Should you retire overseas

[Meadbh]

This. I will, from time to time, think about moving to England or Ireland. Every time I do contemplate such a move, the obstacle of health insurance as you age seems to be a fairly high hurdle.

If you qualify for residency (thru investor exemptions) I assume that after getting residency status you can access national health, but I am not certain. Plus, it would mean having to renounce US citizenship.

So in the end spending twilight years abroad seem to be more of a pipe dream for me...

People who retire to Ireland are entitled to public health services on the basis of residency and means, irrespective of their citizenship. Private health services must be paid for directly or through private insurance, by all Irish residents, irrespective of citizenship. There would be no reason to renounce your US citizenship; in fact, you would need it until you were eligible to become an Irish citizen. Ireland allows dual citizenship and has a tax treaty with the U.S. Be aware that the cost of living in Ireland is quite high.

Entitlement to health services is primarily based on residency and means, rather than on your payment of tax or pay-related social insurance (PRSI). Any person, regardless of nationality, who is accepted by the Health Service Executive (HSE) as being ordinarily resident in Ireland is entitled to either full eligibility (Category 1; medical card holders) or limited eligibility (Category 2) for health services.​

Entitlement to health services

Retiring to Ireland

http://www.citizensinformation.ie/e..._an_irish_citizen_through_naturalisation.html

 

[LARS]

Good info on health insurance. Thank you all. Will delve deeper into it.

 

[nun]

Good info on health insurance. Thank you all. Will delve deeper into it.

In the UK you just have to be resident to get full access to the NHS. There is not requirement to renounce US citizenship and the US won't let you do that until you have another citizenship. However, the number of US expats renouncing has increased recently because of the local investment restrictions and tax complications caused by FATCA and greater IRS enforcement.

 

[Alan]

I may try a long-term rental in one of these countries. Probably overpay because I wouldn't have to deal with getting bank accounts and utilities under my name, so it would basically be a vacation rental of some kind.

The temptation though would be to travel instead of "living" in one place for up to 3 months.

We've done both and loved it.

In 2013 we went to England in April for a wedding in the NE, then set off on our own. Stayed in a farmhouse doing B&B in Northumberland just off the Roman wall for a few days then rented an apartment in Yorkshire for a week and climbed the 3 peaks. Then to Ireland for 2 rented houses, staying 2 weeks in Donegal, and 2 weeks in Connemara. Then to Cornwall to a rented apartment for 2 weeks, then France for 2 different weeks in rented houses, then back to England for a week in a rented cottage on a farm on top of the cliffs near Dover. We finished the vacation with a 2 week cruise out of Edinburgh to Iceland and Norway.

Among the things we did last year was a 2 week rental of an apartment near Melbourne, a week in a B&B near Sydney and a month long rental of a condo near to Hobart, Tasmania. (no car needed in any of those places because of great public transportation).

 

[Sojourning]

There comes a point in a discussion such as this where you move from questions you can reasonably expect to get answers to, to questions and topics that require an expert. Taxes is one of those subjects.

People may give well intentioned answers and still get it wrong. There are simply too many factors that can apply to any given individual. General answers may not be applicable to that individual.

For example, the IRS taxes Americans on their world wide income. Generally true but only if you are 'deemed to be resident for tax purposes'. I'm not an expert on the USA tax system but I can tell you that Canada also taxes anyone 'deemed to be resident for tax purposes'. I took me 3 years aftre leaving Canada to become, 'non-resident'.

Yes an individual might find themselves being taxed in two countries and yes an individual might find themselves paying for healthcare in two countries. Or they might not.

Once I became non-resident in Canada, I spent the next 15+ years paying no income tax in any country and also being eligible for free healthcare in the the 3 countries I lived in during those years.

Only after I returned to Canada and started collecting a government pension did I start filing income tax returns again. I had to, they knew they were paying me money. ;-)

Obviously, the financial aspects of 'should you retire overseas' are important but I think it is possible to discuss all the other aspects first and ONLY if you are getting to the point of saying, 'yes, I'm really interested in doing it', move on to the details where you will need to consult an expert. Like a tax accountant familiar with expat situations.

 

[nun]

T.

For example, the IRS taxes Americans on their world wide income. Generally true but only if you are 'deemed to be resident for tax purposes'.

US taxes on both residency and citizenship....therefore all US citizens must pay US tax on their worldwide income wherever they live. The only way for a US citizen to get out of the responsibility to pay US tax on their worldwide income is to renounce US citizenship.

Yes an individual might find themselves being taxed in two countries and yes an individual might find themselves paying for healthcare in two countries. Or they might not.

