Eight years ago, Donna and Tom Dawson of St. Albert, Alberta, retired from their jobs in Canada and put down roots on the outskirts of Panama City. The couple, now in their early 60s, rave about the stunning greenery, their lovely neighborhood, and the low cost of living. But there’s stuff they’re still getting used to.
“It is very noisy, and the traffic is crazy,” Donna said. “We have had to learn to wait for just about everything here—work to be done, deliveries to be made.”
Tom echoes the sentiment: “We’ve been here eight years, and we’re still getting used to it.”
The Dawsons have created WhyPanama.net to counsel potential expats. Their advice: Before committing, live in your prospective hometown for several months, and at different times of year. But there are financial factors to think about, too.
Canadians living abroad like the Dawsons don’t pay Canada’s income tax on non-Canadian income. But U.S. citizens, whether abroad or stateside, must file an annual tax return reporting all income above certain minimums, no matter where it’s earned.
If it’s any consolation, treaties between the U.S. and a number of nations prevent double taxation. If you pay income tax to a foreign government, you may be able to claim a tax credit or deduction on Form 1040. But that benefit doesn’t apply to other types of foreign tax, such as the value-added tax. Ask a tax professional who knows the laws of your country of choice to help you plan.
Opening or maintaining a bank account abroad has become more difficult because of the Foreign Account Tax Compliance Act, a 2010 U.S. law intended to prevent Americans from hiding assets abroad. As of July 2014, foreign financial institutions must report accounts held by American citizens. The penalties for noncompliance are severe. (Some institutions—including most nonprofits—are exempt.)
Consequently, members of the Association of American Residents Overseas have reported problems opening or maintaining accounts with foreign banks. “The banks believe complying with FATCA will be simplified if they avoid American clients,” said David Kuenzi, a certified financial planner with Thun Financial Advisors, which specializes in expatriate finances and is based in Madison, Wis. Institutions in the U.S. also are closing accounts held by Americans who don’t maintain a U.S. address.
As a result, you may have to establish savings and checking accounts with an institution that has international reach, such as Citibank, Kuenzi says. He also recommends keeping an address in the U.S.
Read more advice on retirement planning from Consumer Reports.
Most U.S. health insurance companies won’t cover a long stay abroad. Neither will Medicare. Check with the country’s embassy about buying into the nation’s health care system if there is one. Or shop for an expatriate policy. Aetna’s basic one, for instance, pays 100 percent after a $2,500 coinsurance limit, with annual maximum coverage of $250,000 per person. It includes emergency medical evacuation.
Active-duty and retired military personnel and their families living abroad can also take advantage of Tricare standard and supplemental policies, offered by the Department of Defense.
As good and cheap as health care may be in your adopted country, you never know when you’ll have to return stateside. For that reason, it’s wise to continue paying premiums for Medicare Part B, which covers doctor services, outpatient hospital care, preventive care, and some types of home health care. If you drop and resume Part B—or delay initial enrollment—you’ll pay a 10 percent premium penalty for every 12-month period in which you could have been enrolled. There’s no penalty for re-enrolling in either Part A (hospital inpatient and hospice care, and care in skilled nursing facilities) or D (prescription drugs), but you must re-enroll in Part D within a five-month period from the time you return.
Indeed, as excited as you may be about your new life, plan for the possibility of coming home. Many people who retire abroad eventually do return, says Ken Moraif, a financial planner with the Plano, Texas, wealth management company Money Matters. “When you’re older, you may want to be with family,” he said. “Maybe after a few years you’ll miss the U.S. In my experience, for most people it’s not a permanent thing.”
—Tobie Stanger
This article appeared in the September 2014 issue of Consumer Reports Money Adviser.
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