When the Greatest Generation of Americans retired, many migrated to the Sun Belt states for the mild winters and low taxes. Today, a small but growing number of Baby Boomers are also uprooting in retirement, but this migration is outside the United States. An August 20, 2014, CBSMoneywatch article reported that the Social Security Administration currently sends abroad more than 600,000 Social Security checks, double the number delivered overseas in 2002.
Retirees are moving to Asia, South and Central America and Europe, primarily for many of the same reasons their parents moved to the Sun Belt states: lower costs of living, and better weather. And, since relatively wealthy American retirees are seen as a boon to their local economies, many foreign governments offer additional incentives for those willing to spend their golden years in another country. Retirees who might consider themselves middle class in the States often find themselves on a higher socioeconomic rung overseas.
Is Expatriated Retirement for Real?
The financial savings of expatriation can be substantial. Each year, the publication International Living compiles a list of desirable overseas retirement destinations. In many of these locations, retirees can live quite comfortably on a $2,000 monthly income. Quoted in a September 30, 2014, article for Money, International Living editor Dan Preschler, who lives in Ecuador, says the biggest savings typically come from cheaper housing prices, lower fees for routine medical care, and less expensive food and dining costs.
These economic advantages, combined with technology, can allow overseas retirees to live well, return frequently to the US, remain connected to American financial institutions, and communicate regularly with friends and family.
Of course, living abroad is not living in the United States. Routine medical care may be cheaper, but expert medical services may be non-existent; health issues that require specialized attention can be a deterrent to living overseas in retirement. The challenge of leaving friends and family to live among strangers can be intensified by language barriers and cultural adjustments. And most expatriate retirees should have a plan – and the financial resources – for a possible return to the US. This is especially true for couples, in the event of a spouse’s death.
Taxes and other financial issues can be problematic. As long as you’re a U.S. citizen, you have to pay income taxes no matter where you live or your assets are held. If you hold or accumulate substantial assets in a foreign bank, you will also have to report this information to the IRS. While many US Expats continue to maintain their retirement accounts in the US, the local value of their assets may fluctuate because of movements in the exchange rate between the currencies.
Strong Dollar Opportunities
For the past year, the US dollar has been trending “strong,” which means the dollar’s value has risen in comparison to other national currencies. In 2014, the dollar rose 12% against a basket of prominent currencies, such as the euro, peso, yen, etc. A strong dollar gives Americans more purchasing power abroad. Typically, this condition prompts financial experts to recommend overseas travel. But for those contemplating an expatriated retirement, the combinations of low price and a strong dollar could present some intriguing opportunities, particularly for real estate.
Would You, Could You Live Abroad?
Maybe the possibility of living overseas in retirement is completely foreign to you. But the world is changing. For Americans, living abroad may be a new frontier for retirement. Family obligations, personal relationships and national identities remain powerful social attachments. But innovations in communication and travel make us an increasingly connected global community. Living in Europe or South America simply isn’t that far away any more.