A US citizen who is tax resident in another country will be liable to tax in the US and that other country so must reconcile two tax regimes. Double taxations is rare because of tax treaties, but the paperwork and intellectual burden can be considerable. It's not so bad if you you retire to somewhere like Thailand that has simple tax laws for people on retirement visas, but if you retire to any European country expect taxes compliance to require considerable time and effort.

The double charge for healthcare is again applicable to Americans who are on Medicare as if they opt out and then decide to return to the US their Medicare premiums are increased by 10% for every year they did not pay them. So many Americans choose to pay Medicare even though it does not cover them overseas.

Once I became non-resident in Canada, I spent the next 15+ years paying no income tax in any country and also being eligible for free healthcare in the the 3 countries I lived in during those years.

Only after I returned to Canada and started collecting a government pension did I start filing income tax returns again. I had to, they knew they were paying me money. ;-)

Obviously, the financial aspects of 'should you retire overseas' are important but I think it is possible to discuss all the other aspects first and ONLY if you are getting to the point of saying, 'yes, I'm really interested in doing it', move on to the details where you will need to consult an expert. Like a tax accountant familiar with expat situations.

If you are not a US citizen it's quite easy to cut tax ties with a country. I'm British and in my 53 years I've never paid a penny in UK income tax. IMHO it's great to dream about retiring overseas, but doing it as an American requires far more financial planning than any other nationality because of how they are taxed, so they need to think about that more are earlier.

 

[Sojourning]

Explanade, regarding long-term rentals, I have done that quite a few times in various places. I moved from living overseas to having a base in Canada and 'sojourning' (hence my handle for posting here) when and where we feel like it.

It is a separate topic from 'should you retire overseas' but obviously can be an alternative. It's fairly common for Canadians to live in Canada and spend winters in Florida for example. That's no different really than someone who maintains a base somewhere and then spends 3 months or more in another country and next year in yet another country etc.

I've found a few things worth keeping in mind when doing that. One is in season vs. out of season. You can decide you want to escape a cold winter and not necessarily need beach weather where you go, just milder weather than at home. That opens up the possibility of out of season locations. For example, you can rent a small studio apartment on a Greek island for 3 months out of season for perhaps half of what you would pay in season. Temperatures will not go down to freezing, it could be 70F on Xmas day or it could be pouring rain and 55F. But it will be better than at home.

Popular tourist destinations always have lots of rental possibilities that non-tourist destinations do not have. Looking for a 3 month rental in a 'normal' town in France might be difficult but finding one in Chamonix (year round tourist destination) will not.

When you say, "The temptation though would be to travel instead of "living" in one place for up to 3 months.", the primary factor is cost. It costs far less to live somewhere than to move from place to place. Alan for example describes some 'slow travel' over a period of around 3 months. Sounds like a great trip but the cost will have been a lot more than if they had stayed in one place for 3 months. I'd guess at least double. So the temptation depends on budget available.

For example, here is a place in the southern California desert where we have stayed for a longer term, twice, in season which are the winter months. (Not this exact unit but the same)The first time for 1 month and the second time for 2 months. If you put in May 1 for a month you will see they will rent it for $76 a night. If you put in May 1 for 3 nights they want $135 per night. Almost double.
Borrego Springs Vacation Rental - VRBO 410598 - 2 BR Deserts Condo in CA, Rams Hill Condo Casita 2 BR Renovated Condo Desert View# In fact, we negotiated with the owner for $2000 per month for 2 months which is $66 per night. The first time, there was some construction going on nearby and we were able to get it for $1500 for a month. That's only $50 per night. It could have as easily been somewhere in Europe or the Caribbean or wherever.

 

[Evergreen]

I'm in London, I'll always keep my London property as my base. Yes the weather here is generally crap but it is a great location for world travel, you can get great deals travelling from London. Don't think I'd ever move abroad permanently, would much prefer to take extended trips abroad for say 3 months at a time especially during the winter time. There is no real benefit in owning property abroad, only risk IMO.

 

[Alan]

When you say, "The temptation though would be to travel instead of "living" in one place for up to 3 months.", the primary factor is cost. It costs far less to live somewhere than to move from place to place. Alan for example describes some 'slow travel' over a period of around 3 months. Sounds like a great trip but the cost will have been a lot more than if they had stayed in one place for 3 months. I'd guess at least double. So the temptation depends on budget available.

Living in a place for 3 months is an option I would advise before moving there permanently, and that applies to somewhere else in the USA let alone abroad. Yes, it is an expensive trip but could save a load of money if you discover that the location really is not for you.

