7/10/2012 3:45 PM ET|
Money traps of retiring abroad
Don't let visions of sandy beaches blind you to the fact that an expatriate's life includes tax, banking and other financial challenges.
Moving to a tropical island or a mountaintop village is a retirement dream many adventurous baby boomers share.
More than half a million retirees have moved out of the country, and the number is growing. Some may be fulfilling a lifelong dream, while others are looking for ways to stretch the value of their nest eggs.
But be careful when you purchase your one-way ticket to paradise. Some places are better for visiting than for living long-term. Hidden costs and lifestyle changes can be a drag for those retiring abroad. And being older doesn't make coping with them any easier.
Frustrations abound for expats who face challenges that include a weakening dollar, taxes at home and abroad, and the difficulty of moving money across borders. Health care benefits can also vary widely, and they often become the biggest drawback.
"I wouldn't be surprised to find that many people return after living their early retirement abroad. . . . Once you get to your 80s and 90s, things become tougher," says David Kuenzi of Thun Financial, an investment management firm.
Glossy magazines and websites, sometimes sponsored by countries hoping to entice wealthy Americans, do a good job of selling destination retirements, especially to baby boomers. To avoid boomeranging from what turns out to be a way-too-costly vacation, here are some things to consider.
Paying your taxes
Expats who are still U.S. citizens are subject to most of the same income tax requirements as folks back home, and they must still file a return annually with the Internal Revenue Service on all money earned in the U.S. and worldwide, including income withdrawn from retirement accounts.
There are ways to claim credit for taxes paid overseas, but the individual tax laws in each country complicate the process. Be prepared to spend time and money to get financial advice in both the United States and your destination site.
While there are about 50 countries that limit this "double taxation" under existing tax treaties with the United States, you can incur taxes in the country where you reside as well as those from back home. And as long as you are a U.S. citizen, you will still need to file tax forms. A list of countries with such tax treaties is available on IRS website.
The Foreign Earned Income Exclusion (FEIE) allows individuals to exclude up to $92,900 of income earned in a new home country. The maximum amount changes from time to time to allow for inflationary adjustments. While most people living abroad qualify for these deductions, mastering the code can be a challenge. Read IRS Publication 54 to see if your income might be covered under this and other potential deductions.
Renouncing American citizenship is an option for people who want to escape U.S. taxes altogether. But the downside is that you also strip yourself of Social Security.
Access to your money
Although online banking and brokerage accounts make managing money from abroad much easier, funds cannot be sent to Cuba or North Korea, and there are restrictions on transfers to a handful of other countries. In addition, some foreign banks may hold Social Security checks for up to four weeks before they clear.
Opening a bank account in a foreign country may not be as easy you think. Some Americans have been denied access to banking services or have had existing accounts closed as a result of tightened regulations aimed at stemming money laundering and the funding of terrorism. Transfers of more than $10,000 must be reported.
Regulatory burdens also make it much more difficult for American retirees who relocate to a foreign country to keep their U.S. bank accounts without a stateside address. While banking abroad has its own set of challenges, a local credit card can help cut conversion and transaction fees, which add up quickly.
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If you're going to live someplace else, why keep your American citizenship just to pay taxes?
You're not getting any benefit from the US. I wouldn't do it.
Renoucing citizenship does not take away your Social Security benefits. If you are a retired military member you will loose your retirement.
This story sounds like it was written by some liberal leaning democrat who is afraid all of us that have a little something left, can be frightened into staying put. I bet in 10 years when we are all broke and have nothing left, having been stripped of it all with newly invented taxes, the government will open the cage doors and invite us to all leave. Right now they want us to stay because they have not stripped us clean yet.
My experience in Nevis with an emergency room, was being seen by a doctor within 10 minutes, 6 lab testa ordered and taken within 20 minutes and out the door with a followup visit scheduled for the next day. Next day prescription in hand, no charge for follow up visit, $9.00 for prescription, total cost for everything $41.00. Harvard trained doctor. Excelllent, excellent, excellent. My dog just went to the vet, examination and prescription $246.00 in the US. I can't even afford to go to the vet anymore, much less the doctor. Next time I get sick or any of you get sick. Pay the $900.00 round trip airfare to Nevis, get first class care and then come home. Cheaper, faster and better quality care than going to the doctor here.
For anyone who is thinking of retiring abroad, take heed, in most Latin American countries they kill you for a cell phone or a pair of sneekers, there is no "police" that you can count on, since most are as crooked as the thieves.
With all the problems we have we are still civilized [all we need to do now is vote out the current individual in the white house in November ]
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Summer visits to amusement parks and the like can be costly, but with some preparation and research, you can may be able to do it for less than you think.