less complicated for people who plan to retire there and a growing number of other countries are offering incentives for retirees 65 and older including Asia.
Panama offers discounts on Doctors bills and has cheaper Mortgages. Ecuador treats its retired community with a lot of respect offering sales tax refunds, half price bus and plane tickets and front of the line privileges at places like the bank, airport customs and others. Some governments like the Philippines have streamlined their visa process and introduced low monthly income requirements to make it easier to move to their country.
Panama offers a ‘friendly nations’ visa’s granting full residency to foreigners from other countries as well as many other financial incentives.
It’s a symbiotic relationship. Seniors can stretch their nest eggs farther with lower living and health care costs and the developing country gets to enjoy an economic boost from the retirees spending.
The programs seem to be working with 50,000 retired workers and their spouses receiving Social Security benefits in South and Central America as well as the Caribbean. Meanwhile, in 100,000 retirees and their spouses were receiving social Security in Asian countries… an increase of more than 200% since 2003.