My wife and I are British by birth and once retired we seriously considered moving back to the UK, but we didn't know how it would be after all these years (28 years living in the USA). In 2011 we rented a house for 7 months in the town we would move back to, an unfurnished house, and furnished it ourselves mostly from charity shops. We didn't rent a car except on rare occasions so that we could see how we would manage with public transportation. I also kept a detailed budget so we would know the costs.

I can confirm Nun's comments above about the USA taxing its citizens regardless of where they live (Eritrea is the only other country in the world to do so). It is very well documented, and I have had estimates provided from a US/UK certified tax firm to do our taxes for the first year or 2 of a move.

Our experimental move proved to us that we do want to move back to the UK and over this last few years I have been adjusting our finances to minimize the tax hit once we start paying UK taxes and filing US taxes, applying UK credits for taxes paid against US taxes due. (we plan to move back next year)

 

[flyingaway]

Sojourning: I re-read my co-worker's obituary. He retired in 1999 (or 2000) at the peak of the dotcom bubble at the age of 58 (or 59), which was VERY early for his career (tenured professor, every other ones retired after 70). The obituary says he was survived by his Thailand partner ***, and his brothers and sisters, no mentioning of any ex-wife or children. In his almost 15 years of retirement, he spent about half of his time in Thailand and half in the U.S. and traveled around the world.

When I was interviewed here in 1998, he was the only one person who did not talk to me about technical stuffs. He told me to get all possible airline miles and hotel points. When I told him that I might take different airlines and stay at different hotels, he told me to join all frequent flyer and hotel reward programs. I felt very strange at that time. But now, I consider him a great example of FIRE.

By the way, I had some personal opinion about his Thai partner. In my opinion, my co-worker was a handsome man even in his late 50s, his partner did not "match" him. But, that is just my opinion. He was very happy, that counts.

 

[Sojourning]

Nun, as I wrote, I think it is possible to discuss all the other aspects first and ONLY if you are getting to the point of saying, 'yes, I'm really interested in doing it', move on to the details where you will need to consult an expert. Like a tax accountant familiar with expat situations.

As I also wrote, well intentioned answers may still be wrong. You wrote, "therefore all US citizens must pay US tax on their worldwide income wherever they live. The only way for a US citizen to get out of the responsibility to pay US tax on their worldwide income is to renounce US citizenship." That is simply not true. Or at least is too simple. They have to declare income but it does not mean they must pay tax to the USA.

A US citizen can for example apply for the 'Foreign earned income exclusion' and if their income is under 80k per year worldwide while living abroad, will pay no US income tax and will not have to give up US citizenship. In fact, they can even maintain a home in the US while doing that. Something I could not do in Canada. Here is an explanation.
Tax on Foreign Earned Income for US Citizens | Serbinski Accounting Firms

What they would have to do though is derive their income outside of the USA as it is 'foreign earned income' that the exclusion applies to. I have met US citizens living abroad who paid no income tax in the USA and did not renounce their citizenship.

Alan, I always advise living in a place for 1 to 2 years before deciding if you are likely to 'stick' or not. Three months is still well within the 'honeymoon period'.

 

[flyingaway]

For those bloggers "retired" in Thailand, they withdraw cash from ATM to pay their bills. I do not remember any of them mentioned paying taxes in Thailand.

 

[nun]

As I also wrote, well intentioned answers may still be wrong. You wrote, "therefore all US citizens must pay US tax on their worldwide income wherever they live. The only way for a US citizen to get out of the responsibility to pay US tax on their worldwide income is to renounce US citizenship." That is simply not true. Or at least is too simple. They have to declare income but it does not mean they must pay tax to the USA.

Obviously DTAs and things like FEIE and FTCs can be used to defray US tax. But the US citizen will always be liable to US tax on their worldwide income and will have to file 1040s etc unless they are below the income filing threshold. I was addressing the comment in which you stated that

Originally Posted by Sojourning View Post
T.

For example, the IRS taxes Americans on their world wide income. Generally true but only if you are 'deemed to be resident for tax purposes'.

This is incorrect as residency is not a factor in determining how the US taxes its citizens.

What they would have to do though is derive their income outside of the USA as it is 'foreign earned income' that the exclusion applies to. I have met US citizens living abroad who paid no income tax in the USA and did not renounce their citizenship.

Paying no US tax is quite common for US expats.....however the requirement to file and comply with US tax law remains. The burden that falls on a US expat is rarely financial, it's usually more in paperwork and restrictions on the foreign financial services they can use and limitations on how they can manage their US accounts from overseas.

