We retired abroad. Here’s why we changed our mind.
In the summer of 2012, Brad Johnson and his wife joined the thousands of Americans who decide to spend their retirement abroad each year.
They rented their home in Phoenix, Arizona, got a six-month tourist visa they planned to renew indefinitely, packed their two cars, and drove south, to the first in a series of rental homes. in and around Puerto Vallarta, Mexico. “It was absolutely wonderful,” says Johnson, now 70.
The Johnsons had traveled to Mexico before and were looking forward to the opportunity to put down roots in a place they valued, with a lower cost of living that would help them expand their savings. They had a lot of company: in August, some 680,000 beneficiaries were receiving Social Security benefits abroad, the best way to gauge the trend of retirement abroad.
What is more difficult to determine is how many of these overseas adventurers become boomerang expats, as happened to the Johnson’s. Less than two and a half years after moving to Mexico, they were back in the United States, dividing their time between Phoenix and Stockton, Calif., Where Johnson’s 90-year-old mother-in-law needed their help. . Four years after their return, there are no more ties that hold them back in the United States: two grandchildren, aged two years and two months. It changed the idea of Johnson’s retirement. “We had a lot planned, but not for my wife to realize that her mother needed her eldest daughter in Stockton,” says Johnson.
While there is plenty of advice available for aspiring expats on everything from choosing the right destination to ensuring you don’t mess up your taxes, there is little advice available for boomerang retirees who decide to return home after a few years or after a decade or two. The best time to prepare for a possible return is before you leave.
“Very few people plan for this scenario, and they should – because the reality is that the kind of lifestyle that is right for you in your sixties or sixties may not be what you want or need in your life anymore. 80s or 90s, ”David warns. Kuenzl, founding partner of Thun Financial Partners of Madison, Wisconsin, a financial planning firm specializing in working with American expats of all ages, including retirees. He believes that among those retiring overseas, we can expect to see “a surprising number” reconsider their decision when they are struggling with health issues or decide they want to be closer to home. their friends or family during the last decade of their lives.
Ric Edelman, a financial advisor in Fairfax, Va., Agrees. He had a client who moved overseas during retirement, only to return to the United States within a year. “It was a very expensive and disruptive time in his life that took two or three years to sort out,” says Edelman.
The Johnsons were lucky. Although they made no formal plans for their return, circumstances nevertheless contributed to a smooth return. They had only been gone for about two years and hadn’t had time to sell their house in Phoenix. They had returned every six months to renew their Mexican tourist visas, and thus maintained their social ties in the United States. The return may have shattered their hopes and dreams, but it didn’t impose big financial costs.
Brad and Yvonne Johnson in Puerto Vallarta
Courtesy of Brad Johnson
Don’t forget Uncle Sam
Other families might not be so lucky. Late registration penalties for Medicare are a potential minefield for returnees. Suppose you happily moved to Costa Rica at the age of 65 with the intention of living there for the rest of your life, and therefore don’t bother signing up for Medicare. But later you return – maybe you are widowed and alone, or maybe you have a health issue that just can’t be treated there as well as it could in the States – United, Medicare Part B, which covers outpatient services, will require you to pay a 10% annual penalty for each year you should have signed up, but didn’t, for the rest of your life. Many financial advisers recommend that you purchase and maintain this coverage, just in case. This was of less concern to the Johnsons, as they have separate medical coverage for retirees thanks to Yvonne’s former job as a federal government employee.
Also, don’t forget your tax obligations. No matter where you are in the world, you will need to file an annual tax return with the IRS, documenting all your worldwide income: your social security payments, your investment income, all distributions from your retirement accounts, and any employment income you earn from employment with a local employer. Have you chosen a concert as a bartender on the beach? Be prepared to tell the IRS everything. The exclusion of income earned abroad means that you will not have to pay tax on the first $ 104,100 of any employment income you receive for that job.
Pay close attention to state taxes, says Jonathan Lachowitz, founder of White Lighthouse Investment Management in Lexington, Mass., And expert in cross-border financial matters. Florida is one of a handful of states that do not collect state income tax, while California and others may treat you like you’ve never left if you come back to both. years and could charge you state income taxes for the years you were gone, says Lachowitz.
Don’t cut your ties at home
When you move for the first time, don’t sell your home immediately, nor make a commitment to buy a new home immediately. “It’s always easier to buy a house than to sell it,” Edelman warns. It can be much more expensive and costly to sell that home you bought overseas than you expected, with special taxes and fees attached to the transaction. Meanwhile, hiring for the first few years helps ensure that one of the potential reasons for boomeranging – choosing the wrong place to retire – doesn’t come with too much of a penalty.
Keep your financial “home” in the United States. It helps to have an existing relationship with a US financial institution if you are repatriating. “You cannot take your financial life with you, or you will have problems,” warns Kuenzl. Be sure to update your estate planning documents to reflect your current situation and jurisdiction.
Then there are the “soft” questions. If you do decide to repatriate, be aware that your current life may be different from the one you left behind when you moved abroad. Your experiences may have changed your views and attitudes; your needs, too, may have changed. It will affect everything from the type of house you live in to your interactions with your old social circle.
“The key message that I hope everyone who rushes to Mexico and other destinations will learn is that life has plenty of surprises in store, and whatever you think today, your plans may change,” explains Kuenzl. “So part of planning for your departure should at least involve the possibility that you strength to come back.”
This is something the Johnsons now understand. After a retirement adventure abroad, today they are in no rush to do more than spend more time with their family in the United States and think about what will come next. Rather than moving somewhere permanently, they are now considering future trips to Mexico or other international countries. “We’ll take it as it comes,” Johnson said.