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Stretching retirement dollars by living abroad

According to a third-quarter 2021 Pew Research poll, the percentage of older Americans who have retired has increased during the pandemic. The poll showed that 50.3% of U.S. adults 55 and older said they were retired, compared with 48.1% of the same age group in 2019. Broken down to the 65- to 74-year-old age group, 66.9% said they were retired, compared with 64% in 2019. Inflation has also grown recently, resulting in a double whammy for retirees of a reduction in income with steeper prices.

But there is a bright side. The value of the U.S. dollar is the highest it’s been in 20 years, meaning people can get much more for their dollar overseas. So, for retirees looking to stretch their retirement dollars while making the most of their retired life, traveling for extended periods or retiring abroad could be the answer.

Whether learning a new language — which studies show is correlated with a lower risk of Alzheimer’s and dementia — exploring new cultures, or just engaging in interesting and enjoyable activities (think wine tastings in the French countryside, roaming the beaches and vineyards of Portugal, exploring temples in Thailand, or scuba diving in the Fijian islands), the strong dollar makes 2022 and 2023 a good time to get out there and enjoy life. For those who wonder what it would be like to settle down in another country where the cost of living is substantially lower and excellent health care is cheap and available, now is the time to give it a try — to spend several months or a year or two traveling around Europe, Asia, or Central or South America to determine if the culture and affordability are suitable for retirement.

Health care

European and Asian countries are often cited as having some of the best health care systems in the world. With a European Health Insurance Card (EHIC), European Union (EU) citizens and residents receive free or reduced-cost state-provided health care services anywhere in the EU. There is no cost associated with getting an EHIC.

But as a visitor to the EU, an individual must have his or her own health insurance policy, and several reputable companies offer such insurance to individuals traveling or living abroad. For example, for a 66-year-old female U.S. citizen traveling in Spain, Cigna Global Insurance quotes a monthly health insurance premium for a high-end plan of $512, with a $1,500 deductible for hospitalizations, $500 deductible for outpatient services, and 0% cost sharing (i.e., no other out-of-pocket costs), with an overall benefit limit of $500,000 and a limit of $250,000 per condition. Another policy with lesser overall benefit limits is $363 per month.

It is important to note that Medicare usually does not cover health care while traveling or living outside the United States, even if there is a medical emergency. Although some Medigap supplemental insurance policies cover urgent care situations abroad if they arise during the first 60 days of a trip, and certain Medicare Advantage plans cover medical emergencies, most U.S. individuals who are retiring or traveling overseas will need to purchase separate health insurance coverage.

Student and retiree visas

While foreign countries generally limit how long a visitor can stay in a country, that time can be extended by obtaining a student visa or, for those old enough and with a certain amount of monthly income, a retiree visa. Spending time in another country learning its language, especially where the program involves social activities, is an interesting and fun way to discover whether that country might be the right place in which to settle down.

In Barcelona, Spain, for example, the Spanish language school Expanish offers 3-, 6-, 9-, and 12-month immersive programs for $2,484, $3,806, $5,536, and $6,440, respectively. The school also helps its students find rooms or private apartments and assists them with obtaining a student visa. Apartment rentals in the city are quite affordable. Apartment Barcelona, a website for long-term apartment rentals, advertises one- and two-bedroom apartments near the beach for $1,400 to $1,800 per month. And, at one of the best tapas restaurants in town, Cervecería Catalana, the cost of a grilled beef tenderloin baguette is $8.90 and a Spanish omelet baguette is $4.75, respectively. Good bottles of wine are less than $12.

As an alternative to a student visa, retiree visas are available for many countries if certain income and residency requirements are met. And for many countries, the income requirements are quite low. Spain, for example, provides a nonworking (nonlucrative) residence visa, which is only available to individuals who will not be working or receiving work-related income and will stay a minimum of 183 days a year in the country. To obtain this visa, an individual must be living on savings or passive income, such as pensions, interest, dividends, or individual retirement account distributions, and have a minimum monthly income, for 2022, of €2,316.08. Neighboring Portugal provides a D7 visa for individuals with a minimum monthly salary, for 2022, of €705, net of any social security deductions, with a per capita increase for each family member.

Thailand, a longtime favorite with expats, provides a one-year visa for individuals age 50 and over, provided the individual has a bank deposit of 800,000 baht ($21,600) or more or an income certificate showing a monthly income of not less than 65,000 baht ($1,755), or a deposit account plus a monthly income totaling not less than 800,000 baht ($21,600). A 10-year visa is also available to those 50 and older who have at least 3 million baht in Thailand ($81,000) or a bank account of 1.8 million baht ($48,600) or more and annual income of at least 1.2 million baht ($32,400).

On the other side of the world and closer to home is Belize, where the cost of living is cheap, the national language is English, and the currency is pegged to the U.S. dollar. The small island of Ambergris Caye is one of the most popular places to retire, and transportation on the island is by golf cart! There are beaches, Mayan ruins, wildlife preserves, fishing, sailing, golfing, and scuba diving, among other sights and activities. Belize allows for full-foreign ownership of property, no capital gains tax, and low property taxes. The country has a qualified retirement program, which allows eligible persons who meet the income requirements to permanently live and retire in Belize. Generally, the program applies to any person 45 years or older with at least $2,000 of monthly (or $24,000 yearly) retirement income generated from a source outside Belize in an approved currency (such as the U.S. dollar).

Dual citizenship

Rather than obtaining a student or retiree visa, becoming an EU citizen through dual citizenship allows a person to travel freely anywhere in the EU and gain access to its superior health care systems. Individuals can maintain their U.S. citizenship while also becoming a citizen of an EU country. One of the easier paths to dual citizenship is obtaining it by descent. Individuals born in the United States may have a parent or grandparent who was born in a foreign country that will provide the descendent with citizenship. Nations that grant citizenship based on a blood ancestry basis if a parent or grandparent was a citizen include Ireland, Italy, Spain, Poland, Lithuania, Latvia, Germany, Luxembourg, Hungary, and Greece.

Generally, double taxation will not be an issue for a dual citizen because, if the United States has a treaty with the foreign country in which taxes are paid, the foreign tax credit will apply to prevent U.S. tax on that same income.

Resources

Expat communities are everywhere and are a good resource for additional information about life in a particular country (check out The Expat Magazine). YouTube video testimonials can be helpful, too.

For a tax perspective, see Ovaska, “How to Help a Client Retiring Abroad Think About Taxes,” JofA (Aug. 3, 2020).

To learn more, listen to this AICPA PFP Section podcast episode about international and cross-border financial planning.

— Barbara Bryniarski, CPA (inactive), MST, is an executive editor at Parker Tax Publishing. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at [email protected]

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