How to Retire Abroad

Many older Americans dream about traveling in retirement, but a growing number of intrepid retirees are taking their wanderlust to another level. Instead of visiting a country outside the U.S. and returning home with a lot of memories and digital photos, they’re packing up and moving there. 

At the end of 2021, about 450,000 people received Social Security benefits outside the U.S., up from 307,000 in 2008. And because not all expat retirees have filed for Social Security, the number of retirees living abroad is likely even higher. The pandemic was a wake-up call for retirees and near-retirees who had contemplated living overseas but had put it off because of family and work obligations, says Kathleen Peddicord, founder of Live and Invest Overseas, a website and newsletter publisher that focuses on living, retiring and investing abroad. “Tomorrow is not guaranteed, so if you have a dream of a lifestyle you’ve wanted to pursue and you’re healthy enough, act on it when you can.” 

While expats have long been drawn to Central America for its low cost of living and mild climate, Europe has become increasingly popular with retirees in search of culture and high-quality health care. Many countries are eager to attract U.S. expats, but retiring to Costa Rica or Portugal is more complicated than buying a condo in Florida. Here’s what you need to know. 

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How do you meet residency requirements?

Countries in Central America have long promoted relaxed residency requirements for expats. For example, Belize’s qualified retirement program offers residency to anyone 45 or older who has income of at least $2,000 a month from a pension or another source of retirement income. Panama’s pensionado program offers residency to expats with a valid passport and income of at least $1,000 a month from Social Security or a government or private pension. 

But in recent years, European countries have relaxed their own residency requirements to help attract foreign dollars and shore up declining populations, says Ted Baumann, chief global diversification expert for International Living, a magazine and website that covers overseas retirement and investment. “They need wealthier retirees who are in the spending stage of their lives and who aren’t going to compete for jobs,” he says. 

Portugal, which has become a haven for expats from around the world, provides a one-year residency visa to retirees from outside the European Union who have retirement income of at least €760 a month (about $828) and proof of a place to live. The visa can be renewed twice for up to two years, and after five years expats are eligible for permanent residency. 

Italy offers a similar elective residency visa, also known as a retirement visa, if you have retirement income of at least €32,000 a year (about $34,880), a valid passport, and proof that you have health insurance and a place to live. Greece, France and Spain have their own versions of retirement visas as well, Baumann notes. In most cases, the income requirements are modest, he says. If you receive Social Security payments, you probably qualify. 

Prospective expats who have vacationed in Europe and are accustomed to the higher prices that tourists typically encounter may be surprised to discover that the cost of actually living there can be quite reasonable, says Peddicord, whose family divides their time between Paris and Panama City, Panama. “You can live in Paris on $2,000 a month,” she says. Prices for groceries and other items vary dramatically, depending on where you live, where you shop and how you spend your time, she adds. “In a place like Paris, the longer you’re there, the lower your costs, because you get to know it better.”

Chip Stites, who retired to Rieti, Italy, in 2017 with his wife, Shonna, says their cost of living is about 60% lower than it was when they lived in the U.S. “To a tourist, Europe is expensive,” he says. “But Italians live on about $24,000 a year.” 

How do you find health care?

It’s no secret that health care in most countries costs a fraction of what it does in the U.S. That makes retiring abroad appealing to expats who are interested in lowering what for many is the largest expense in retirement. 

Tammy Wahpeconiah, 64, and Fred Sisk, 56, wanted to retire early and travel the world but soon realized that the cost of buying health insurance before Medicare kicked in made that plan unaffordable. Instead, in September 2022, they moved to Porto, a city of about 231,000 people in northern Portugal. They get their health care through a health insurance plan at a private hospital. Sisk, a physical therapist, says their combined monthly premiums of €248, or about $270, are lower than what he paid for individual coverage through an employer-provided plan in the U.S. With the assistance of a local service that connects individuals to doctors and sets up appointments (which helped with the language barrier), they’ve found a family doctor and dentist. “Everything has been state of the art so far,” Wahpeconiah says.

Medicare generally doesn’t cover medical care that you receive outside the U.S., so even if you return to the U.S. for planned surgeries and procedures, there’s a good chance you’ll need a plan for health care in your adopted country. Some expat retirees pay out of pocket for their medical expenses, which may work out if you move to a country with low-cost health care. Other options to consider: 

A hospital insurance plan. These plans, which are popular in South America, cover all of your care, from routine check-ups to major surgeries, at a specific local hospital. The plans are extremely affordable, says Ted Baumann, chief global diversification expert for International Living. “I’ve spent a lot of time in Uruguay, and my contacts there love this,” he says. “A family of six pays premiums of $150 a month.” 

