Want to join the growing ranks of retirees living abroad?
Before packing your bags and setting off for an exotic location far, far, away, you'll have to make some important decisions and plan very carefully.
"You have to be brutally honest with yourself, " said Dan Prescher, senior editor for retirement lifestyle magazine International Living. "You may love taking a vacation for a week or two, but living there full time is a completely different deal. "
Prescher suggests spending anywhere from three to six months on the ground where you're thinking of retiring, giving you enough time to get the lay of the land and experience day-to-day life in a foreign country.
For example, you may find you can't easily get mail, or have trouble accessing high-speed Internet, and realize these are deal breakers.
While moving overseas for retirement can add up to big savings, especially on expenditures such as health care or rent, Prescher warns against allowing cost to be the main catalyst for going abroad.
"The rest of the world is not America-lite," he said. "Remember, these are countries with different cultures." Instead, the desire for a new experience should be the driving factor when relocating.
Wherever you decide to go, the IRS will go with you.
"U.S. citizens continue to file taxes in the U.S. and are taxed on worldwide income," said Paul Dailey, a CPA and partner at Citrin Cooperman in New York who specializes in foreign tax planning.
In fact, because you'll be a resident of two countries, you'll need to file — and possibly pay up — in both.
The good news is that it doesn't necessarily mean you'll pay double.
"Whatever you pay in taxes over there, you will be given credit for back home," Dailey said.
That's because retirees are eligible to take advantage of something called the foreign tax credit, which keeps you from paying taxes twice on the same kind of income.
Also, if you plan on working while abroad, the IRS will allow you to exclude some of your earnings from being taxed, provided you meet a few criteria. For 2016, Daily said, you can earn up to $101,300 in a foreign country and not have it taxed by the U.S.
Medicare doesn't cover health services in foreign countries; therefore, make sure you spend time researching health-care options in your new home.
According to Prescher, many countries have much cheaper public or private health systems in comparison to the U.S. Some countries, such as Costa Rica and Mexico, even allow foreigners with resident visas to buy into their national plans.
"The thing to remember about health care abroad is you have a lot more choices," he said. "If you're in good health, you can even opt to pay out of pocket, something you could never do in the States."
The bottom line? Do your research, give your new home a test drive first and then sit back, relax and enjoy your new adventure.