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How to Stretch Your Dollar While Retiring Abroad – Interesting Facts for US Expats


Have you ever watched House Hunters International, that show on HGTV where US expats shop around for the overseas retirement home of their dreams?

Our friend Jim from Route to Retire was on that show. Maybe you’ve pictured yourself shopping around for the best place to retire, and you’ve realized that it may very well be in a different country.

Thus far, we’ve chosen to spend months at a time in different countries while maintaining a home base in the United States. When my retirement started, we spent two months in Mexico and two months in  Spain. It was glorious. After we returned home in March of 2020, travel was off the docket for obvious reasons, but the world will be opening up!

The author of the post below, Marc Strohl, CPA of ProTax Consulting, has some tips for those of you who might be considering a more permanent move to a foreign country.




How to Stretch Your Dollar While Retiring Abroad – Interesting Facts for US Expats


When you’re getting ready to retire, one of the first concerns you’ll likely have is a good income. Having enough money to maintain the lifestyle you’re used to is the top priority. Many Americans opt to retire overseas to stretch their dollar and enjoy a lower cost of living.

A location with warm weather and more economical medical costs are other factors they consider. Interestingly, at least 35% of Americans choose retirement or even semi-retirement since they start saving by the age of 30 years.

If you’ve secured your financial status and would like to spend all your time with the family at an offshore location, that’s an amazing idea. Here are some of the smart strategies you can adopt to ensure that you have a steady income for the rest of your life.



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Choose a Country with a Lower Cost of Living


Studies show that Portugal, Panama, Costa Rica, Mexico, and Colombia are the top five locations that Americans choose.

Should you move to Portugal, expect a comfortable lifestyle at $2,200 per month for a couple in the capital city of Lisbon. Rent is even cheaper in smaller towns like Peniche and Marvao, though you’ll trade off some big-city perks.

Central America as a rule tends to be cheaper than in Europe. Similarly, living in Panama costs as little as $1,700 per month, while Costa Rica has grown in popularity due to its political stability and a low monthly cost of around $1,585. Single retirees can expect to save an additional few hundred dollars as compared to couples.

Considering that Social Security benefits for the year 2020 range from $2,000 to $3,790, you’d stretch your dollar and also have some cash to spare for any emergency expenses.



Choose a Country with Favorable Taxation Laws


Most countries expect you to file annual returns and pay taxes on your worldwide income. You’ll likely prove that you have resident status and comply with the local rules and regulations. American citizens and Green Card holders must also file returns with the IRS, regardless of where they live.

When planning the move, you’ll inform the IRS of your intentions. And, while seniors can receive Social Security benefits wherever you live, that income is taxable. However, American expats can claim exclusions like the Foreign Earned Income Exclusion, Foreign Tax Credit, and Foreign Housing Exclusion. These allowances lower the final tax you must pay and ensure that you don’t pay dual taxation in two countries on the same income.

Certain countries levy higher taxes on residents, so it makes sense to pick a location where the taxation is most favorable for US expats. For instance, Panama does not levy taxes on any income you earn from foreign sources. On the other hand, while Germany is a beautiful country, it’s recently raised taxes. Any income above €9,408 is taxable at rates ranging from 14% to 45%, depending on the income brackets.


[PoF: You know the wealth tax that’s been proposed in recent years? It already exists in Spain, where you’ll pay anywhere from 0.2% to 3% or more based on the value of your worldwide assets if they tally up to €700,000 or more!

Several other northern European countries have a wealth tax, as well. I like Nomad Capitalist as a resource for expat tax and financial considerations.]


Take Advantage of Discounts Wherever Possible


Most destinations worldwide offer senior or travel discounts that can help you cut back on your daily expenses significantly. Carry age verification and IDs with you to avail of lower costs for travel, meals, and entertainment. This can add up in big ways as you make small purchases at establishments like movie theaters, retail stores, and restaurants.

There are also more significant discounts to seek, like reduced or free use of public transportation. You can also avail of discount coupons available in most countries. Do your homework about how to get 2-for-1 meals at diners and restaurants and tickets at amusement parks and other entertainment venues.

If you’re a senior, the applicable age depends on the particular store or business where you’re making purchases. But, most places offer lowered prices to visitors aged 60 years and above. If you plan to spend your golden years visiting different destinations, take advantage of cheaper airline fares and cruises.


[PoF: Retirees under 60 can still find plenty of discounts, and wise use of credit card reward points and miles can take you far.

While living or just traveling abroad, be sure to carry a credit card with no foreign transaction fees! Those exchange rates and surcharges can add up quickly without one.]



