Thinking of Retiring Overseas?

Retiring in that fishing village in Portugal or that vineyard in Tuscany might be a dream come true for your retirement. However, if we don’t pay attention to the Treaties, the different tax codes, different residency rules might be a disaster in the making. What we have to start to think about is each country if we plan to retire overseas has very specific tax Treaties. They have different rules depending on assets, depending on wealth. All these different variables that we need to be thinking about. A lot more often know when I’m talking with clients is we’re having conversations around potentially retiring overseas, whether that’s to Canada, Mexico, Europe. And we need to be aware that there’s very specific rules that we have to follow so we can be prepared for retirement. One of the first things we want to be thinking about is tax planning. So when you think about residency in different countries, keep in mind you’re going to have to follow a completely different tax code. That’s something to be aware of when we’re planning around retirement. They may not honor the tax code of the investment assets that we have here. We need to be paying attention to how they’re going to tax certain investments in that area. What you also have to be thinking about is residency. You know a lot of clients that we’ll talk to if they plan to retire overseas, they may renounce their U.S. residency. Now that might be great to qualify for those benefits in that new country. But keep in mind what that may do to assets in the United States, specifically real estate assets. You may no longer qualify for specific tax exclusions on real estate properties. It’s something we have to be planning around and build into our overall retirement plan. An example of this could be like a Roth IRA. So being in Michigan, we share a border with Canada. We have lots of clients over the years that have moved back to Canada to be with family. The other Roth IRA, remember the benefit of that is tax-free growth, tax-free distribution and tax-free to heirs. However, if we go to Canada, they don’t necessarily honor a Roth IRA. They’re going to treat that as a Pension. And you have an option though when you move to Canada, you can make a one time election to get that same tax-free deferral in that account. But because they don’t honor Roth IRA, you have to make sure that you also stop contributions. If you don’t make that one time contribution, one time election and stop contributions, you’re going to end up taking up this tax-free asset and making it taxable. So you need to be aware of the different tax rules in that host country and make sure that you’re adapting into you overall retirement plan. The next thing you want to do is think about maintaining access to the United States financial system. There are a host of reasons for that. The main one being having access to your retirement accounts. But a lot of banks and brokerage facilities do not work with you if you don’t have a U.S. based address. So if you don’t make adjustments to your banks or your portfolio moving from say to Schwab to Vanguard. Well that could cause that accounts to be liquidated, which can have a pretty significant tax impact to you. So be aware if you’re working with certain institutions, if they’ll work with you in this new host country. A lot of the conversations we’re having with clients that are looking to retire and move away from the United States is really focused on health care. Well with health care just because you move to that country, doesn’t necessarily mean you’re going to fall under the Universal Health Care Program there. There’s going to be some sort of timeline you have to be aware of to be able to qualify for those benefits. So you want to work with Social Security and Medicare to make sure that there’s no lapse in coverage while you’re working through that program. So that might mean maintaining U.S. residency for a little bit longer that you intended to make sure that there’s no gaps in health coverage. Or if you’re fully going to go to that country, renounce U.S. citizenship, be aware of how you can get some sort of health insurance plan still in place while you go through that qualifying of benefits. A common one that’s often overlooked is currency fluctuations. So that can be both a double edged sword. That can work in our favor and against us. It can either increase our purchasing power or decrease our purchasing power. Building into your portfolio some sort of stress test to know if your assets can fluctuate with pretty significant changes in currency is a huge part of retiring overseas that oftentimes gets overlooked. And we really need to be aware of that. The last piece is estate plan. You know a major part of our retirement plan is estate planning. We talk about it a lot with our clients. We talk a lot about it on the show. Just because you have documents prepared in the United States does not mean those documents are going to work in this new country. They might have a completely different set of estate planning rules. That may not work with the current Trust you have in place here. An example if you’re using life insurance to avoid estate tax. Well in some countries life insurance is a taxable versus tax-free asset. You need to be aware of updating those documents to work with this new country. The key here is we’re seeing a lot more clients moving in that direction. We need to be proactive in our planning approach today to minimize surprises long-term. So to move our assets around and prepare different documents to make sure that there’s no surprise in retirement once we get to that new country. Now if you do end up in that village in Portugal or Tuscany. Please feel free to reach out to us. We’d be happy to meet with you there.