For US citizens these are very important considerations and should not be minimized as the US citizen is n a uniquely disadvantaged situation when living outside the USA. They are not unsurmountable barriers to retiring abroad, but the must be considered along with the visas, sea, sun and lifestyle.

 

[nun]

For those bloggers "retired" in Thailand, they withdraw cash from ATM to pay their bills. I do not remember any of them mentioned paying taxes in Thailand.

They only have to pay Thai tax if the had income earned in Thailand. It's a popular retirement destination because there's no tax on foreign pensions. That would not be the case in many countries.....certainly not the UK.

 

[LARS]

First, wonderful observations being made. Certainly much appreciated by me.

Honestly, as I have thought about it over the years the conclusion I have come to as a Yank, married to a Yank, is that moving permanent overseas is a pipe dream.

What we are aiming for now is to sell big house. Buy a townhome that can easily be closed up for 3 to 4 months at a time and then rent in foreign destinations for extended periods (but no more than 4 months realistically at a crack).

In this scenario, what is the collective opinion on how to handle healthcare while abroad? Currently not on Medicare, but ACA...

 

[explanade]

Isn't paying taxes to the IRS On foreign income moot for most early retirees?

Most of the people here have their retirement assets in US institutions?

So the dividends and cap gains would mostly be from US assets?

The more interesting question would be if an EU country that granted a retirement visa would try to get their taste of your retirement income (social security, pension, 401k withdraws, dividends, cap gains, etc).

 

[Alan]

A US citizen can for example apply for the 'Foreign earned income exclusion' and if their income is under 80k per year worldwide while living abroad, will pay no US income tax and will not have to give up US citizenship. In fact, they can even maintain a home in the US while doing that. Something I could not do in Canada. Here is an explanation.
Tax on Foreign Earned Income for US Citizens | Serbinski Accounting Firms

What they would have to do though is derive their income outside of the USA as it is 'foreign earned income' that the exclusion applies to. I have met US citizens living abroad who paid no income tax in the USA and did not renounce their citizenship.

I expect to pay no US taxes even though I have no earned income, but this is because the taxes I will be paying in the UK on my passive income (which is mostly US pensions and withdrawals from investments) will be slightly higher than my US taxes so will offset them to zero.

However, I will have to go to the trouble and expense of filing a US tax return every year.

Many "Accidental Americans" are being swept up in the net in recent years due to FACTA. One of the more famous of these in the London Mayor, Boris Johnson who was born in New York but left when he was 5 years old(his parents were over there on an assignment). A few years back he took his wife and children on a vacation to Mexico, changing at Houston, but the airline at London would not let him board the aircraft as another quirk to being a US citizen is that you must enter and leave the US on a US passport, which he didn't have. Although he was not spending the night in Houston they needed to go through immigration to board the flight they were booked on to Mexico.

He wrote a scathing article about this in a British newspaper saying that he had to pay a "tonking load of money" to cancel his flight and book another that did not go via the USA, but he did say that he got there faster and was able to meet his wife and children when they arrived via Houston. He publicly renounced his citizenship in that article only to discover that you cannot renounce your US citizenship before you are up to date on your taxes.

A couple of weeks ago he finally settled his tax dispute with the IRS who said he still owed capital gains on the sale of his first house in London, which was not taxable in the UK but taxable in the US.

London Mayor Boris Johnson Settles U.S. Tax Bill Ahead Of Visit : The Two-Way : NPR

Under U.S. law, citizens must pay the taxes on incomes above $97,600, even if that money is earned overseas. Johnson, as London mayor and as a columnist for The Telegraph, earns nearly $600,000 a year.

 

[Alan]

First, wonderful observations being made. Certainly much appreciated by me.

Honestly, as I have thought about it over the years the conclusion I have come to as a Yank, married to a Yank, is that moving permanent overseas is a pipe dream.

What we are aiming for now is to sell big house. Buy a townhome that can easily be closed up for 3 to 4 months at a time and then rent in foreign destinations for extended periods (but no more than 4 months realistically at a crack).

In this scenario, what is the collective opinion on how to handle healthcare while abroad? Currently not on Medicare, but ACA...

I've heard that WorldNomads.com is very popular for health insurance while traveling/living abroad.

Currently my retiree HI from US ex-employer covers me worldwide. I can go onto their website (BCBS of Louisiana) and find the hospitals and doctors in the BCBS network wherever I am traveling

Last year for example I did the research and kept a list of hospitals and doctors in the network for the places where we were spending most time (Brisbane, MacKay, Melbourne & Hobart). We also took a week-long trip to Vanuatu and I took out the travel and health insurance from the travel agent we used while in Australia.

 

[Alan]

Isn't paying taxes to the IRS On foreign income moot for most early retirees?

