Retiring

Many people who have travelled frequently during their working life either professionally or as part of their regular holidays are attracted to the lifestyle that they see.  As globalisation continues to impact our attitudes the assumption that we will stay in our home country when we retire is increasingly challenged.  A proportion of those who have aspired to do so, decide to retire abroad to be able to live that lifestyle.  In the UK the attractions of a better climate are an obvious draw, whereas in the US it is perfectly possible to achieve a move to a better climate without leaving the country.  Nevertheless many American citizens retire abroad as well attracted by the pace and quality of life, cost of living and other factors.

The destination that you choose will be a personal decision, but in arriving at that decision you should be ckear on what you are looking to gain from retirement overseas.  You should decide whether to live the full year abroad or only part of the year.  You will also need to consider what life will be like in your new home as you get older or if you suffer from health issues.  This should not prevent you from enjoying living the lifestyle to which you aspire in retiring abroad.

Here are some important steps to take before you go:

  • Check Visa and Residency Requirements - Immigration and residency laws differ greatly from country to country. Determine if you need a visa to enter and reside in the country where you want to retire.  The World of Expats destination pages have an outline of the immigration requirements of each country.  Information on specific countries is available on the Department of State’s website for US citizens and on the Foreign & Commonwealth Office site for British citizens.
  • Know the Local Laws - You should seek professional legal advice before retiring abroad. Determine whether your trust, will and powers of attorney may be legally enforceable in your country of destination. In addition to your lawyer in your home country local embassies or consulates can often provide you with a list of local English-speaking lawyers.  Especially when buying a property overseas, it is important to understand any contracts you are asked to sign. Review the local traffic laws and licensing requirements if you intend to drive. Some countries have a changeable political environment with more opaque legal systems. Be sure to find out what civil liberties and political rights you will have as a foreign resident.
  • Prepare Your Finances - Determine your retirement budget, and allow for exchange rate fluctuations and inflation. You may want to meet with a financial adviser before you go and consider such things as opening a local bank account.

When retiring it is important to preserve capital, and provide a return on investment in line with attitudes to risk.  You will therefore need to ensure that your pension or other source of income is adequate to meet your needs based on initial and projected cost of living the lifestyle you have chosen.  Also, the amount of tax you will pay and the structure of your assets will be heavily influenced by where you decide to live. For example, putting your assets into a trust might make sense if you are planning to live in Spain, but could be wrong if you are heading to France. Again, seek advice regarding managing your assets.

  • Pay Your Taxes – Before leaving your home country you should ensure that you understand your tax liabilities and settle any outstanding liability.  Moving abroad does not exempt U.S. citizens from their U.S. tax obligations.   While some U.S. retirees may not owe any U.S. income tax while they are living abroad, you must still file a return annually with the IRS. This is the case even if you move all of your assets to a foreign country; you may still be taxed on income regardless of where it is earned.  For citizens of many other countries residence will determine liability to tax and this will therefore cease when you move permanently overseas.   For UK citizens when moving abroad for recreational purposes, you are required to show a 'clear and distinct' break from the UK.  This will involve things like selling any UK property and severing ties.  You must spend less than 183 days in the UK in any one tax year, and less than 91 midnights in the U.K. on average over a maximum period of four years, to remain ‘non-resident’.  It is essential to check your own position particularly if you have different sources of income.   Retirees abroad must also fulfil any tax obligations of their foreign country of residence. Tax treaties between countries address any double taxation that may arise.   
  • Consider Inheritance Issues – UK citizens will need to ensure that they have a UK will to cover them, as Inheritance Tax (IHT) is charged on worldwide assets if you are domiciled in the UK, regardless of where you might live overseas and your residence status.  You may also require a local will to cover your assets when living overseas, so you must consider developing a tax plan that meets the country’s local laws.   Unless you are a U.S. citizen offshore trusts can be explored, as they can bring significant IHT advantages in certain situations. This is a specialist area, however, and should be approached with care.  U.S. citizens are taxed on their worldwide income and such devices are not effective.
  • Understand your Social Security Benefits - If you are thinking about retiring abroad, find out if you can receive your Social Security or other benefits outside your home country.  For U.S. citizens the United States Social Security Administration's Office of International Operations (OIO) provides such information, and consular officers at the nearest U.S. embassy or consulate can also assist you.  The UK state pension can be taken in some but not all countries.    It is possible to transfer rights in any UK occupational pension scheme or Personal Pension Plan to a Qualifying Recognised Overseas Pension Scheme (QROPS) without incurring UK income tax charges.  This may allow you to consolidate various UK pension entitlements, but you should ensure that you obtain professional advice to ensure you are aware of the implications in your new home country.
  • Consider healthcare - It is vital at any stage of life to make sure that you have adequate healthcare and clearly this is of greater concern as we get older.  In come countries, foreign nationals are entitled to make use of the State provision of public healthcare, but even there you may need to ensure that the quality of care available is adequate.  If you are a citizen of the EU you are entitled to the same access to healthcare in other countries in the EU as citizens of that country receive.  It is often best in many countries where state provisin is not able to rovide the level of cover you would expect and want to ensure that you have private healthcare, either through local private cover or through an international healthcare policy - see Healthcare.

Retiring abroad can be a route to an enjoyable life style, but only if the issues you are likely to face are properly addressed.