The Jet-Setting Retiree Life
Many people dream about a retirement where they spend part of their time in their home country and part elsewhere. Maybe you see yourself on a beach in Costa Rica or buying your olive oil from your local producer in Tuscany. Sounds fantastic!
A more exotic lifestyle comes at a price, though, of potential administrative and tax headaches. Below are the most common considerations.
Should I own or rent homes in both (or more!) places?
Ah yes, the jet set lifestyle means having your own slice of heaven around the world. What fun! We would always recommend you rent first in your new locale to try it out. Property ownership, while desirable over time for many people, comes with myriad financial and administrative challenges, not least of which is exposing yourself to taxation in a second jurisdiction. And, this taxation may not be like the one you are used to.
What, I might have to pay taxes twice?
Yup, entirely possible, depending on your situation. The good news is that most countries have tax treaties with each other so that true double taxation is rare. American taxpayers cannot escape the IRS regardless of where they reside, and property owners must always pay taxes in the jurisdiction where the property is located. Taxes are often an afterthought, and many clients come to us because they got tripped up over some details on international taxation and need more clarity on what to do to avoid tax issues and create a more efficient financial life. Learning a new tax system is hard, so much better to be informed and plan in advance!
Will I get healthcare coverage and insurance?
This is a big one for most retirees. While healthcare is fortunately high quality and accessible in many parts of the world, public or private insurance from your place of residence normally only covers you in emergencies abroad. If you envision a life of wintering in Bali and summering on the Puget Sound, then you will need public or private insurance for each. You can often qualify for public insurance through your primary residence (and also Medicare Part A as a U.S. citizen abroad) but you may need to supplement it with private insurance. If your dream is to be a nomad with no fixed residence, health insurance and costs need to be researched carefully. The U.S., being so expensive and complicated, is generally not included in other international medical insurance packages.
How about my other government retirement benefits?
Speaking of public insurance, after a long time feathering your nest to create this cross-border retirement, you want to take advantage of all the government-funded benefits that you have paid into all these years as a working stiff. The good news is that the main retirement benefits can be linked from working in different countries, and you can have your benefits paid into accounts abroad. The bad news is that – surprise! – it is very complicated if you do have a cross-border work history and/or are changing your residence to live primarily abroad. I can’t tell you how difficult it can be to get a straight answer, or a correct one, as these situations are complicated and unusual. Get your research and information well in advance! And, check it not twice but three times.
Wait, I just realized I get my pension in U.S. dollars but I will be living in N.Z. dollars….
Currency exchange rate fluctuations are notoriously difficult to predict. Unless you have the wherewithal to invest in currency hedges, the main advice is to either try to create an income stream aligned with your expenses in that currency – through work or rental income – or to always keep at least six months’ worth of expenses in the appropriate currency so that you are less vulnerable to currency swings. Or both.
What if I or my partner passes away suddenly while living abroad?
Estate planning, like real estate, abides by the cardinal rule of location, location, location. Estate laws usually follow the concept of domicile – both for persons and for property – and you or it may be considered domiciled without your knowledge. Estate laws between countries can differ tremendously, and there is no such thing as a true international will. It is complicated, and you will need specialized help if you have assets to pass on. This is an area that most people overlook, to their detriment. Unforeseen consequences can very negatively impact your loved ones. Forewarned is forearmed!