Can You Retire Overseas?

A number of adventurous baby boomers who don't want to spend their golden years in a retirement community are choosing to retire overseas. Mexico and Costa Rica have been hotspots for retirement, but a number of new destinations are becoming increasingly more popular for many Americans.

Kathleen Peddicord, publisher of Live and Invest Overseas, shared with me what you need to know if you are planning to spend your golden years overseas.

Boomer: What are a few of the “hotspots” for baby boomers looking to retire overseas?

Peddicord: The perennial hotspots of Mexico and Costa Rica are still attracting North American retirees, but new destinations like Belize and Panama are catching up in appeal. Nicaragua and Ecuador are top choices for retirees on a budget or anyone who just likes what those countries have to offer. Nicaragua is the best choice, in my opinion, for an affordable Pacific coast retirement … and Cuenca, Ecuador, and Granada, Nicaragua, are the best affordable colonial cities for retirement, if that’s a lifestyle that appeals.

One emerging hotspot that we’ve been talking about for more than six years now is Medellin, Colombia. Many Americans still have a negative picture of Colombia, especially Medellin, but this is a pretty, pleasant, and, yes, safe city with great weather year-round, a café culture, museums, parks, and a generally kind of “Euro-chic” atmosphere. Colombia offers good residency options, including a pensionado program, and a relatively low cost of living.

Europe is also worth highlighting, as it’s a more realistic option for Americans than it’s been in many years, thanks to the dollar’s strength versus the euro. The best bargain option in Europe is Portugal. This country’s Algarve region has good weather, a low cost of living (that, again, is further mitigated for Americans thanks to the current exchange rate), and an English-speaking population. Thanks to the long British influence in the region, everyone speaks English. The Algarve would be my pick for coastal living in Europe … plus it has more than 40 great golf courses.

Thailand and the Philippines are the top hotspots in Asia, both very, very affordable choices if you’re up for being on the other side of the planet.

Boomer: How do I handle my health care needs living outside of the US?

Peddicord: If you have an ongoing health concern, you’ll want to be in a destination with good hospital facilities. Generally, this means sticking to the population centers … places with enough population to support developed medical care facilities. Belize, specifically, isn’t a good choice if health care is a top concern. Medellin would be a great choice in this context; this city has 5 of the top 10 hospitals in South America. Panama City has a Johns Hopkins-affiliated hospital. Europe has excellent health care in general, but you’ll still want to be near population centers if you have ongoing health matters to contend with.

As for paying for health care, the cost is a fraction of costs in the United States (where health care is more expensive than anywhere else in the world). The important thing to understand, though, is that most U.S. health insurance doesn’t travel with you outside the United States, and Medicare does not work overseas. However, getting health insurance overseas can be easy and cheap if you’re young enough. Most local health insurance plans won’t accept you as a new policyholder after age 60 or 65, depending on the plan. International health insurance companies can allow you into their systems up to age 73 (before your 74th birthday). These companies are more expensive than local companies, but they also offer better and broader coverage.

Boomer: Are there tax advantages to retiring overseas, and how does the cost of living compare to the states?

Peddicord: If you’re moving to another country as a retiree, the answer is probably no—you won’t enjoy any tax advantages. Moving overseas is typically a tax-neutral event for a retiree. Your Social Security payment will be taxed the same whether you live in the United States or not. Other pensions will be taxed either by the United States or in the country where you’re living in (depending on whether a tax treaty is in place between the two countries and what the treaty stipulates). Some countries don’t tax pension income, in which case the IRS will still get you.

It’s earned income that can benefit from a move overseas, meaning that, if you intend to work or to run a business (even a small laptop business, for example), you could enjoy important tax advantages living overseas. If you’re living overseas and qualify for the Foreign Earned Income Exclusion, you won’t pay tax in the U.S. on earned income up to $100,800. Note that you could, though, be liable for taxes on that income in the country where you’re living.

The cost of living question is tough, because cost of living is relative. Living in rural Belize is way more affordable than living in Manhattan, for example … but would it be more affordable than life in the rural Midwest? Probably … but not as dramatically so. When speaking about cost of living, it’s important to compare apples to apples, not only with regards to location, but also with regards to lifestyle. Owning a car is costly … eating dinner out four nights a week is costly … having a full-time maid and driver are costly. Live without those things and you can reduce your cost of living noticeably. You can control your cost of living, within parameters, anywhere.

The single biggest part of any budget is housing, so, if budget is a concern, start there. Target places where you could rent a comfortable home for, say, $500 per month or less. That would mean you’d be able to live very affordably overall, because you could control most other parts of your budget.

Boomer: Will I be able to work?

Peddicord: The answer is generally no; however, there are exceptions, depending on the country. Some countries offer residency visas that do allow you to take a job. The more appealing option anywhere, I’d say, would be to start your own business. You could do this anywhere.

Boomer: How can I manage my assets? Will my accounts have to be transferred overseas?

Peddicord: This is easier today than ever. It’s possible today to manage assets and financial accounts online, meaning you can manage your investments, etc., in real time from anywhere in the world. You can transfer assets to an offshore bank or brokerage account if you like, but it’s not necessary. Just keep a U.S. mailing address to avoid any problems with your U.S. brokerage account. And make sure your banks allow you to issue wire instructions by phone or online.