Is Retiring Abroad the Right Financial Move for You?

More retirees are moving abroad to stretch their savings, access better healthcare, or enjoy a different lifestyle. While appealing, retiring overseas comes with financial complexities that require careful planning.

Understanding the financial implications is essential. Several factors affect retirement security and day-to-day expenses.

Local Cost of Living Differences

Living costs vary widely between countries and even within regions of the same country. Housing is often the largest expense, and in some destinations, rent or property prices are significantly lower than in the United States. In Medellín, Colombia, or Chiang Mai, Thailand, a comfortable apartment in a desirable neighborhood can cost under $1,000 per month, while a similar property in Miami or San Diego could be several times that amount.

Daily expenses such as groceries, transportation, and utilities also differ. In Portugal, a couple might spend around $2,500 per month for a comfortable lifestyle, while in Mexico, that figure may be closer to $2,000, depending on the city. Public transportation in many countries is reliable and inexpensive, reducing the need for a car. However, some locations with lower housing costs have higher import taxes, making certain goods more expensive than in the U.S.

Healthcare costs are another major factor. Some countries provide high-quality medical care at a fraction of U.S. prices, while others require private insurance for access to better facilities. In Spain and Costa Rica, retirees can often enroll in public healthcare systems for a low monthly fee, significantly reducing medical expenses.

Tax Reporting Obligations

Retiring abroad does not exempt U.S. citizens from tax responsibilities. The U.S. taxes its citizens on worldwide income, meaning retirees must continue filing an annual tax return with the IRS, regardless of where they live. This includes reporting income from foreign pensions, rental properties, or other earnings.

One key requirement is the Foreign Bank Account Report (FBAR). If the total value of all foreign financial accounts exceeds $10,000 at any point during the year, retirees must file FinCEN Form 114. Additionally, the Foreign Account Tax Compliance Act (FATCA) requires individuals with foreign assets exceeding $200,000 (for single filers living abroad) to report them on IRS Form 8938. Non-compliance can lead to substantial fines, with FBAR violations carrying penalties of up to $10,000 for non-willful violations and significantly more for willful neglect.

Tax treaties between the U.S. and other countries help prevent double taxation but do not eliminate filing obligations. The Foreign Earned Income Exclusion (FEIE) allows eligible individuals to exclude up to $126,500 of foreign-earned income in 2024, though this does not apply to Social Security benefits or investment income. The Foreign Tax Credit (FTC) can offset taxes paid to another country, potentially reducing U.S. tax liability. However, eligibility depends on residency status and income type.

Currency Exchange and Rate Fluctuations

The value of the U.S. dollar relative to foreign currencies affects a retiree’s purchasing power abroad. Exchange rates fluctuate due to inflation, interest rates, and economic stability, meaning the cost of living can shift unpredictably. A strong dollar makes daily expenses more manageable, but if the dollar weakens, retirees may find their fixed income doesn’t stretch as far.

For example, someone retiring in Mexico in early 2024 may have benefited from an exchange rate of approximately 17 pesos per U.S. dollar. If that rate shifts to 15 pesos per dollar, their purchasing power decreases by more than 10%, making previously budgeted expenses more costly.

One way to mitigate exchange rate swings is by maintaining a local bank account in the foreign currency. This allows retirees to convert funds when rates are favorable rather than withdrawing money as needed, which can expose them to unfavorable rates. Some banks also offer foreign currency accounts that let individuals hold balances in multiple currencies, reducing the need for frequent conversions.

Pension and Social Security Abroad

Receiving U.S. Social Security benefits while living overseas is possible, but restrictions apply depending on the country of residence. The Social Security Administration (SSA) continues payments in most foreign nations, though certain countries—such as North Korea and Cuba—prohibit direct deposits. Some retirees may also face benefit reductions due to the Windfall Elimination Provision (WEP) if they receive a foreign pension from employment not covered by U.S. Social Security taxes.

