Each year, thousands of retiring Americans settle down outside
of the US, choosing to spend their later years somewhere new, exciting, and
(hopefully) warmer. This adventurous trend shows no signs of stopping: In 2016,
the Social Security Administration sent 400,000 retiree payments abroad. By
2017, that number had increased to over 500,000.
For many oil, gas, and chemical professionals, travel is
part of the job. It can put you in exotic locations all over the world — maybe
even the location of your dream retirement. If you’re considering retirement abroad,
there are a few things to think about before booking the flight out. Keep
reading to get need-to-know information about this exciting retirement choice.
Understand Your Financial
Obligations
First, get to know your new tax situation. The United States
taxes according to citizenship rather than residency, so even individuals
living outside the country will be obligated to pay taxes and file a tax
return.
There is a chance that where you move to may maintain a tax
treaty with the US. This could impact how much the treaty country will tax
Americans living on their soil. You should find out if the location you’re interested
in is engaged in such a treaty, and whether it will impact you.
If you’re selling your US residence you’ll probably pay less
in US taxes than you had before, since property taxes and other expenses
associated with living in the US won’t apply to you. If you decide to maintain
a second residence in the US, you’ll pay taxes on that property as well. What
you pay, however, may change due to your new living situation.
Tax law for expatriates can vary heavily from place to place
and rules can quickly get complex. It’s recommended that you talk to a
financial advisor and get a clear picture of your tax environment.
In addition to paying your taxes, retirees who at any point
during the year have more than $10,000 in foreign assets will have to fill out a
Report of Foreign Bank and Financial Accounts (FBAR) and submit it to the IRS.
It’s important to complete an FBAR if you qualify. Not doing so can result in
serious penalties of up to $10,000 per violation.
Account Wisely
You may be making a big move, but you can leave the bulk of
your assets at home. Experts agree that the US financial system is among the
safest and most reliable in the world, and with the global markets often
hanging on the dollar, your assets will often be most secure in a home-side account.
Retirees can instead set up routine transfers to an account they can use abroad,
so they can have access to funds while still protecting their assets.
If you’re like most retirees, some (if not much) of your
retirement funds are held in an IRA, 401k or other company-sponsored retirement
plan. Before you go abroad, make sure the administrator of your account will work
with you. Due to guidelines set by the Patriot Act, some firms will close and
cash out accounts if the owner of them isn’t living on US soil. If this happens
to you, it would eliminate a valuable tax shelter and could negatively affect
your retirement.
As for Social Security, retirees can have their benefits
deposited directly into their bank accounts, including some foreign bank
accounts. These funds can be a valuable resource for a retiree living in an area
with a lower cost-of-living, where getting by on just their payments is a real
possibility.
Mind Your Health
Medicare won’t cover individuals that live outside of the US,
so retirees must take healthcare into consideration when planning life abroad. The US Bureau of Consular Affairs
recommends expatriates purchase health insurance to cover private medical and
dental costs, as well as medical evacuation to the US. Depending on where you
settle, you may also be able to pay out-of-pocket or take advantage of
government-run health care, if you’re eligible.
All retirees should take a frank look at their wellness
outlook, and it should play a real role in deciding where you choose to retire.
If you or a spouse is at higher-than-normal risk for medical issues, make sure
your new home can accommodate for that. A retirement specialist can help shed
more light on the important things to consider.
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Go Abroad Confidently
Retiring abroad is possible, but it takes planning,
research, and commitment. You’ll have plenty of questions, and there’s a good
chance a lot of them won’t be so easy to answer. Having a retirement specialist
by your side can make all the difference. Here at Baird Retirement Management,
we’ve been helping oil, gas, and chemical professionals retire all over the
world. No matter where you plan to go, we’re here to help you get there.