What to Consider Before Retiring Overseas

Ever considered living abroad in your golden years? Many Americans not only consider it, they actually do it, buying beautiful homes in great climates overseas and never looking back. Some even find lower health care costs to boot. However, because of the global economic and political changes, retirement hot spots across the globe may be losing their luster.

As New York Times article points out, although places like Ireland, Thailand and Costa Rica were the most recommended countries in the past to retire, they are not any longer. But why? Well, Ireland is said to have a high cost of living, Thailand is said to have increasing anti-foreign sentiments, and the Costa Rican capital, San José, has growing crime rates.

Retirees are now urged to consider places like Panama, Uruguay, and Argentina – as well as France, Croatia, and Malaysia when looking for a place to settle during retirement. “It has very good tax breaks, although the cost of living can be high,” Ms. Hannah Coppersmith, managing director of Pure International, a global property company in London said.

Wondering how you would be able to afford to live abroad when you retire? Kathleen Peddicord of Panama City, Panama, and author of “How to Retire Overseas” recommends selling nearly everything you own. “Seriously. Think about it this way. If you were to liquidate every asset you have, where would that leave you? What lump sum of capital would you net?” Then, the next step is to take a look at your investments. What level of yields and dividends might those give you on a monthly basis?

Some countries are quite affordable. “In Panama, for example, your rent could be $1,500 a month for a two-bedroom apartment in a nice building in Panama City with a doorman and a pool,” Ms. Peddicord said, “or it could be $200 a month if you choose instead to settle in a little house near the beach in Las Tablas, a beautiful, welcoming region.”

Read the full article here for more tips and information.

More American Expatriates Give Up Citizenship

From NY Times.com:

Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship.

“What we have seen is a substantial change in mentality among the overseas community in the past two years,” said Jackie Bugnion, director of American Citizens Abroad, an advocacy group based in Geneva. “Before, no one would dare mention to other Americans that they were even thinking of renouncing their U.S. nationality. Now, it is an openly discussed issue.”

The Federal Register, the government publication that records such decisions, shows that 502 expatriates gave up their U.S. citizenship or permanent residency status in the last quarter of 2009. That is a tiny portion of the 5.2 million Americans estimated by the State Department to be living abroad.

Still, 502 was the largest quarterly figure in years, more than twice the total for all of 2008, and it looms larger, given how agonizing the decision can be. There were 235 renunciations in 2008 and 743 last year. Waiting periods to meet with consular officers to formalize renunciations have grown.

Tax Challenges of Being a U.S. Citizen Abroad

Yesterday the Roni Deutch Tax Center – Tax Help Blog posted a new article with advice for American taxpayers living outside the country. As the entry explains, even if you move to another country you are still going to have to deal with the IRS and U.S. taxes. I have included a section of the article below, but you can find the full text here.

The IRS Still Wants your Money

You may be surprised to learn that even through you may move out of the country, and work abroad, you are still required to pay taxes. Every year you will need to file a tax return claiming your worldwide income, even if you have already paid taxes on the income in the country you are living in. This applies to both earned income (such as wages or self employment income) and unearned income (such as capital gains, interest and dividends, etc).

Foreign Earned Income Exclusion

If you have been earning income while living abroad for more than a year, then you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. It would allow you to exclude up to $91,400 of foreign income for the 2009 tax year. The requirements depend on which country you are residing in, how many days you have been living there, and your worldwide income. This credit can be especially beneficial to taxpayers who might be subject to double taxation (those who have to pay taxes to both the U.S. government and their local tax authority). You can use the foreign income exclusion form (IRS Form 2555) to claim this deduction, but be sure you speak with a tax professional specializing in foreign income before sending off your return.

Foreign Tax Treaties

Fortunately, the United States has made tax treaties with several foreign countries to make paying taxes less difficult for some Americans living abroad. These treaties allow qualifying taxpayers to pay a reduced tax rate. Some are even allowed to be exempt from reporting foreign income. However, do not get too excited just yet. Not every foreign country has made an agreement with the U.S. government, so be sure to check out IRS Publication 901, and speak to a qualified expert before you begin taking advantage of treaty related tax benefits.