Living in Europe as a U.S. Retiree: Tax, Lifestyle, and Financial Considerations

Introduction

Having discussed the benefits of retiring abroad, it seems like it was merely a distant fantasy for most Americans. Now, it seems like it is a reality. According to the Social Security Administration, there are approximately 700,000 Americans retirees living abroad. Europe seems to be one of the most popular regions. This is due to the variety of culture, history, great infrastructure, and modernizations. The healthcare facilities in Europe as compared to the United States is a positive factor as well.

Unfortunately, packing our bags and going to Europe will not only suffice. There are a number of financial, legal, and tax implications that need to be taken into consideration. This includes the Social Security Administration. Social Security and retirement account taxation is a given. Therefore, planning in advance is imperative in order to avoid costly blunders in the future.

This post is aimed at providing a detailed summary of retiring in Europe as a U.S. citizen. This includes the cost of healthcare and living, taxation, & how to retain & transfer wealth internationally.

Residency & Visa Options for U.S. Retirees

There is an allowance made for Americans to travel to a larger number of European countries and stay for a period not exceeding 90 days. This is made possible due to the Schengen Agreement. However, after that period ends, there is a need to acquire a visa.

Popular retirement visa options are as follows:

• Portugal (D7 Visa): Pensions, Social Security, and investment income are forms of passive income that many retirees possess and thus, make Portugal very attractive. Portugal’s D7 Visa has the option of applying for permanent residency after five years and citizenship after six.
• Spain (Non-Lucrative Visa): Spain’s Non-Lucrative Visa is very popular for retirees and thus, in high demand. Spain does require proof of income and private medical insurance however, unique health benefits are attractive for those looking for sun and low prices.
• France & Italy: These two countries possess both long-stay visa options available for retirees. To qualify for this visa as a financially independent retiree, you must possess income, accommodation, and health coverage.

Permanent vs. Temporary Residency: Most countries start you with a temporary visa (1–2 years) which is the only option for applying for permanent residency. Portugal is unique in that the transition to citizenship is much easier as compared to other countries.

Tax Implications

U.S. citizens are taxed on worldwide income, regardless of where they reside. This means that you owe the IRS taxes even in the case that you never step foot in the U.S. again.

Tax Obligations of U.S. Citizens Living Abroad for Retirement

• Annual Filing: The U.S. citizens and residents who live outside the country are required to file income tax every year regardless of their country of residence.
• FBAR & FATCA: If your foreign bank account exceeds $10,000 at any time, you must file an FBAR. If your combined foreign assets exceed certain thresholds (e.g., $50,000), FATCA reporting applies.
• Social Security retirement benefits, as well as any type of pension, are not eligible for the Foreign Earned Income Exclusion (FEIE).

Avoiding Double Taxation

Most countries in Europe have a tax treaty with the United States. These treaties are meant to clarify on what income is taxable and what is not, especially regarding:

• Social Security: Many treaties still have Social Security tax not counting toward local tax, but the United States still taxes it.
• Pension and retirement plans (IRA, 401k) withdrawals: These are taxable in the United States and may also be taxable in some other countries, unless the treaties are there to relieve the burden.

Without effective preparation, you may easily fall into the trap of double taxation, which is paying taxes in both countries. It is imperative to deal with a cross-border tax professional.

Banking & Financial Management

Managing money during your time in Europe comes with some difficulties:

• Currency Conversion: Earning retirement income, you are likely to receive it in US dollars and therefore, you need it in euros (or some other currency). Changes in the exchange rate during your budgeting on fixed expenses can be tricky.
• Foreign Bank Accounts: Local bank accounts help, but they come with FBAR and FATCA Form filing associated with foreign bank accounts.
• U.S. Financial Institutions: Several banks located in the United States block the accounts of foreign residents while numerous brokerers will not service accounts for residents outside the United States. Therefore, look for financial institutions that work with expats.

Healthcare Access in Europe

European countries provide outstanding healthcare infrastructure which greatly attracts retirees. Most European nations provide universal or public healthcare at a tiny fraction of the cost in the United States.

Key Points:

• Public Healthcare: Portugal, Germany, and France provide us citizens with public healthcare as soon as they receive residency and charge a fraction of the cost of American private insurance.
• Private Insurance: Insurers often need to submit a visa application and while premiums can vary, they are almost always cheaper than American policies.
• Medicare: The United States Medicare program will not cover you if you are overseas, so you must depend on private insurance or domestic healthcare.

Cost of Living & Lifestyle

Europe has a diverse offering of retirement lifestyles ranging from high-tech modernized urban cities to beautiful, charming countryside villages:

• Affordable Countries: Retirement in Portugal and Spain is highly preferable due to the ideal living cost, closeness to the sun, and the benefits of living in an expat community.
• More Expensive Options: France and Germany and Northern Europe usually have more expensive cities, which drives up the cost of living.
• Housing: This is usually the best bet as markets in major cities like Barcelona and Lisbon can be costly, while there are still a ton of cheaper options in rural and medium-sized cities.
• Culture & Integration: This can be difficult, as there are numerous customs, languages, and bureaucracies to understand and adjust to, but they also greatly add to the retirement experience.

Estate Planning & Legal Considerations

Inheritance planning is international in scope and is complex due to the differences in laws between the European countries and the United States regarding estates:

• Forced Heirship Laws: In countries like France and Spain, a part of your estate is still bequeathed to certain heirs, regardless of your wishes in the will.
• Dual Wills: Consider the additional complexities and include a locally drafted will alongside your will drafted in the U.S.
• Inheritance Taxes: Without proper planning, beneficiaries are exposed to potential tax liabilities in both jurisdictions.

How Dimov Tax Can Help

The U.S. tax system is notoriously complex, and when coupled with the European tax systems, can become unmanageable. Dimov Tax focuses on simplifying this burden with the unique solutions offered to each of our clients, such as:

• Tax filing for U.S. expatriate retirees
• FBAR & FATCA Compliance
• Tax Planning to minimize cross border double taxation
• Advice on Social Security, pensions and IRA withdrawals
• Retirement plan maintenance and ongoing tax advisory

Whether you are in the planning stage or have already relocated to Europe, Dimov Tax can help you avoid penalties and keep as much of your money as possible. Reach out to us today for financial clarity and full compliance.

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