Ah, the dream of retiring abroad. Good weather, cheap housing, a simpler lifestyle—all can be had in Mexico, Ecuador, France, Portugal or any number of places around the world.
But before your clients get too carried away envisioning the perfect retirement where life is good and nothing ever goes wrong, help them think this through. There are a number of hurdles involved in retiring abroad. They are not insurmountable, but they must be planned for.
Start by asking some questions.
1. What if you get sick?
Now, “sick” is a relative term. It can mean anything from a bout with the flu (or whatever bug is making the rounds in their new location) to being diagnosed with cancer. It might mean an injury resulting from a fall, ranging from a sprained ankle treatable with ice and rest to a fractured hip requiring extensive surgery.
Clients who are thinking about retiring abroad are usually (relatively) young and healthy. They think they’ll always be that way. It’s your job to burst their bubble and ask them what they will do if something happens to cause them to need medical care.
How are the facilities and providers in their chosen location? Will they be able to get the care they need? If not, how far would they have to travel to get it? Would they plan on coming back to the U.S. for the needed care?
When choosing a retirement location the primary consideration should be quality of health care in or near the location itself or, if it is not adequate, how far clients might need to travel to get the care they need.
2. How will you pay for medical care?
Medicare does not cover care delivered outside the United States. So, if a client is retiring abroad, they will need to make other arrangements to have their medical bills paid.
They can start by looking into the health care system of their chosen country—and whether they can get into it as an immigrant (yes, they will be considered an immigrant in their new country). For example, Canada has a great “universal” health care system for citizens and legal residents; not so much for travelers and newcomers.
Clients should thoroughly check into their new country’s health system to find out what they need to do to be covered under that system—if it’s even possible.
If they can’t count on being covered by the country’s health care system, they may want to buy international health insurance. International Health Insurance offers comprehensive worldwide coverage for individuals and families living abroad for a year or longer. Coverage should include in-patient, out-patient, wellness, evacuation, dental, vision and select other benefits. Plans are renewable each year for life or until your specified termination date.
The primary advantage of having a global plan is that you have the option of receiving care anywhere in the world, including in your country of residence or back in your home country. You get to choose the hospital or doctor of your choice. Additionally, with private medical insurance, you can also choose a private hospital over a public facility to receive faster, and often higher quality, care.
However, such plans are not cheap and may have severe limitations for pre-existing conditions—if a person can even qualify. According to this Kaiser article, Dream Of Retiring Abroad? The Reality: Medicare Doesn’t Travel Well, A 70-year-old might pay $1,900 a month for a plan with a $1,000 deductible; a plan with a $5,000 deductible might run $1,400 monthly. That doesn’t include coverage for services in the United States. Policies that cover care in the U.S. cost even more, because health care is so expensive here. Rates vary by country.
Another example cited was for a 67-year-old who buys a midlevel Cigna plan with a deductible of $750 for hospital care and $150 for outpatient care. The monthly premium might be $1,164 a month if he’s living in Costa Rica; the same policy in France might cost $913.
3. How long will you be staying there?
Here’s where you help the client think long term. Now, while they’re young and healthy, the glamour of life abroad may appear to be indefinite. In their mind, they are literally riding off into the sunset. But as we know, the go-go years eventually give way to the slow-go years, which lead to the no-go years.
A couple of decades from now, when they get to the point where they need help getting around, will they still want to stay in their overseas location? How are the elder-care resources there? Might they want to come back to the U.S. to be near family?
Or what if they end up not liking it as much as they thought they would? It may be hard to imagine now, while they are in the throes of excitement about their new life abroad, but many people who retire outside the U.S. end up coming back, for all kinds of reasons.
4. What about Medicare?
This series of questions is designed to lead to a discussion of what to do about Medicare. (Note: this discussion pertains to Part B only. Once clients start receiving Social Security benefits they will be automatically enrolled in Part A, which is free.)
If Medicare doesn’t cover care outside the U.S., does it even make sense for a client retiring abroad to enroll in Medicare? Why would someone pay the Part B premium if they can’t use the coverage where they live?
Two reasons.
First, they might want to come back to the U.S. for specialized care, should they need it. Medical care here is expensive, but it’s very good. Going back to the question of how good health care services are in the client’s chosen country, do they feel confident that they would be able to get whatever care they might need close to home? Or is there a possibility they might want to come back to the U.S. for specialized treatments or surgeries? If so, they’ll want to keep their Medicare in force for the day they might need it. (The $174.70 Part B premium is pretty reasonable insurance considering private options.)
And second, they might decide to return permanently to the U.S. This brings up the issue of the Part B late-enrollment penalty. A person who opts out of Medicare because they are living abroad does not qualify for a special enrollment period. If they decide to come back to the U.S. and enroll in Medicare, they will have to wait until the next general enrollment period (January 1 through March 31). In addition, they will pay a 10% late-enrollment penalty for every 12-month period they went without Medicare.
I’ve heard from several advisors recently whose clients faced this situation: They didn’t enroll in Medicare because they lived outside the United States and then, when they came back and enrolled in Part B, were shocked to be charged a late-enrollment penalty.
This is why you must prepare your clients: If they delay enrolling in Part B after age 65 for any reason other than being covered by an employer plan, they will be charged a 10% penalty for every 12-month period they went without Medicare. And they may face coverage gaps due to the limited enrollment period.
Looking at the math
Now, some clients, even when they are aware of the penalty, may think it’s worth it. If they can avoid several years of paying Part B premiums, maybe it will all even out in the end. Maybe they’ll even end up ahead.
So, I did a few calculations.
Let’s say a client retires abroad and doesn’t enroll in Medicare at 65. Three years later, at age 68, he decides to return to the U.S. Would it have been better to have enrolled in Medicare at 65 in order to avoid the late-enrollment penalty even though it would have meant paying premiums for three years for coverage he couldn’t use? Or, since he avoided paying premiums for three years, is he better off with the late-enrollment penalty?
I ran the numbers in Excel, assuming a starting monthly premium of $174.70, a 5% inflation rate, and a 30% late enrollment penalty. In looking at total premiums paid under each scenario, there is a breakeven age at which the penalty leads to higher total premiums paid. The breakeven age is 75. In other words, after age 75, the client would have been better off starting Medicare at 65 and paying three years of premiums for coverage he couldn’t use, compared to delaying Medicare and paying a 30% penalty for the rest of his life.
When it comes to retirement planning, there are a lot of unknowables. Health status and life expectancy are the big ones. That’s why it’s even more important to define the “knowables” so clients aren’t taken by surprise.
As we know, many of the Medicare rules are not very intuitive—or fair. “Why can’t I just sign up for Medicare when I return to the U.S.?” is a reasonable question for clients to ask. Because it carries an answer they won’t like, it is far better to anticipate the question and deal with it up front.
Bottom line
For clients retiring outside the U.S., they should either enroll in Medicare at 65 and pay premiums for coverage they can’t use (now), or be prepared to pay a late-enrollment penalty should they ever decide to return to the U.S. and enroll in Medicare at that time.
Further reading