OVER EIGHT MILLION Americans have said “so long” to the U.S., heading overseas to work or retire. These expats—short for expatriates—most likely have eight million different reasons to leave our shores for life in another country. My wife’s cousin Chuck and her brother John are among them.
John had his eye on living abroad when he took his first engineering job with Litton Aero Products, where he helped support aviation customers in the Middle East. Headquartered first in Tehran, then London and eventually France, his work and a penchant for travel took him to destinations throughout Europe, Asia and Africa. John was always on the lookout for exotic treasures to bring home. His best discovery was a gem of a woman named Rosemarie.
Rosemarie was a New Zealander living in France and working as an English teacher. She soon consented to marry John, and together they started a family in the U.S. Within a few years, however, they were on a plane with four young children bound for New Zealand.
Chuck was also looking to leave the U.S. for a life elsewhere. With the family wanderlust pulling him toward a job overseas, he packed up his occupational therapy skills and headed for Saudi Arabia. Chuck’s love of travel has taken him to 66 countries and fostered friendships all over the globe. After retirement, moving to Panama was hardly a daunting decision. He relished the chance to immerse himself in a new culture and explore that part of the planet.
Chuck says Panama is a global crossroads with a long history of welcoming visitors and immigrants alike. Eight years ago, he and his wife Jeanne moved to the mountain town of Boquete. Even with a busy travel schedule that takes them all over Central America and Mexico, they’ve managed to settle into the community and make friends with both expats and locals. Chuck even donates a few hours of his occupational therapy expertise each week to help local children with disabilities.
Taking up residence in an idyllic tropical country doesn’t take away a U.S. citizen’s obligation to the IRS. Expats everywhere are required to file a U.S. tax return each year listing all worldwide income. There’s a good chance, however, that many won’t owe U.S. taxes due to the foreign tax credit and the generous foreign earned income exclusion. There’s even a foreign housing exclusion to offset the higher cost of living in many other countries.
An expat’s tax responsibility to the host country varies. In Panama, for instance, taxes are owed only on Panama-sourced income. No one is required to report worldwide income for Panama taxation. Since Chuck earns no income from within Panama, he only files a U.S. tax return.
Meanwhile, John has been enjoying life in the South Pacific as a Kiwi for more than 25 years. Unlike Chuck, who resettled in Panama after retiring, John and Rosemarie moved to New Zealand with the intention of starting new jobs and raising their family. The tax policies of New Zealand are somewhat complicated. Income is taxed based on the source of the income and the taxpayer’s residency status. Residents like John and Rosemarie are taxed on worldwide income, but there are protections against most double taxation.
A tangle of tax laws is just one potential hassle for U.S. citizens who live abroad. Another is the IRS reporting requirements for assets held by a foreign financial institution. To minimize reporting hassles, John advises keeping your financial life simple.
In New Zealand, there’s one tax wrinkle that works in John’s favor: U.S. Social Security income is not taxed. John is still working, with no immediate plans for retirement, but he also draws a U.S. Social Security check every month. John waited to collect Social Security payments until last year, when he turned 70, so he’d receive the highest possible payout. John had a choice between Social Security and New Zealand’s superannuation, an old-age pension available to all residents, regardless of work history. Social Security was the easy choice because the sum was quite a bit bigger. Even Rosemarie’s spousal benefit is larger than the New Zealand pension.
The additional income that came with claiming Social Security got an even bigger boost from last year’s surging dollar. Like Americans traveling abroad in 2022 and many other expats, John found the U.S. dollar a choice currency to carry. At one point last year, the New Zealand dollar was worth about 56 U.S. cents. John joked that his new obsession was checking the exchange rate every day.
Ed Marsh is a physical therapist who lives and works in a small community near Atlanta. He likes to spend time with his church, with his family and in his garden thinking about retirement. His favorite question to ask a young person is, “Are you saving for retirement?” Check out Ed’s earlier articles.