Budget Your Expenses Carefully


This one’s a no-brainer since people of all ages should balance their income and expenses carefully. Once you stop working and retire, you should watch and stretch every dollar. There are numerous free budget templates available online that can get you into the habit of tracking what you spend.

Expect that around 35% of your income will be directed toward rent or any other housing, while medicine and healthcare cost around 13% (that figure can vary widely by country, however). Also factor in meals, leisure and entertainment, and perhaps travel. Consider getting a small place to cut back on utility costs, taxes, and maintenance.

Since you won’t be commuting to work, maintaining a single car for getting around is a smarter move. You’ll save on insurance, gas, and registration costs. If you do opt for a city home, there may be sufficient public transportation to eschew car ownership altogether.

When shopping for food, clothes, and other essentials, learn about the local options. Wherever you choose to live, there may be stores or markets that have particularly good prices or bulk offers.

If bulk supplies are too much for your small home, share them with other seniors in your community. Sharing responsibilities for errands can help you lower the time, effort, and costs of driving around–plus, it’s a great reason to stay in frequent touch with your nearby friends.


Stay Informed About Your Healthcare Plans


Healthcare benefits and the terms and conditions of your plan can be complicated and hard to understand. When buying insurance coverage in your new country, explore exactly what’s included and the out-of-pocket expenses you’ll incur.

Some Medicare plans expect you to buy medicines at specified pharmacies and visit specific health professionals who are a part of their network. These requirements could raise costs, not to mention the time and botheration of finding out and visiting where the facilities are located.

You should also prepare for the possibility that you might need long-term care, surgery, and rehab in your later years. Consider whether you would choose particular options in your new country or residence, or whether you would need a plan to transport yourself back into the United States.

Think about how you can pay these expenses using options such as a life insurance policy or a reverse mortgage. Do your homework and find out about the packages available in your host country and the insurance you should buy.

As you approach retirement or semi-retirement, take the time to carefully plan your finances, especially if you plan to move to an offshore location. With some smart thinking, you can minimize your expenses and live a comfortable life enjoying life with your family to the fullest.


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What other tips do you have for US expats? Is living in another country something you would consider for your retirement?

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5 thoughts on “How to Stretch Your Dollar While Retiring Abroad – Interesting Facts for US Expats”

  1. Pingback: Grand Rounds: Putting the Gold in Golden Years ⋆ XRAYVSN
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. I have spent my career as an expat in Japan and participate in many financial forums for expats (where FBAR, PFIC and FATCA are all 4-letter-words of the worst kind). Based on that experience, here are some important precautions to keep in mind if you plan to retire overseas:

    1. Your very helpful post doesn’t make this claim but just to avoid any misunderstanding, the FEIE doesn’t apply to investment income and of course won’t change the taxability of your Social Security benefits by either the US or your host country. Also, the foreign housing credit only applies to a benefit you receive from your employer in order to work overseas; it is not a way to claim housing expenses if you retire overseas.
    2. You will likely find you pay foreign taxes on US investment income and can claim the FTC when that happens. Much of the developed world has tax treaties with the US which recognize some of the taxes applied to investment income by the US but the assumptions of those treaties is usually outdated and ignores the effects of the NIIT (Affordable Care Act tax on passive income). For instance where I live in Japan the assumption is that the US taxes qualified dividends and capital gains at exactly 10%, no more and no less, and the country will not recognize any additional investment taxes I pay in the US.
    3. Depending on where you live you can actually be squeezed between financial regulations in the US and your host country which prevent you from owning either “local” (non-US domiciled) mutual funds because of the very onerous reporting requirements for PFIC’s set by the US government or US-domiciled ETF’s or mutual funds if you want to live in Europe because they are not compliant with the “PRIIPS” (Packaged Retail and Insurance-based Investment Products) regulation.
    4. In general, once you move overseas your US brokerage firm will no longer sell you new mutual fund shares although in my experience they will let you keep existing shares. I haven’t run into any restrictions on buying new ETF shares through the brokerages which won’t sell me mutual funds.
    5. Also depending on the country, the ideal Roth retirement account which you thought would be tax-free forever might actually be considered a taxable account by your host country.
    6. My impression is that at lower income levels you avoid double taxation reasonably well, but at higher income levels (probably unlikely to occur during retirement but certainly the income levels of physicians during their peak earnings years) you face a fair amount of double taxation because of the AMT and the way investments are taxed differently in the US and foreign countries.

    These sorts of odd financial rules can be difficult especially for those who focused on FIRE and built up the kinds of financial accounts that are targeted by these regulations.


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