The downside is that coverage is limited to treatment at the hospital that offers the plan. If you travel to other parts of the country or aren’t satisfied with the hospital, you’ll need to pay extra for your care. 

An international policy. These policies are more expensive than in-country hospital plans but offer much more coverage, generally providing access to networks of doctors and hospitals around the world. Consider one of these policies if you plan to become a retired globetrotter or want more options than a hospital plan will provide. Providers include Bupa, HTH Worldwide  and the Group Medical Insurance Plan from the Paris-based Association of Americans Resident Overseas.

The premium varies depending on your age, where you live and the amount of coverage you want. For example, a 65-year-old who enrolls in the AARO’s gold medical plan, which covers 100% of medical expenses, would pay about €382 (about $416) a month; a silver plan, which covers 80% to 100% of expenses, would cost €329 (or $358) a month. If you’re eligible for a country’s national health coverage, you may be able to buy a “top off” supplemental plan for considerably less — about $129 a month for an AARO gold plan, for example. 

Coverage through the government-run system. Once you’ve established residency, you may be eligible for the country’s publicly-funded health care program, which provides comprehensive health care at a nominal cost. That has led many U.S. expats to retire in Europe, Baumann says, because countries in the European Union are required to provide residents with uniform standards of comprehensive health care at a low cost. However, wait times for nonemergency care can be long, so you may opt to supplement public coverage with a private insurance plan, he says. 

Whichever option you choose, once you turn 65, you should sign up for Medicare and pay monthly premiums for Part B, which covers doctor’s visits and outpatient procedures in the U.S., and Part D, which covers prescription drugs. Otherwise, if you return to the U.S., you’ll have to wait until the general enrollment period (which runs from January 1 through March 31, for coverage starting July 1) to enroll. Worse, your monthly Part B premium will increase by 10% for every year that you delay signing up after your initial enrollment period (unless you have other coverage of similar value) and you’ll pay the penalty for as long as you’re covered by Medicare. In addition, if you delay signing up for Part D for more than two months, your premium will increase by 1% of the base beneficiary premium — $32.74 in 2023 — for each month you lacked coverage.

You should also consider signing up for a medigap policy or a Medicare Advantage plan, which cover costs not included with Medicare. Otherwise, if your health declines, you may also have difficulty qualifying for a supplemental plan when you return to the U.S.

Some expats who are enrolled in Medicare travel to the U.S. for nonessential care. Bob Datz, 71, who retired to San Miquel de Allende, Mexico, in October 2022, has scheduled his six-month check-ups to coincide with visits to see family in western Massachusetts. He’s familiar with emergency rooms in San Miquel de Allende in case he needs to go to one. 

How do you navigate taxes?

Even if you’ve prepared your own tax return for years, you’re probably going to need help filing it after you relocate overseas. As long as you’re a U.S. citizen, you’re responsible for paying taxes in the U.S., no matter where in the world you live. Depending on where you lived before you relocated, you may owe state taxes in retirement, too.

Meanwhile, your new country probably has its own tax requirements, which means there’s a good chance you’ll have to file a tax return there as well. Fortunately, there are policies in place designed to prevent double taxation, says Katelynn Minott, a certified public accountant and chief executive officer of Bright!Tax, which provides tax-preparation services for U.S. expats. 

The Foreign Earned Income Exclusion allows you to exclude a specific amount of foreign-earned income from U.S. taxes. The threshold is adjusted annually; for 2023, you can exclude up to $120,000 ($240,000 if both spouses work and meet the eligibility requirements) from U.S. taxes. 

The exclusion is limited to income from wages, salaries and self-employment; income from your retirement accounts, Social Security, pensions and your investments isn’t eligible. Still, you may be able to take advantage of the exclusion if you decide to work for a few years overseas before retiring abroad or have income from a part-time job after retirement. 

In addition, several countries, particularly in Europe, have enacted tax provisions designed to attract expats, says Alex Ingrim, a financial adviser with Chase Buchanan, a global financial services firm. France, for example, doesn’t tax Americans on withdrawals from their retirement accounts and pensions, Ingrim says. (You’ll still pay U.S. taxes on those withdrawals, however.) Other countries, such as Portugal and Greece, tax those withdrawals at a flat rate, but you’ll receive a credit against your U.S. taxes to avoid double taxation, Ingrim says. 

Unfortunately, other countries do not have an equivalent of a Roth IRA, says Michael Hansen, a certified financial planner with Frontier Wealth Strategies in Walnut Creek, Calif., who specializes in cross-border financial planning. As a result, while withdrawals from Roth IRAs are tax-free in the U.S. as long as you’re 59½ or older and have owned an account for at least five years, not all countries recognize that exclusion, he says. 