Taxation on foreign pension income varies. Some countries tax foreign pensions, reducing the net amount retirees receive. Bilateral tax agreements may exempt or reduce taxation on U.S. pensions. Under the U.S.-Canada Tax Treaty, Social Security benefits are taxable only in the recipient’s country of residence. In Portugal, retirees under the Non-Habitual Resident (NHR) regime previously enjoyed a 10% flat tax on foreign pensions, though recent policy changes may alter this.

Managing Healthcare Expenses

Access to affordable and high-quality healthcare is a major factor when retiring abroad. Some countries have excellent public healthcare systems that retirees can join, while others require private insurance for adequate care.

In Spain and Thailand, retirees can enroll in government healthcare programs for a low monthly fee, often providing comprehensive coverage at a fraction of U.S. costs. However, eligibility may depend on residency status or participation in a national pension system. In Mexico and Costa Rica, both public and private healthcare options are available, with many retirees opting for private insurance to access shorter wait times and English-speaking doctors. Private health insurance premiums can range from a few hundred to over a thousand dollars per year, depending on age and coverage level.

Unexpected medical expenses can arise, making it important to have a financial buffer. Some retirees maintain Medicare coverage in the U.S. in case they need treatment for complex conditions, though Medicare generally does not cover care outside the country. Medical evacuation insurance can cover the cost of returning to the U.S. for specialized treatment if necessary.

Banking and Financial Services Access

Managing finances across borders can be challenging, especially when accessing funds, paying bills, and avoiding unnecessary fees. Some U.S. banks restrict services for customers living abroad, making it necessary to find institutions that accommodate expatriates.

Opening a local bank account simplifies daily transactions and helps avoid foreign transaction fees. Some banks require proof of residency, while others allow non-residents to open accounts with a passport and visa. Online banking services have made it easier to manage money internationally, but not all financial institutions support international wire transfers or multi-currency accounts.

ATM withdrawal fees and currency conversion charges can add up over time, making it important to choose a bank that reimburses foreign ATM fees or offers favorable exchange rates. Some retirees use digital banking services like Wise or Revolut to transfer money between accounts at lower costs. Credit cards with no foreign transaction fees can also help minimize expenses when making purchases abroad.

Property Ownership Regulations

Buying property in a foreign country can be an attractive option for retirees looking to establish long-term residency, but ownership laws vary widely. Some nations allow foreigners to purchase real estate with minimal restrictions, while others impose limits on land ownership or require purchases to be made through a local entity.

In Mexico, foreigners cannot directly own property within 50 kilometers of the coast or 100 kilometers of the border. Instead, they must use a bank trust (fideicomiso) to hold the title. In Thailand, non-citizens cannot own land outright but can purchase condominiums as long as foreign ownership in the building does not exceed 49%. Other countries, such as Portugal and Colombia, have relatively straightforward property laws that allow foreign buyers to own real estate with few restrictions.

Legal and tax implications should also be considered before purchasing property. Some countries impose high property transfer taxes, annual real estate taxes, or capital gains taxes on foreign owners. Hiring a local attorney or real estate expert can help navigate these complexities and ensure compliance with local regulations.

Estate Planning and Asset Transfers

Retiring abroad introduces new challenges in estate planning, as different countries have varying inheritance laws and tax policies. Some nations impose inheritance taxes on assets passed to heirs, while others follow forced heirship rules that dictate how an estate must be distributed.

For example, France and Spain have strict inheritance laws that prioritize children over spouses, potentially conflicting with a retiree’s existing estate plan. In contrast, countries like Panama and Malaysia allow more flexibility in asset distribution.

U.S. estate planning documents may not always be recognized abroad, making it necessary to draft a local will or establish trusts that comply with both U.S. and foreign regulations. Additionally, transferring assets between countries can trigger gift taxes or reporting requirements, such as IRS Form 3520 for foreign trusts. Consulting with an estate planning attorney familiar with international law can help retirees structure their assets efficiently and avoid unintended tax consequences.