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June 2nd, 2023

What Are the Financial and Tax Implications of Retiring Abroad?

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Michael and Janine D. from Thousand Oaks, CA ask: Hi Mitch, my wife and I are strongly considering spending part of our retirement abroad, perhaps even investing in an apartment or a timeshare. Are there financial implications, whether they be banking, Social Security, taxes, or anything else, that we should be aware of?

Mitch’s Response:

It’s great to hear that you’re retiring. And it also sounds like you’re in planning mode for how to spend your time. Living abroad for part of the year sounds exciting.

There are a few very important factors and rules to be aware of, and I’ll share what I know below.

But my first piece of advice is to consult a tax professional about your specific situation and your plans – before you commit to them. The U.S. has tax treaties with some countries but not others, and the nature of the treaties can vary widely and change often. As the old saying goes, the two certainties in life are death and taxes, and moving abroad is not going to exempt you from filing U.S. tax returns or paying taxes in a foreign country. In some cases, you’ll have to pay both.1

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Here at Zacks Investment Management, we believe that every good retirement strategy involves some investment discipline. That’s why we encourage you to start your journey to a stress-free retirement now! In our guide, 8 Steps Towards a Stress-Free Retirement, you will get insight on:

If you have $500,000 or more to invest, download our 8 Steps Towards a Stress-Free Retirement2

I’ll share some tax insights below, but let’s start with banking. It’s generally a smart idea to keep your assets in the U.S., in my view. It will allow you to maintain relationships with your existing bankers and advisors, and also to continue receiving the benefits that come with retirement accounts like 401(k)s and IRAs, which of course grow tax-deferred. In some cases, banks will drop customers that only have foreign addresses, so be sure to talk with your financial institutions about their rules and procedures.

If you decide to have bank accounts in both the U.S. and abroad, be sure to research fees for transactions you may use regularly, like ATM fees or wires. You should also check currency conversion rates, to make sure your dollars are going as far as they should abroad. And finally, you should consider credit cards that do not charge foreign transaction fees, which can sometimes be as high as 2%.

On the tax front, I want to be clear that I’m not a tax advisor or a tax specialist, and that you should consult a tax professional as you dig further. But some general things to know are that you will almost certainly be responsible for filing a U.S. tax return every year and that not doing so could result in penalties or worse. Filing a U.S. return does not mean that you’re free and clear in your new home country, though. You would need to check tax treaties between the foreign country and the U.S. and could need to file a return and pay taxes in the foreign country as well. These rules may surprise you as you research further, as there are scenarios where you could end up paying double taxes.

The final factor to consider is healthcare. Medicare generally does not cover foreign healthcare services, so moving abroad may mean having to obtain health insurance or some type of coverage in your new home country. Many developed countries have nationalized healthcare and will allow expats to sign on after time spent in the country. Or there may be private options to consider, depending on your needs.

The bottom line is that retiring abroad – while exciting in theory and likely in practice for those who love to travel – also comes with a great deal of planning. It can be easy to overlook important details about how to set up your banking relationships, healthcare coverage, and how to file taxes. Mistakes can be costly, so hiring professionals to help is probably a wise move. 

At Zacks Investment Management, we can guide you through important factors to obtain a comfortable and stress-free retirement.

If you have $500,000 or more to invest, get our free guide, 8 Steps Towards a Stress-Free Retirement.3 It will give insight into important keys to crafting and implementing a strategy to potentially reach your retirement goals. Click on the link below to get your free copy today.

Disclosure

1 Wall Street Journal. May 23, 2023. https://www.wsj.com/articles/retirement-in-paradise-isnt-without-financial-headaches-98f06313?mod=djem10point

2 ZIM may amend or rescind the “8 Steps Towards a Stress-Free Retirement” guide for any reason and at ZIM’s discretion.

3 ZIM may amend or rescind the “8 Steps Towards a Stress-Free Retirement” guide for any reason and at ZIM’s discretion.


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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

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