Most of the people here have their retirement assets in US institutions?

So the dividends and cap gains would mostly be from US assets?

The more interesting question would be if an EU country that granted a retirement visa would try to get their taste of your retirement income (social security, pension, 401k withdraws, dividends, cap gains, etc).

See my post above, but for the UK/US deal, the UK taxes on worldwide income which includes all the US pensions, cap gains etc.

However, regardless of income you get the first ~$16k of cap gains free of tax, per filer, so $32k for my wife and I. The same is true for stock dividends so for a 100% stock ETF.

 

[nun]

The more interesting question would be if an EU country that granted a retirement visa would try to get their taste of your retirement income (social security, pension, 401k withdraws, dividends, cap gains, etc).

The distribution of taxes between countries is governed by two sets of domestic tax laws and their interaction through the relevant Double Taxation Agreement or tax treaty.

If you are granted a residence visa in an EU country then that country will have primary taxation authority and you pay them first. You might be interested to learn that if you live in the UK the DTA specifies that your US SS is only taxable in the UK. There are rules for all the income types you mention that have varying dependencies on citizenship and residency and in some cases you will have to go through a process of "resourcing income through treaty" to make US income look like UK income so that the US will allow a foreign tax credit on the tax that the UK imposes on the US income.

 

[nun]

See my post above, but for the UK/US deal, the UK taxes on worldwide income which includes all the US pensions, cap gains etc.

However, regardless of income you get the first ~$16k of cap gains free of tax, per filer, so $32k for my wife and I. The same is true for stock dividends so for a 100% stock ETF.

And of course that ETF is chosen to avoid PFIC issues and be HMRC reporting....sorry had to be a geek.

 

[nun]

First, wonderful observations being made. Certainly much appreciated by me.

Honestly, as I have thought about it over the years the conclusion I have come to as a Yank, married to a Yank, is that moving permanent overseas is a pipe dream.

What we are aiming for now is to sell big house. Buy a townhome that can easily be closed up for 3 to 4 months at a time and then rent in foreign destinations for extended periods (but no more than 4 months realistically at a crack).

In this scenario, what is the collective opinion on how to handle healthcare while abroad? Currently not on Medicare, but ACA...

If you intend to spend considerable amounts of time overseas you need to look at residency considerations, your health insurance and how they interact with the ACA and the IRS form 8965. If you maintain residency in the US you could buy an ACA plan that covers you overseas or just have a plan that works in the US and buy an extra repatriation and catastrophic plan piecemeal for wherever you visit.

 

[explanade]

Yikes what a load of headaches.

You really have to love being able to stay more than 3 months at a time to deal with 2 or more national taxing authorities.

Your aggregate tax bill may be higher.

But wait I thought the UK didn't tax income earned outside the UK? That's why there are so many russian oligarchs (kleptocrats) and Arab sheikhs living in London?

 

[Alan]

And of course that ETF is chosen to avoid PFIC issues and be HMRC reporting....sorry had to be a geek.

Absolutely, which is why we are taking 5 tax years to get financial ready for the move, part of that is selling MF's and buying HMRC recognized ETF's to minimize the taxes once we move.

The point to make in this general thread of retiring overseas is to do lots of research ahead of time to understand the tax implications for whichever country you are considering moving to.

 

[Sojourning]

I know that threads can take on a life of their own but this is turning into a tax thread. Is this really the place for that or should someone with a big interest in the tax issues of retiring overseas, not start a new thread on that specific topic and leave this thread for other issues related to retiring overseas? An equally as complicated topic would be pension implications which could be a separate thread or combined with a tax thread.

I certainly didn't start this thread to try and go into issues that require very specific and expert knowledge. Again, such issues need only be looked at once you have made the initial decision that you are interested in retiring overseas.

LARS, think carefully about the move from a house to a townhouse or condo. My wife found it unbearable to live in a condo. There were 3 main reasons. Sound proofing is rarely 100%, no private outdoor space, rules that either you don't like or someone else ignores and you don't like that.

Re travel insurance, there are plenty of providers but the devil is in the detail of the policy. You must read it. Most don't. Some require you to return home to make a claim for example. Not much fun if you have a big hospital bill to pay out of pocket while you are travelling. Some do not cover what you thought they covered. Most complaints about travel insurance are actually a result of the traveller not knowing what they were and were not covered for. You hang a camera on a chair arm in a restaurant and it gets stolen. Not covered. Yes, you had coverage for the camera being stolen but you did not have coverage if you did not exercise 'due caution'.

Again, not a topic to do with 'should you retire overseas'.