Agrowing number of Americans claim to be thinking about retiring to a foreign country to stretch their savings, but financial planners who specialize in this field say it's not as easy as it looks. Americans thinking of becoming expatriates should first consider a host of potential issues.

While the exact number of Americans retiring abroad is difficult to ascertain, roughly 350,000 retirees who now receive Social Security benefits live in foreign countries, according to the Social Security Administration. That number is expected to grow, especially with Americans living longer and worrying about depleting their savings. According to Travel Market Report, an industry news service, up to 3.3 million baby boomers are considering retirement in a foreign country.

"People typically retire based on their birthday instead of their bank account," says Joseph Hearn, vice president at Teckmeyer Financial Services in Omaha, Neb., and author of If Something Happens to Me: A Workbook to Help Organize Your Financial and Legal Affairs as well as The Bell Lap: The Eight Biggest Mistakes to Avoid as You Approach Retirement.

"They've reached 65 and it's time to retire, but they don't have the money set aside to actually do that." For such people, retirement abroad can seem attractive. "The good thing about retiring overseas is that many places have a lower cost of living, so their U.S. dollars go further and that's one way to make up for lost ground," Hearn says. "They will still be able to live an enriching, fulfilling, entertaining retirement without having to be independently wealthy to make that happen."

But deciding to live in Costa Rica or Italy is not as simple as leaving New York for Nevada or North Carolina. There are many consequences that should be considered.



Hearn advises his clients considering an international move to first consult with a tax lawyer, particularly one who is familiar with the countries they are considering. Generally, any tax that a person is obligated to pay while residing in the United States is still a mandated tax if he or she lives in a foreign country, he says. But if a person works abroad, the IRS allows an exclusion of up to $95,100 in earnings from a foreign country.

Clients considering retiring abroad should be aware of the Foreign Account Tax Compliance Act, enacted in 2010, which mandates that U.S. taxpayers report offshore accounts exceeding certain thresholds when filing their tax returns, says David Kuenzi, founding partner of Thun Financial Advisors, an investment management and financial planning firm in Madison, Wis., that serves Americans living in foreign countries.

"If you're going to be living abroad, you have to understand the peculiar tax compliance issues related to investments," Kuenzi says. "Our clients want to make their investments in a way that is tax efficient and compliant with U.S. laws if they are living outside the U.S."

Kuenzi founded his firm in 2008, after working as an investment banker for Deutsche Bank in London and Moscow. "While I was living abroad for about 10 years, one thing I learned - even though I was surrounded by investment professionals - was that no one had good information or understood clearly the issues that could affect Americans living abroad," he says.

Most of Thun Financial's clients live in Western Europe, especially in Britain, France and Switzerland, with others in Russia and the Middle East, he says. The firm also advises clients who now live in the U.S., but are contemplating living abroad.

Kuenzi and his team post research articles on the firm's website, as well as sites that are devoted to expatriate issues, like Expatica and Expat Focus. The articles are about topics particularly critical to this clientele, such as the reporting requirements of the Foreign Account Tax Compliance Act.

"We also discuss with our clients local taxation of retirement benefits, double taxation and treaty issues," Kuenzi says. "We also talk about things like: If they are holding all of their investments in U.S. assets but paying their retirement expenses in rupees, does that make sense? They have to think through the currency differences and valuations in their portfolios."

Not all of the people who Thun Financial deals with are motivated by economic concerns. A fair number are "fed up with America, and they want to leave and go someplace else," Kuenzi says. "Some are politically driven," he adds, "but, ironically, where they want to move may be a lot worse."

People who are considering buying a residence in a foreign country should research whether that nation restricts expatriates from owning or co-owning property or from putting property into a trust, Hearn says.



Another issue is health coverage. Retirees living in any foreign country except North Korea or Cuba are eligible to receive Social Security benefits, but no one living permanently outside the U.S. can receive Medicare benefits, Hearn says. Retirees either have to obtain health insurance offered in the countries where they live or acquire an international health insurance policy. The premiums on these policies can vary widely, depending on how much a person is willing to pay out of pocket.

Kathleen Peddicord, author of How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad, says a typical international plan with a $3,400 deductible might cost a 60-year-old about $180 a month. "By far the cheapest is local insurance, where you pay $100 or less, but it's only going to cover that country," Peddicord says. Bupa International bills itself as the largest expatriate health insurer, with more than 800,000 customers in 190 countries. "Bupa covers more countries except for the U.S.," Peddicord says. "We recommend you customize an international policy based on the country where you will be living."

Health care coverage in certain countries may also depend on whether a person lives there part-time or establishes permanent residency. "Someone relocating overseas part-time could choose his or her Medicare as a backup, and then they would return stateside for serious health care," Peddicord says.



"A lot of expatriates are looking to supplement their retirement budgets, and are considering starting or running a business," Peddicord says. "The big-picture questions to answer are, Can you start your business with a portable laptop, or do you need brick and mortar? You need to look at the local market to determine the costs of running a business there."

Peddicord considers Panama to be one of the best places to run a business, and France - with "extraordinary" regulations, taxes and high labor costs - to be one of the worst.

"It's really not so much the salaries as it is the employers' payroll taxes and social costs - excessive vacation and severance contracts after a certain probation period," she says. "With a permanent contract, it's very hard to fire someone in France. It takes a lot of time and hassle, you have to build a dossier, have weeks of meetings, all documented. The French love paperwork."

But in Panama, the costs of labor are much lower, Peddicord says. "You can hire comparable, well-trained, English-speaking labor for a third to half" of the cost in the U.S., she says. Moreover, if a client is conducting business in the U.S. or is operating a call center for a U.S.-based business, Panama falls into some of the same time zones.

Peddicord offers a list of a number of attractive foreign cities where a couple could retire comfortably on a Social Security check of $1,200 a month each: Cuenca, Ecuador; Pedasi, Panama; Granada, Nicaragua; Chiang Mai, Thailand; and Nha Trang, Vietnam.



There are other, more personal factors to consider, as well. "Some people moving away have not given a whole lot of thought to their social networks, such as showing up for their grandkids' birthday parties," Hearn says. "They don't realize how deep their roots are - friends in their church or their country club. When they move to a foreign country, they may have been used to a certain level of activity, but maybe they don't speak the language or there are different customs.

"Showing up in a different country can be scary and intimidating if they are not an outgoing person who gets out there and gets plugged in, making connections right away," he explains. "Then, they huddle up in their apartment, become lonely and get buyers' remorse."

Hearn encourages people to visit the places they are considering before they retire and build social networks before they move. They can join religious organizations or social clubs, or even find favorite hair stylists or grocers. "They should make connections ahead of time to make them feel like it's home so it won't be a total shock to their system," he says.

Clients should also build into their budget enough money to travel back to the U.S. to see their children and grandchildren or to help to finance their relatives' travel to visit them in their new home, Hearn says. Finally, they should learn to use Skype, so they can actually see their relatives when they talk to them - and save money, too.



Katie Kuehner-Hebertis a freelance writer based in Running Springs, Calif. She has contributed to American Banker, Risk & Insurance and Human Resource Executive magazines.

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