Retiring abroad—c’est possible?

A beach town bungalow in Mexico, a wine country villa in Italy, a mountain chalet in France. Retiring abroad can look like a page torn from a glossy magazine—if money is no object. Money usually is an object though, which is why retiring abroad requires thoughtful planning.

Over the past two decades, the number of Americans retiring abroad has more than doubled, according to the Social Security Administration.¹ Canada, Japan, Mexico, Germany, Italy and the UK are top destinations.² (Social Security benefits can generally be sent wherever you move, with a handful of exceptionsOpens pdf.)

The driving forces behind these decisions are well known—lifestyle, lower cost of living, even improved health care. Just spin the globe, and nearly any place it stops will have significantly lower costs of living than the U.S.³ —think of Costa Rica, Mexico, Thailand and Colombia, among many others. 

Solving for healthcare

Healthcare is one of the largest components of cost of living for retirees and also one of the top reasons that Americans retire elsewhere. Unlike Social Security, Medicare doesn’t travel well outside of the U.S.,⁴ so retirees abroad must consider an alternative. You need not be an investigative journalist to find better quality health care abroad than currently offered in the U.S. For measure, Statista ranks the U.S. 69th (just behind Armenia) when it comes healthcare quality.⁵ Japan, Italy, France, Costa Rica, Colombia and Canada all rank much higher.

While it’s not hard to find better and cheaper health care outside of the U.S., the challenge is navigating how to partake in a country’s health care system as an expat, or foreign resident. Time of residence is key. Take for example, France, ranked 20th for healthcare by Statista.⁶ Like many European countries, France has a universal healthcare system that covers the majority of procedures and costs. In France, expats can qualify for public healthcare coverage if they live in country for more than six months per year.⁷ To supplement that, retirees can also buy private international medical insurance and access private medical facilities.

In Costa Rica, where the cost of living is low and a universal healthcare system is a major asset, American retirees can apply for full benefits, but it takes between one and two years to qualify.⁸

Don’t forget taxes and life insurance

Those considering retiring outside of the United States should also consider some of the more subtle challenges of taxes and life insurance. 

Citizenship, not residency, determines your federal taxing agency. The IRS requires tax residents to pay tax on their global income, regardless of the source.⁹ Americans retiring abroad are required to report their income from all sources anywhere in the world and the value of their combined financial assets held outside the U.S. 

Another consideration: estate or inheritance tax. While many countries have lower inheritance taxes than the U.S., your estate may still be required to pay the difference if you are a U.S. tax resident, your estate exceeds the $12.92 million estate-tax exclusion, and you haven’t relinquished your citizenship.¹⁰ Evan Potash, TIAA executive wealth management advisor, counsels meeting with an international tax advisor and estate planning attorney. Your TIAA wealth advisor can facilitate the connection.

“Inheritance taxes at death range from zero to 55%¹¹ depending on the country,” notes Potash. “A large portion of a person’s net worth could potentially be given to the government where they are retired and not the intended beneficiary.” 

It’s also worth checking the details of your life insurance policy. If you already have a policy through a domestic insurer and then move abroad, you will likely still be covered unless your policy has explicit travel exclusions.¹² Otherwise, a safe bet is to buy international life insurance that has a strong network in your new country of residence.