For that reason, it’s important to review the tax implications of your move well before you start to pack. If the country taxes Roth withdrawals, for example, you may opt to postpone tapping that account until you return to the U.S. (or take withdrawals before you leave). Understanding your tax obligations will also help you get a more accurate view of the cost of living in a particular country, Minott says. 

American Citizens Abroad, an advocacy group for expats, provides a directory of services that provide tax preparation for Americans who live abroad. You can find it at Expat Tax Services Directory.

How do you manage financial accounts?

Whether you plan to retire abroad for a few years or live outside the U.S. permanently, you’ll probably need two bank accounts — one stateside for direct deposit of your retirement account distributions and Social Security benefits (although Social Security will deposit benefits in bank accounts in most foreign countries) and one account at a local bank to pay bills and cover expenses. In fact, some countries require expats to establish a local bank account to qualify for residency. Give yourself plenty of time to navigate potential resistance points. 

For example, some U.S. banks will reject expats who have no permanent U.S. address. One way around that problem is to open a checking account that the State Department Federal Credit Union  provides in partnership with American Citizens Abroad. Accustomed to serving employees of the U.S. Department of State, who work all over the world, the credit union offers the account to other Americans living abroad who have no domestic address. You must be a member of ACA to use the account (annual fee $70, or $55 if you’re 65 or older).

Likewise, some foreign banks refuse to accept U.S. customers to avoid contending with the Foreign Account Tax Compliance Act, which requires overseas banks to report assets held in foreign accounts by U.S. taxpayers to the IRS or face a stiff penalty. Fortunately, now that the law has been in effect for a few years, more financial institutions have learned to adapt. 

FATCA also imposes obligations on expats with accounts overseas. U.S. citizens residing abroad must report their holdings in foreign accounts (including investment accounts) on Form 8938 if total funds exceed $200,000 on the final day of the tax year or $300,000 at any point during the year; for married couples who file a joint tax return, the thresholds are $400,000 and $600,000, respectively. In addition, expats must file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Treasury Department if their total assets in foreign financial and investment accounts exceed $10,000 at any time during the calendar year.

Penalties for overlooking these requirements are steep — up to the greater of $124,588 or 50% of the total balance in all your overseas accounts for failing to comply with FBAR, and from $10,000 up to $50,000 if you fail to file Form 8938 on time. 

You’ll probably want to periodically transfer funds from your U.S. account to your account with a local bank. To avoid hefty transfer fees, consider a service such as Wise, which applies a market-based exchange rate to transfers (banks and other services often use less-favorable exchange rates) and charges you a percentage of the transaction.

Renting a home vs buying a home

When Chip Stites and his wife, Shonna, decided to retire outside the U.S., they made a list of nine countries that fit their criteria of fresh food, fresh water, tranquility and a stable economic system. They whittled that list down to four — Ireland, Portugal, Spain and Italy — and hit the road. “We loved Ireland, but it rained a lot,” Stites says. They weren’t comfortable with language barriers in Portugal, and while Spain was appealing, they were concerned they wouldn’t adapt to the country’s late-night culture. “By 10 p.m., I’m done, and they’re just going to dinner,” Stites says. 

Then a friend invited them to visit his home in Rieti, a town of about 48,000 in central Italy. Stites spent time in Italy as a child and remembers it as one of the happiest times of his life. After three days in Rieti, the couple agreed that they wanted to live there. Most of the food they eat is locally grown, they get fresh water from springs under their home, and they’ve fallen in love with the people. “If you look at the hierarchy of things in Italy, it’s family first, friends second, community third, and maybe fourth is a job,” Stites says. “Money doesn’t drive things.”

The couple rent their home in Italy for about €700 (roughly $763) a month. Stites says they chose to rent because they were able to get a long-term lease, and it’s difficult to get a mortgage in Italy.

Many expats opt to rent because buying real estate is more expensive — and more difficult — than it is in the U.S. Transaction costs can total up to 10% of the home sale price, and most countries don’t have a U.S.-style Multiple Listing Service, which allows real estate agents to share listings. Instead, you must usually deal with a separate agent for every home you’re interested in buying, Peddicord says. 

Even if you’re determined to put down roots in your adopted country, renting will give you time to find a neighborhood that meets your needs. Tammy Wahpeconiah and Fred Sisk say that renting for a year gave them time to determine where they wanted to settle down. They recently signed a contract to buy a home in Vila Nova de Gaia, which is across the river from Porto. The home fits their budget and their lifestyle, which includes Portuguese lessons, wine and coffee meet-ups with friends, and for Sisk, an occasional game of pool. “We plan on staying here forever,” he says.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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