Retiring Abroad: Taxes, Social Security, and Healthcare

Retiring abroad in Portugal, Mexico, Costa Rica, Spain, or Panama is no longer an unusual plan. Lower living costs, good weather, and the appeal of a different pace of life draw a growing number of American retirees overseas, and the math can be compelling. A retirement budget that feels tight in metro Atlanta may feel comfortable in Lisbon or Lake Chapala.

The financial side, however, is more complicated than the lifestyle articles suggest. The United States taxes its citizens on worldwide income wherever they live, Medicare stops at the border, foreign accounts bring reporting obligations with steep penalties, and US financial institutions have grown wary of customers with foreign addresses. None of these is a reason not to go. All of them are reasons to plan the move as carefully as you would plan any other retirement.

This guide covers the questions that matter most: taxes in two countries, Social Security and Medicare, keeping your US accounts, healthcare, state residency, currency, and estate planning across borders. It is educational rather than individualized advice, and an international move is one of the situations where a cross-border tax professional is worth the cost.

US Taxes Do Not End When Retiring Abroad

The United States is one of very few countries that taxes based on citizenship rather than residence. If you hold a US passport or a green card, you file a Form 1040 every year reporting your worldwide income: Social Security, pensions, IRA and 401(k) withdrawals, dividends, capital gains, and any foreign income. The IRS maintains a resource page for US citizens and residents abroad, including the automatic two-month filing extension for those living outside the country.

Your new country will usually tax you as well once you become a tax resident there, typically after 183 days. The result is two returns and two sets of rules, and the tools for avoiding double taxation have important limits.

The foreign earned income exclusion does not help retirees

Many people have heard that Americans abroad can exclude a large amount of income from US tax. That exclusion applies only to earned income, meaning wages and self-employment income from work performed abroad. It does not apply to Social Security, pensions, retirement account withdrawals, interest, dividends, or capital gains. For a retiree, it is nearly useless.

Foreign tax credits and treaties

The tool that does help is the foreign tax credit, which lets you offset US tax with income tax paid to your country of residence on the same income. Where the foreign rate is higher, you generally owe nothing additional to the US on that income. Where it is lower, you pay the difference to the IRS. Tax treaties between the US and many countries also assign taxing rights on specific types of income, such as Social Security and government pensions, and some countries offer favorable regimes for foreign retirees. The treaty terms vary widely and can change, so the specific country's treaty needs to be read rather than assumed.

Roth accounts abroad

A Roth IRA withdrawal is tax-free in the United States, but many countries do not recognize Roth accounts and tax the withdrawals as ordinary income. Whether your destination respects Roth treatment can change the value of conversions done before the move, and it is one of the first questions to ask a cross-border advisor.

Foreign Account Reporting: FBAR and FATCA

Opening a local bank account is a practical necessity abroad, and it comes with reporting obligations. If the combined value of your foreign financial accounts exceeds $10,000 at any point during the year, you must file the Report of Foreign Bank and Financial Accounts, known as the FBAR, electronically with FinCEN. Penalties for failing to file are severe even when no tax was owed. The IRS explains the requirement at irs.gov.

A second form, Form 8938 under FATCA, is filed with your tax return when foreign financial assets exceed higher thresholds that are more generous for those living abroad. The two forms overlap but are filed separately. Keep a simple annual list of every foreign account with its highest balance during the year, and the reporting becomes routine.

One more trap: foreign mutual funds and ETFs are generally classified as passive foreign investment companies, and the US tax treatment of PFICs is punitive and complex. Keep your investment portfolio in US-domiciled funds held at a US custodian and use foreign accounts for cash and living expenses only.

Social Security and Medicare When You Live Overseas

Social Security retirement benefits can be paid to US citizens living in most countries, by direct deposit to a US bank or, in many countries, to a local bank. A small number of countries are excluded by US law, and the Social Security Administration publishes the rules and a payment screening tool at ssa.gov. You must report your foreign address, respond to periodic questionnaires, and report changes such as marriage or a return to the US. Claiming decisions are the same as at home, and our Social Security claiming strategy guide applies.

