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6 keys to retiring overseas

Health care needs 
No matter what country you end up retiring in, you'll need to know what to expect from its health care system. Is it modern? How far will you have to travel for basic medical services? Are prescription drugs widely available?

Make a thorough assessment of your own health and determine whether you'll need access to specialists or other kinds of medical care not commonly available outside the U.S.

Medicare will not pay for services or prescription drugs in a foreign country except under very specific scenarios.

Fortunately, many countries in Europe and Latin America boast high-quality health care comparable to that found in the U.S. -- and often at lower cost.

Gabriela Zabal�a-Goddard, editor of AARP's Segunda Juventud (Second Youth) magazine, says Americans hoping to maintain a youthful appearance were among the first to discover the quality of health care available in Mexico.

"The trend started with medical tourism a few years back when baby boomers were starting to go abroad to get simple surgeries like cataracts and cosmetic surgery," she says. "They realized the level of care, the price and how much further their money went, and they took the opportunity to fit in a little vacation, too."

Expatriates with permanent residence visas can take part in Mexico's IMSS, or Mexican Social Security Institute, health care system. For about $300 a year, you get full health care coverage, including prescriptions.

The upside of Mexico's IMSS system is you're never far from a participating hospital, clinic or pharmacy. The downside is that, like other large nationalized health plans, wait times at certain facilities can be lengthy.

"It's not like it's the Mayo Clinic, but it's good-quality heath care," Prescher says.

Check your private health plan, if you have one, to see if any services are covered overseas.

You may want to consider receiving basic medical services abroad and returning to the U.S. periodically for major services.

Tax considerations 
If you're retiring abroad to escape the clutches of the tax man, forget it.

"America is one of the few countries where the rules of taxation are based on citizenship rather than residency," says Joseph Sardella, a certified public accountant and tax partner at the Toronto-based accounting firm Moore Stephens Cooper Molyneux. "No matter where a U.S. citizen retires -- whether Philippines, Canada or France -- they're still subject to the U.S. tax rules."

Uncle Sam's long arms extend beyond income taxes, Sardella says. "That's not only income tax rules, but also gift tax rules and estate tax rules," he adds.

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Generally, if you are a U.S. citizen or resident alien, you're required to file an income tax return whether you're in the U.S. or abroad, according to the IRS.

(A resident alien is a person granted permanent legal residency in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Service has issued you an alien registration card, also known as a "green card.")

If you earn income abroad, the IRS may allow you to exclude from income up to $87,600 of your 2008 foreign earnings.

In some cases, you may also have to file a foreign tax return as well. Fortunately, the U.S. has tax treaties with a number of countries that either reduce the tax burden for U.S. citizens or provide exemptions from paying foreign taxes.

You can find a listing of these countries at the IRS Web site.

What about Social Security?
  • U.S. citizens can have their Social Security retirement checks mailed overseas or directly deposited into a foreign financial institution in certain countries. For a list of eligible countries, check the Social Security Administration Web site. The best bet is to have your benefit check directly deposited into a U.S. bank account that you can access overseas.

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