How to retire abroad: What to consider and how advisors can help

September 26, 2022 5:23 PM

Portugal has become a popular destination for Americans retiring overseas.

Many people look forward to traveling in their retirement. But an increasing number of Americans are taking it a step further: spending their whole retirement abroad.

There are now almost half a million Americans spending their golden years overseas — and that number is rising. According to the Social Security Administration, by the end of 2021 there were 443,546 retirees cashing their SS checks while residing in other countries. That's a 28% increase from 2011.

A number of factors could be driving this surge. Patricia Casaburi is the CEO of Global Citizen Solutions, a consulting firm that helps aspiring expats — mostly Americans — find the right visas and residency programs. Clients cite a combination of reasons for relocating, she said, including "disenchantment" with America's political polarization, but also a sense of adventure.

"I think they're enjoying the lifestyle," Casaburi said. "They seem happy with the food, the discoveries, having so much to look forward to — because it's all new experiences."

These days, her clients' most popular destination is Portugal, which offers a low cost of living, beautiful weather and a largely English-speaking population — a good combination for the 9,945 American retirees living there, according to the SSA. Next up is Spain, which features many of the same perks but fewer English speakers, and is currently home to 8,195 U.S. retirees. Third on the list is the Caribbean — mainly St. Kitts & Nevis and Antigua and Barbuda — where American retirees can enjoy the gorgeous beaches and scenery while staying closer to home. In general, 18,747 retired Americans live in the Caribbean and Central America region.

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But retiring abroad isn't as easy as hopping a plane. There are many things retirees should look into to make sure their target country is right for them — and a helpful advisor can guide them through the checklist. Adam Scott, a CFP and founder of WellAcre Global Wealth Advisors in Santa Monica, California, has helped many of his clients move to Spain, Mexico and Thailand, among other destinations.

"The more you can learn and prepare for ahead of time, the smoother your transition to your new home will be," Scott said.

Here are the financial considerations to discuss before a client books a flight:

Visas

Greece is one of many countries to offer the Golden Visa. Pictured: Santorini, Greece.

Pexels/Aleksandar Pasaric

A U.S. passport makes short-term travel easy, but long-term residency is a different matter. Americans looking to retire overseas will need to find the right visa and apply for it, which requires research, time and money. Some countries offer visas specifically designed to attract retirees; other nations don't bother. The important thing is to know which is which.

"It's going to be easy if you're applying to a country that wants you, and less easy to a country that doesn't want you," Scott said.

Portugal's D7 visa, for example, lets foreigners become permanent residents if they earn a certain amount of passive income — e.g., from a retirement plan or investments — and spend most of their time in the country.

And for wealthy expats, a long list of nations — including in Europe, Asia, the Middle East and Oceania — offer the Golden Visa, which enables "residency by investment." Want to move to Greece? Just buy 250,000 euros worth of Greek real estate, or invest 400,000 euros in Greek stocks or bonds, and you can live there forever.

But applying for these visas takes time. By Casaburi's estimate, the application process for a D7 typically requires about six months, and the Golden Visa for Portugal can take up to a year. Clients excited to move should be reminded to start the process early.

Taxes

Thailand has emerged as a popular destination for American retirees.

Pexels/Oleksandr Pidvalnyi

The United States is one of the only countries to base taxation on citizenship, not residency. That means wherever a retiree lives, he or she has to send a tax return to Uncle Sam.

Fortunately there are mechanisms, like the foreign tax credit, that can help expats avoid getting double-taxed — and information about them is available online. But to make sure, retirees should talk to a financial advisor — or a tax expert that advisor can put them in touch with.

"Obviously, for American clients, a big thing is to get a good tax attorney in the U.S., and do your exit properly," Casaburi said.

On the other side, some countries offer extremely generous tax benefits to expats. One of the reasons Portugal is so popular is its non-habitual resident program, which gives new residents a 10-year tax holiday for Portuguese taxes on almost all foreign income. But not every country offers such programs, and it's important for a retiree to know — or for an advisor to tell them — what's available at their dream destination.

Benefits

Mexico offers affordable healthcare for American retirees resettling abroad.

Pexels/Alan Vega

Many elderly Americans rely on U.S. government benefits, not all of which will be accessible from another country. In some cases, however, what's available in the new country may be better.

First, the good news: Americans can collect Social Security almost anywhere. There are just a few exceptions: North Korea, Cuba, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan. Everywhere else, American retirees can still get their checks.

Medicare, on the other hand, is quite limited outside of the U.S. In fact, Part A — which covers care at hospitals, nursing homes, and other facilities — doesn't function in other countries at all. In some regions, an American retiree may want to buy international health insurance.

But in many countries, healthcare is so cheap that Americans may not bother with insurance. In Thailand and Mexico, for example, Scott said his clients could easily pay for their care out of pocket. And many European countries have public healthcare systems, which foreigners with long-term visas can often access. That affordability is a major draw for retirees.

"I think some just really like the possibility of having really fabulous healthcare without having to pay a lot for it," Casaburi said.

So is retirement better abroad? Both Scott and Casaburi say their clients have no regrets.

"For the most part, people are really happy, wherever they've gone," Scott said. "I think there's a lot to be said for it."

"They're not looking back," Casaburi said.