Medicare is a different story. With narrow exceptions, Medicare does not pay for care received outside the United States, as medicare.gov explains. Part A is premium-free for most people and there is no reason to drop it. Part B carries a monthly premium, and retirees abroad face a choice: keep paying for coverage they cannot use where they live, or drop it and accept a late enrollment penalty of 10 percent per full year without coverage if they later return. Retirees who expect to come back to the US for major medical care or in their later years often keep Part B. Those who are certain they will not may drop it, understanding the penalty is permanent.

Paying for Healthcare Abroad

Healthcare is usually the largest planning item after taxes. Options depend on the country and your residency status. Some countries allow legal residents to join the national health system, sometimes after a waiting period or with a contribution based on income. Private local insurance is often affordable for retirees in their sixties but becomes expensive or unavailable as you age, and pre-existing conditions may be excluded. International health plans that cover multiple countries, sometimes including the US, cost more but offer continuity.

Plan for the long term, not just the first few years. A country that is easy to live in at 65 may lack the specialized or long-term care you want at 85, and many expatriate retirees return to the US in their later years for exactly that reason. Our guide to healthcare costs in retirement covers the US side of that budget, which does not go away just because you moved.

Keeping Your US Accounts and Managing Currency

US brokerages and banks vary widely in how they treat customers with foreign addresses. Some allow you to hold and trade existing accounts. Some freeze new purchases, restrict mutual funds, or close accounts entirely once they learn you live abroad. Using a relative's US address to disguise your residence violates account agreements and can create legal and tax problems, so ask your custodian for its written policy before you move and change institutions if necessary while you still live in the US.

Retirement accounts can generally remain in place and be drawn down from abroad, but new contributions to IRAs require earned income, which most retirees no longer have. Required minimum distributions continue on the normal schedule. Withholding on IRA distributions to foreign addresses is often mandatory at a fixed rate, so plan cash flow accordingly.

Currency risk is real and often ignored. If your income is in dollars and your expenses are in euros or pesos, a 15 percent move in the exchange rate changes your standard of living by the same amount. Retirees manage this by holding a year or two of expenses in local currency, using low-cost transfer services rather than bank wires, and keeping the bulk of investments in dollars while accepting some fluctuation. A few also hold a modest allocation in the local currency through short-term instruments.

State Residency, Visas, and Estate Planning Across Borders

Leaving the United States does not automatically end your state tax residency. States with income taxes can continue to treat you as a resident if you keep a home, a driver's license, or voter registration there, and a few states are notoriously aggressive about it. Georgia is comparatively straightforward, but you should still sever ties cleanly: sell or lease the home, change your license and registration, close local accounts, and document the move date. If you keep a US address for mail, use a mail service rather than a residence.

Residency visas for retirees typically require proof of stable monthly income or assets above a threshold, health insurance, and a clean background check. Requirements change frequently and vary by country, so work from the consulate's current guidance. Note that a long-term visa also usually makes you a tax resident of the new country, which is the trigger for the two-country tax planning above.

Estate planning gets harder across borders. US estate tax applies to citizens on worldwide assets regardless of where they live. Many civil law countries impose forced heirship rules that dictate who inherits local property, which may conflict with your US will. Property in the new country often needs a local will, and the two documents must be drafted so that neither revokes the other. A non-citizen spouse changes the marital deduction rules. These are questions for an estate attorney with cross-border experience, and Attend coordinates that planning rather than drafting the documents. For the tax side of the move, our tax planning team can build the two-country projection with your cross-border preparer.

Retiring abroad can deliver a better life for less money, and thousands of Americans do it well every year. The ones who succeed treat the move as a financial project with a checklist: two tax systems, foreign account reporting, Social Security logistics, a healthcare plan that does not rely on Medicare, custodians that will keep your accounts, a clean exit from state residency, and estate documents that work in both countries. Handle those before you board the plane, and the retirement on the other side has a far better chance of being what you imagined. Our retirees page describes how we work with clients planning a move.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, physicians, and business owners. Advisory services are held to a fiduciary standard. More about Attend