Retiring Abroad: Pitfalls of Paradise
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 a handful of other countries. In addition, some foreign banks may hold Social Security checks for up to four weeks to wait for it to 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 the tightened regulations aimed at stemming terrorism financing and money laundering. Transfers of more than $10,000 must be reported.
Regulatory burdens are also making 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 a set of challenges, a local credit card can help cut conversion and transaction fees, which add up quickly.
Unlike your Social Security checks, Medicare coverage stops at the border. Few U.S. employers offer health-care coverage to expat retirees, and U.S. carriers typically don't provide individual coverage to Americans living abroad.
Although some countries offer world-class medical facilities, as well as government-sponsored health care so affordable that it can make sense to go without health insurance, there are some countries where quality of healthcare is questionable. But keep in mind that if you plan to return to the United States and sign up for Medicare later, your premium will be 10 percent higher for each 12-month period you could have been enrolled but were not.
Your Cost of Living
Although many countries around the world have a significantly lower cost of living than Western countries, many places that once were havens for cheap retirement living are not nearly as cheap as they used to be. Some retirees end up losing money rather than saving what they had anticipated, thanks to a weakening dollar, whose long-term decline means a downward adjustment in income for those living abroad. Americans who feel the pinch of inflation at home might be shocked to find even higher, double-digit inflation in other, less-developed countries.
It is important to determine your retirement budget and allow for exchange-rate fluctuations and inflation.
Barriers to Entry
While rules vary from country to country, many expatriates need to obtain a visa and have it renewed periodically for a fee, which requires some proof of income as a way of showing that you will not become a financial burden on the government. Some countries, Canada included, want a clean bill of health to gain permanent residency.
Complicated tax issues also make it difficult to buy property abroad. For example, buying property in Switzerland is harder than in many other European nations because of rules imposed more than 30 years ago limiting what most foreigners can buy and where they can buy it. Foreigners who want to buy real estate near Mexico's coasts or borders need to lease the property from a bank trust.
But if the idea of retirement abroad still appeals, know this: Countries that are among the most popular retirement destinations — based on tax burden and cost of living advantages — include Mexico, Panama and Portugal. Bon voyage!