Retirement Planning Abroad: What U.S. Expats Need To Know

Nathalie Goldstein, MyExpatTaxes‘ CEO, helps Americans stay tax-compliant while living abroad with her user-friendly US expat tax software.

For many Americans, the urge to retire abroad has never been stronger. Rising costs, political polarization and the appeal of a more fulfilling life are all driving factors.

Retiring abroad takes more than booking a flight, though. The decisions you make before leaving can shape your financial stability, tax compliance and access to essential services abroad.

Avoiding Double Taxation

The U.S. taxes its citizens and Green Card holders on worldwide income, no matter where they live. As a U.S. expat, you’re still required to report all global income to the IRS. Fortunately, the IRS has provisions to reduce or eliminate double taxation.

Foreign Earned Income Exclusion (FEIE)

If you plan to keep working before fully retiring, the FEIE can help reduce your U.S. tax bill. For the 2025 tax year, you may be able to exclude up to $130,000 in foreign earned income, provided you meet the IRS Bona Fide Residence Test or Physical Presence Test. Planning the timing of your move can help you maximize the available exclusion.

Foreign Tax Credit (FTC)

For retirees with passive income, the FTC is often a better fit. It provides a dollar-for-dollar credit for taxes paid abroad and applies to both earned and passive income, including dividends and pensions.

You can use both FEIE and FTC, but not on the same income. In high-tax countries like France, the FTC often makes more sense. Review your income sources and local tax rules before you move.

Tax Treaties

Tax treaties between the U.S. and your new country help reduce or eliminate double taxation. These agreements define which country has taxing rights over specific income. You can only claim benefits that are exempt from the Savings Clause. Fortunately, treaty provisions on Social Security taxation are usually exempt, giving U.S. citizens a valuable advantage. Review the terms before relocating to claim key benefits and simplify your filing.

Reporting Foreign Financial Accounts

Once you reside abroad, something as simple as opening a local bank account can trigger U.S. reporting. If your foreign accounts exceed certain thresholds, you may need to file the Foreign Bank Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA). Penalties are steep for missed filings, and FATCA has a far-reaching arm, compelling foreign banks to report accounts held by U.S. persons directly to the IRS.

State Taxes

State taxes can follow you abroad, too. High-tax states or “sticky” states like California and New York may still claim you as a resident based on ties like a driver’s license, voter registration or a local bank account. However, the main deciding factor in the end is normally where you are seen as being domiciled and if your stay abroad is temporary. Therefore, formally cutting ties before you move abroad may help.

401(k)s, IRAs And Foreign Pensions

This is one area where U.S. expats need to be especially careful. Many countries don’t recognize the tax advantages of U.S. retirement accounts, often treating them like foreign investments. Withdrawals or gains may be taxed locally, while the U.S. may also tax foreign pensions, even if they’ve already been taxed abroad. Unless a tax treaty says otherwise, you could face double taxation.

Foreign Investments

For U.S. expats, not all foreign investments are created equal. The Passive Foreign Investment Company (PFIC) is one of the biggest tax traps. Foreign mutual funds, ETFs and even some pensions fall into this category, often without warning. The IRS can tax unrealized gains at the highest rate and requires Form 8621 annually for each PFIC you hold. In my experience, it’s one of the most complex and costly reporting burdens expats face.

Instead, consider investing through U.S.-based brokerage accounts or expat-friendly advisors using U.S.-domiciled funds. Directly held foreign stocks and bonds are usually fine, but I recommend avoiding pooled or insurance-wrapped products.

Social Security Benefits Abroad

In most cases, U.S. citizens can collect Social Security benefits overseas. However, payments are prohibited in a few countries, including North Korea and Cuba. If you reside elsewhere, your benefits should continue without interruption, especially if a Totalization Treaty between the countries exists.

U.S. Social Security is usually taxed only by the U.S., but some countries have tax treaties that shift taxing rights to the host country. Under Totalization Treaties, the local country can tax your Social Security benefits.

If you have a foreign spouse, they may qualify for spousal or survivor benefits, depending on their citizenship, the length of your marriage and whether a treaty is in place. Eligibility rules vary, so reviewing them before you relocate is important.

Healthcare

Healthcare planning is a critical part of retiring abroad. Generally, you can’t get Medicare coverage overseas, so if you live abroad full time, you’d need to return to the U.S.

Consider buying global health insurance before you go; however, in many countries, becoming a resident makes you eligible for public health care.

Estate Planning

Retiring abroad means maneuvering a new legal system. Some countries follow forced heirship laws that dictate how assets are divided. You may need an estate plan that’s valid in both the U.S. and your new country to ensure your assets go where you intend.

Updating healthcare directives to ensure your medical decisions are honored abroad is also important. Planning ahead helps protect your legacy and ensures your wishes are carried out.

Conclusion

Without proper expat retirement planning, the risks of double taxation can be real. Do your research and find the best place to retire abroad for your circumstances. The choice is yours. Protect your future, preserve your assets and enjoy your retirement abroad.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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