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Winning Strategies for Retirement Abroad (cont.)

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How much it costs to apply for a retirement visa varies by country, and some countries don’t post clear guidelines. Retiree websites say the application fee typically ranges from $50 to $200. Translation and legal fees add to that cost. The visa in Belize is called Qualified Retirement Persons Incentives Program (QRP) and entails a $150 application fee. Malaysia’s My Second Home visa program entitles retirees who have $2,450 in monthly income, as well as assets of about $86,100, to import a vehicle and personal goods tax-free and is good for 10 years, according to Malaysia’s official website. An annual fee equated to about $22.40 as of press time.

FAR ABROAD. Although Central America and South America often are the focus of U.S. retirees, Malaysia and Vietnam are cited by expats and industry observers as places where you can retire at a fraction of the cost of living in the United States.

FAR ABROAD. Although Central America and South America often are the focus of U.S. retirees, Malaysia and Vietnam are cited by expats and industry observers as places where you can retire at a fraction of the cost of living in the United States.

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MONEY TALKS. The strong U.S. dollar makes the idea of retiring abroad appealing. The dollar hit an all-time high against the Mexican peso in February 2016 and increased more than 17 percent versus  the peso over the past year. The dollar is trading at levels against the euro that haven’t been seen since 2003. The dollar’s value also has risen against the Colombia peso, Costa Rica colon and Nicaragua cordoba over the past 4 years. (In Ecuador and Panama, the U.S. dollar is an official currency.)

Today, you can get a lot more euros than you could 5 or 10 years ago, so that means that it’s a good time to buy that property in southeastern France, says Daniel Webber, who is the managing director of FXcompared.com, which provides information about international money transfers.

However, currency experts say recent trends are just that: Although the dollar was strong as of press time, exchange rates, like the stock market, are cyclical. Foreign-exchange company HiFX predicts that the Mexican peso and the euro will strengthen against the dollar in the remainder of 2016 and into 2017 (albeit remain weak overall). That means that a retiree’s cost of living could increase after he/she settles abroad.

Beyond exchange rates, how you access your money while you’re abroad changed in the past few years. IRS requires U.S. citizens to file tax returns no matter where they live, and requirements that took effect in 2014 could affect your ability to bank abroad.

The Foreign Account Tax Compliance Act (FATCA) applies to couples who have assets of at least $400,000. Although that threshold won’t apply to most retirees, FATCA also applies to financial institutions, and that caused many foreign banks to stop doing business with Americans abroad. FATCA requires foreign financial institutions to report to IRS on U.S. citizens who have an overseas account of at least $50,000. If they don’t, IRS can levy financial penalties against the banks. As of press time, 113 countries agreed to FATCA.

Rather than complying with what they view as an overreaching law, according to David McKeegan, who is the founder of Greenback Expat Tax Services, and others, many foreign financial institutions simply choose to stop doing business with U.S. citizens altogether. (You typically have to show your passport to open an account in a foreign bank.) He says FATCA affects every U.S. citizen who retires abroad.

FATCA is a huge hassle, says Vincenzo Villamena, who runs Onlinetaxman.com from New York and Medellin, Colombia. He notes that FATCA was intended to ensnare tax evaders through their offshore accounts. If you’re looking for a bank that abides by FATCA requirements, IRS can help. The agency enables you to search for a country’s compliant financial institutions. A guide on how to do that is at irs.gov/pub/irs-pdf/p5147.pdf.

Observers say FATCA made it more challenging to use a local bank account in South America, Indonesia and Europe. “If you’re an American [living] in Switzerland, you can’t open a checking account any more,” McKeegan says. “That makes it pretty difficult to go out and pay your electric or gas bill.”

Consequently, many retirees who live abroad simply maintain their U.S. accounts, access them online and withdraw money that they use locally through ATMs. That makes taxes simpler, according to Stevens and Jim Santos, because, on paper, you still are inside of the United States financially. Some U.S. banks and brokerages waive foreign-transaction fees or ATM fees that their customers will incur if they adopt this strategy. However, Webber says it’s better to go to a currency exchange than an ATM, because the rate that you get on any transaction won’t be as good at an ATM. “Your exchange rate might be 5 percent worse,” at an ATM compared with a currency exchange, Webber says. Over time, that adds up, he says.

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