Download the Schwab app from iTunes®Get the AppClose

  • Find a branch
To expand the menu panel use the down arrow key. Use Tab to navigate through submenu items.

Retiring Abroad: Medicare, Taxes and Estate Planning

Retiring Abroad? Financial Facts You Need to Know

In recent years, many U.S. retirees have headed abroad. In 2016, about 400,000 retired Americans received their Social Security checks overseas—about a 30% increase from 2008. The exotic locales and a luxe standard of living for less are enticing. But as exciting as the dream may be, managing your money in another country is much more complex, notes Robert Aruldoss, senior financial planning research analyst at the Schwab Center for Financial Research.

When abroad, everything from buying real estate to paying taxes and managing your estate plan typically comes with a new set of rules (and more paperwork). Here’s what you need to know.

Investigate your new address

Before buying real estate, consider renting for a year to get oriented. Be sure to research forms of ownership and property titling for the country you’re interested in. For example, buying property in some countries could mean purchasing shares in a corporation. If you plan to sell the property later on, consider the rules and regulations that apply to selling. “Some countries restrict the transfer of cash or profits out of the country, so you’ll need to be extra prepared,” Robert notes.

You can find professionals through the American embassy or a nonprofit like American Citizens Abroad who can help with local real estate laws and rules on international currency transfers. Also, make sure to check the State Department website for visa and residency requirements. Finally, plan visits to your desired destination in different seasons to get a better sense of what you’ll experience when living there year-round.

You still have to file from foreign soil

Even if you’re no longer earning or living in the U.S., as a U.S. citizen you’re still required to file an annual tax return. No matter where you live, you’ll still owe taxes on your worldwide income—including traditional 401(k) and IRA withdrawals, taxable pensions, and other taxable income, no matter the source. This extends to up to 85% of your Social Security benefits, depending on your income level. Also, if you have income sourced from your home state—from a business or rental property, for example—you may owe state taxes.

With the passage of the 2010 Foreign Account Tax Compliance Act, filing from overseas has gotten more complex, so consult a tax expert to make sure you’re complying with the latest rules.

Avoid being taxed twice

You’ll likely have to file a tax return in your country of residence as well. How can you avoid being taxed twice? The U.S. has treaties with more than 65 countries that help you avoid double taxation in the U.S. and in your home overseas. Expats can get a foreign tax credit on their U.S. return for taxes paid elsewhere.

In fact, if you earn money in the country where you have chosen to reside, you could benefit from the Foreign Earned Income Exclusion, which allows expats to exclude up to $102,100 of foreign earnings from their total yearly income.

Manage your Medicare benefits

Retirees living abroad are not eligible for Medicare. But what if you visit the U.S. or decide to return permanently, as many retired expats eventually do?

To avoid a break in your eligibility (and the higher fees and penalties that come with re-enrollment), you might want to keep paying premiums for Medicare Part B, which includes all outpatient services. Then when you move back, you’ll also still be eligible for Medicare Part A, which includes hospital coverage.

Get health care coverage overseas

Health care options are often cheaper abroad—indeed, so affordable that some expats opt to simply pay out of pocket. Still, you might want to purchase an international health plan through an American insurer or a private company with a large global network.

You can also consider a group plan through an organization like the Association of Americans Resident Overseas or purchase an HMO-like plan through foreign hospitals. “This can be a good option, since many countries have American-trained doctors practicing in their hospitals and one of the reasons why ‘medical tourism’ has grown in popularity,” says Robert.

Set up your banking with care

The Foreign Account Tax Compliance Act of 2010 requires foreign banks to report all accounts held by U.S. citizens with balances of $10,000 or more to the federal government. This criterion has made banking and obtaining a foreign credit card more difficult. In fact, some foreign banks avoid doing business with Americans. Your best bet is to consider a foreign-based branch of a U.S. bank.

And remember to do some research in advance to help protect your money: “When conducting financial transactions and holding money in banks of foreign institutions, there are no SEC rules or FDIC insurance to safeguard your dollars,” Robert warns. There may be international equivalents, but don’t assume that the protections are the same.

Prepare to adjust your estate plan

This may come as a surprise, but your estate plan and other documents (wills, powers of attorney, health care directives) may not be valid abroad. “This applies even when you move to another state within the U.S., you should always have your estate plan reviewed by an attorney in that state,” Robert says. This step is even more critical when you move overseas. The U.S. Consulate, as well as American Citizens Abroad, can provide lists of local attorneys who can help. Also, make sure your family members are aware of any changes you make.

How will your income translate into local currency?

Most of your retirement income will likely be in dollars that are then converted to local currency, so you’ll be more vulnerable to fluctuations in currency markets. “It’s crucial to take a good look at your retirement portfolio and regularly revisit your income strategy and emergency funds before you retire abroad,” says Robert. Your retirement “paycheck” may look ample while the dollar is strong, but could you weather a prolonged period of its weakness?

What you can do next

  • Just about every country is beautiful in the spring and fall—so visit potential retirement destinations in summer and winter to see if you can tolerate them at their possible worst.
  • Learn more about Schwab Bank High Yield Investor Checking® accounts, which offer unlimited ATM fee rebates at any ATM worldwide and charge no foreign exchange transaction fees for purchases made with your debit card. HYIC is available only to U.S. residents, so it won’t be an option if you permanently move abroad—but it could be a useful tool if you live in the U.S. and travel frequently.
  • Don’t go it alone. Find good local tax professionals and attorneys to help you navigate the tax and legal complexities that come with living abroad.
     
What You Need to Know About the Marriage Tax Penalty
Getting Remarried? How to Avoid the Marriage Tax Penalty
How Should Equity Compensation Fit Into Your Financial Plan?
Congratulations, You’ve Got Company Stock—Now What?

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Schwab Bank High Yield Investor Checking® accounts are available only as linked accounts with Schwab One brokerage accounts. The Schwab One brokerage account has no minimum balance requirements, and there is no requirement to fund this account when it is opened with a linked High Yield Investor Checking account.

Unlimited ATM fee rebates apply to cash withdrawals using your debit card wherever it is accepted. ATM fee rebates do not apply to any fees other than those assessed for using an ATM to withdraw cash from your Schwab Bank account.

If you use your debit card to withdraw foreign currency from an ATM or to pay for a purchase with foreign currency, we charge your account only for the U.S. dollar equivalent of the transaction. There is no additional percentage added for the foreign currency transaction. See the Schwab Bank Visa® Debit Card Agreement for details.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

American Citizens Abroad is not affiliated with The Charles Schwab Corporation or any of its affiliates.

(0817-7BKC)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.