Retiring Abroad: Pros, Cons, and Considerations

Retiring abroad has become an increasingly popular option for many Americans seeking adventure, a change of pace, or a way to stretch their retirement savings. In fact, data from the Social Security Administration shows that the number of Americans collecting retirement benefits overseas jumped from approximately 413,000 in 2017 to 760,000 in 2022. 

The allure of spending your golden years in a new and exciting environment is undeniable. However, careful financial planning is essential to ensure a smooth transition and comfortable lifestyle abroad. By understanding both the advantages and drawbacks of retiring in a foreign country, you can make the most of your retirement years while minimizing potential pitfalls. 

Pros of Retiring Abroad

Retiring abroad offers several compelling advantages that can significantly enhance your quality of life and overall retirement experience. 

#1: Lower Cost of Living

One significant advantage of retiring abroad is the potential for a lower cost of living. Many countries, particularly in Central America and parts of Europe, offer a much more affordable lifestyle compared to the United States. 

For example, those who move to Costa Rica from the United States can reduce their living expenses by about 53%, according to data from LivingCost. Similarly, moving to Portugal can cut your living expenses in half. 

Depending on your preferred destination, you may be able to save even more money than you initially anticipated. By taking advantage of these cost savings, you can potentially stretch your retirement savings further, enjoy a higher standard of living, and even retire earlier than you could in the United States.

#2: More Affordable Healthcare 

Healthcare is the one of the largest expenses for retirees in the United States. According to Fidelity’s 2023 Retiree Health Care Cost Estimate, the average 65-year-old retiring in 2023 can expect to spend $157,500 in healthcare and medical expenses throughout retirement—even with Medicare coverage. 

In many cases, retiring abroad can offer a solution to this financial burden without compromising on quality of care. Several popular retirement destinations boast world-class medical facilities at a fraction of U.S. prices. For example:

• Portugal features a robust public healthcare system—ranked 12th in the world by the World Health Organization (WHO)—as well as affordable private health insurance. 
• Mexico has a reputation for high-quality, affordable healthcare, especially in dental and cosmetic procedures.
• Panama offers expats affordable healthcare options through both its public and private systems. Plus, unemployed expats aren’t required to pay into the public system. 

These countries often combine modern medical technology with lower labor and administrative costs, resulting in significant savings for patients. Consequently, you find you can afford more comprehensive health coverage or even pay out-of-pocket for procedures that would be prohibitively expensive in the U.S.

#3: Enhanced Qualify of Life

Beyond the financial benefits, retiring abroad can lead to a significantly enhanced quality of life in your golden years. 

For instance, many retirees choose destinations with more agreeable climates, allowing for year-round outdoor activities. Living in a foreign country also provides unparalleled opportunities for cultural enrichment, such as learning a new language, experiencing different traditions, and forming friendships with locals and other expats from around the world. 

In addition, the challenges and experiences of living abroad can foster personal development, contributing to enhanced cognitive and emotional well-being. Similarly, many cultures offer strong community bonds, which can be particularly beneficial for older adults. These social connections can help reduce feelings of isolation and loneliness, common issues that many retirees face as they age.

Cons of Retiring Abroad

While retiring abroad can offer many benefits, it’s important to consider the potential drawbacks as well. 

#1: Financial & Legal Hurdles 

Retiring abroad often poses several financial and legal challenges that require careful planning. To ensure a smooth transition to your new life overseas, it’s essential to address these issues well in advance. 

For instance, opening a bank account in a foreign country can be complex. Many financial institutions require expats to submit extensive documentation and sometimes make an in-person visit to complete the process. 

Converting your retirement funds to a foreign currency is another potential hurdle. Since currency fluctuations can impact your purchasing power over time, it’s important to understand exchange rates and consider using services that offer favorable rates for larger transfers. 

Lastly, filing and paying taxes often becomes more complicated when you’re an expatriate retiree. Understanding tax treaties between countries, reporting foreign bank accounts, and managing potential double taxation issues are key for optimizing your tax situation and avoiding costly pitfalls.  

#2: Potential Complications with U.S. Benefits

Retiring abroad can affect your U.S. benefits, particularly Social Security and Medicare. It’s crucial to understand these potential complications before moving overseas.

While you can generally still receive Social Security payments abroad, there are some important considerations:

• Payment delivery. The Social Security Administration can deposit payments directly into your foreign bank account in many countries. However, in some places, you may need to have payments sent to a U.S. bank account and then transferred internationally.
• Reporting requirements. You may need to periodically verify your status as a beneficiary living abroad to continue receiving payments.
• Tax implications. Depending on your new country of residence, your Social Security benefits may be taxed differently than they would be in the U.S.

Medicare, on the other hand, typically doesn’t cover healthcare expenses outside the U.S., which means you’ll need to plan for alternative health coverage while living abroad. Additionally, if you choose to maintain your Medicare coverage for potential future use in the U.S., you’ll need to continue paying premiums or face potential penalties upon returning to the United States. 

#3: Social & Emotional Challenges

Before retiring abroad, be sure to consider the emotional aspect of moving far away from family and friends. While technology can help bridge the gap, the physical distance can be challenging, especially during important life events or emergencies.

In some cases, language and cultural barriers can also pose difficulties. Even in countries where English is widely spoken, navigating daily life in a new cultural context can be stressful and isolating at times.

While these challenges shouldn’t necessarily deter you from retiring abroad, they underscore the importance of thorough research and planning. By anticipating these potential hurdles, you can better prepare for them and make a more informed decision about whether international retirement is right for you.

Key Considerations & Best Practices

Retiring abroad offers exciting opportunities, but it requires careful consideration and planning. To ensure this major life change is right for you and to make the most of your experience, consider the following: 

• Foreign Banking and Money Management. Be sure to explore international banking options, which may include maintaining U.S. accounts while opening local ones in your new country. It’s also crucial to develop smart currency conversion strategies to minimize fees and protect against exchange rate fluctuations.
• Healthcare Costs and Insurance. Medicare typically doesn’t cover you outside the U.S., so you’ll need to investigate international health insurance options. Don’t forget to factor in long-term care planning, as these needs may be handled differently in your chosen country.
• Property Ownership. Real estate laws can vary significantly between countries, and some nations have restrictions on property ownership by non-citizens. You should also be aware of any investment restrictions that might apply to you as a foreigner.
• Tax Implications. Tax implications are complex when retiring abroad. You’ll need to understand the tax laws of both the U.S. and your new country of residence to avoid double taxation risks. 
• Estate Planning. The rules governing wills, trusts, and inheritance can differ dramatically between countries. You may need to create separate estate plans for assets held in different countries to ensure your wishes are carried out and to minimize potential tax burdens for your heirs.

While these considerations may seem daunting, carefully researching your options and seeking expert guidance can help you navigate the complexities of retiring abroad. It’s wise to work with an experienced financial advisor, who can help you create a solid financial plan for your retirement years. 

TrueNorth Wealth is here to help.

Retiring abroad can offer exciting opportunities for adventure, cultural enrichment, and potentially a more comfortable lifestyle on your retirement budget. However, it’s important to approach this decision with careful consideration of the financial, legal, and personal implications. 

If you’re looking for personalized guidance and support, TrueNorth Wealth is here to help. Our team of fiduciary CFP® professionals will work with you to create a comprehensive financial plan that paves the way for a comfortable and fulfilling retirement. 

TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.

For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.