Should I Retire Abroad Or In a Retirement-Friendly State?
by Gabriel Lewit
As the sun begins to set on your working years and the prospect of retirement draws increasingly near, a momentous decision awaits you: Should you retire abroad, exploring distant lands and new cultures, or choose the comfort of a retirement-friendly state in the United States?
Of course, this decision may be overridden by the desire to live near family, a particular climate, or necessary healthcare services.
In this blog article, we will delve into key considerations for retirees when they are deciding between the best places for Americans to retire abroad vs. a location in the U.S. based on: Proximity to family and friends, lifestyle, weather, taxation, healthcare, real estate prices, and other expenses that impact their quality of life and costs of living.
By the end of the article, we’ll answer several questions that impact the decisions of recently retired individuals and couples, including why you may want to retire in Illinois (at least part-time).
Access to Healthcare
Access to quality healthcare is vital to any retiree’s decision about a location. Retirees may benefit from lower healthcare costs and comprehensive coverage when retiring abroad, especially in countries with universal healthcare systems. However, it is essential to thoroughly research the healthcare infrastructure and services available in the destination country. Language barriers and differences in medical practices can also pose significant challenges and risks.
The U.S. has a vast network of healthcare facilities, including hospitals, clinics, urgent care centers, PCP (Primary Care Physicians), and medical practices. In urban areas and densely populated regions, access to medical facilities is typically abundant, although crowded, based on the influx of potential patients. However, in rural and remote areas, the availability of healthcare providers and facilities will be more limited, leading to significant challenges in accessing medical service providers.
It’s important to consider geographical locations, insurance coverages, and other specific healthcare needs impacting where and when you retire.
Therefore, access to quality healthcare services can be a key driver in selecting a retirement location. It’s essential to thoroughly review healthcare options, insurance coverages, assisted living, skilled nursing, memory care, and the potential for long-term care needs so you can make informed decisions and ensure your financial security during retirement.
Taxes can be a significant expense that impacts where retirees choose to live.
Tax laws vary significantly between countries and states inside the U.S. Failing to navigate them properly could lead to unexpected tax liabilities. When retiring in a foreign country, it is important to consider the following:
- Tax Residency: Some countries have specific criteria for establishing tax residency, such as the number of days spent in the country within a tax year. Being considered a tax resident in two countries could lead to double taxation if no tax treaty is in place to prevent it.
- Tax Treaties: Check if there is a tax treaty between your home country and the country where you plan to retire. Tax treaties aim to prevent double taxation and may provide guidelines on which country has the primary right to tax specific types of income.
- Foreign Earned Income Exclusion: Some countries offer a foreign-earned income exclusion that allows qualifying individuals to exclude a certain amount of income earned abroad from their taxable income
- Social Security and Pension Payments: If you receive Social Security benefits or a pension from your home country while residing abroad, you must understand how these payments are treated for tax purposes.
- Inheritance and Estate Taxes: Some countries may have more favorable inheritance tax treatment, while others could impose substantial taxes on inherited assets.
- Reporting Requirements: Be aware of tax reporting requirements in your home country regarding foreign income and assets.
- Currency Fluctuations: Remember that currency fluctuations can impact the value of your retirement income and assets.
To navigate these complex tax considerations outside the borders of the U.S. effectively, consider seeking guidance from a qualified international tax advisor or financial planner.
If retiring in the US, some states are more tax-friendly than others, which can be highly advantageous for retirees. These states often offer tax breaks on retirement income, Social Security benefits, and lower property taxes. Before moving to a new state for retirement, make sure you understand how they will tax your sources of retirement income.
The proximity of Family and Friends
For many retirees, being close to family and friends is a crucial aspect of their retirement plans. Retiring abroad might seem adventurous and alluring, but being far away from loved ones can be emotionally challenging. Moving to a retirement-friendly state within the U.S. can offer the best of both worlds: enjoying a new environment while staying within reasonable proximity to family and friends.
Those with goals to make new friends and connections abroad should consider the following:
- Do you know the local language?
- Does the location you are moving to have community events?
- Does the community have local clubs or groups?
- Are there opportunities to volunteer?
Community is essential in retirement because it provides social connection, emotional support, and a sense of belonging. Engaging with others in a supportive network fosters well-being, personal growth, and meaningful connections, making retirement more fulfilling and enjoyable.
Don’t forget the Snowbird connection: Illinois in the Summer and Florida in the Winter.
Places to Enjoy During Retirement
Retirement is not just about relaxation; it’s also about exploring new horizons and enjoying life to the fullest. Whether retiring abroad or in the U.S., it’s important to establish your priorities when you retire.
- Are you interested in residing in a resort-like location?
- Do you want to live near a major international airport to facilitate travel?
- What sort of activities do you want to enjoy in retirement?
- Will the weather impact your decision?
Establishing your goals and desires for your retirement years will assist in deciding where to retire.
Keep in mind you may have two strategies. Your early retirement years may be based on the activities you enjoy, and later retirement years are based more on family considerations.
When considering retiring abroad, some countries offer idyllic environments that can provide unique experiences. However, before committing to such a life-changing move, language barriers, cultural differences, and potential legal complexities should be carefully assessed.
Meanwhile, in the United States, retirees can find many amazing places to enjoy during retirement. From sunny beaches to picturesque mountains and vibrant cities, the U.S. offers diverse options for various preferences.
Retiring in Illinois
As a financial advisor in Buffalo Grove, Illinois, clients frequently ask me, “Is Illinois tax-friendly for retirees?” Although Illinois imposes a state income tax, it is a flat rate of 4.95 percent. Unlike the federal government and numerous other states, Illinois does not implement tax brackets that apply higher rates to individuals with higher earnings.
An added benefit for retirees is that all retirement income is exempt from this tax. This means that pension payments, distributions from retirement plans like 401(k)s and IRAs, and Social Security payments, are not subject to state income tax. Military pay is also exempt from taxation. These exemptions may make Illinois one of the more tax-friendly states for retirees. Retirees can enjoy their retirement income without worrying about paying state taxes on these sources of funds.
In addition to the tax benefits, the state boasts diverse communities, each with its unique charm and amenities. From bustling Chicago to serene suburbs like Buffalo Grove, Illinois offers a mix of rural, urban, and suburban living that caters to different retirement preferences. Moreover, Illinois has a rich cultural scene, with museums, theaters, and festivals that cater to various interests. For nature enthusiasts, Lake Michigan’s state parks, forests, and scenic shores provide ample outdoor activity opportunities.
Deciding whether to retire abroad or in a retirement-friendly state is a deeply personal choice that involves carefully considering various factors. From access to healthcare and tax-friendly policies to proximity to loved ones and the availability of enjoyable experiences, each aspect plays a crucial role in shaping retirees’ quality of life. Considering these factors and seeking professional guidance when planning retirement is important.
About SGL Financial:
At SGL Financial, we don’t believe in a set-it-and-forget style of wealth management. We constantly update our research techniques and technology to deliver state-of-the-art service tailored to your needs.
If you’re nearing retirement or have already retired but want to review your current retirement plan, we invite you to connect with one of our retirement planning specialists. Our team is skilled in assisting clients in evaluating their income and retirement needs and can guide you in devising a plan that fits your circumstances. We offer a range of strategies backed by cutting-edge financial planning software and comprehensive reports. There’s always a right time to begin.