If you’re thinking about retiring abroad, you’re in good company.
According to the Foreign Affairs Manual, more than 760,000 Americans received Social Security benefits while living outside the United States in 2024. (1)
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Furthermore, a survey by Western & Southern Financial Group suggests one in three Americans are considering joining them. (2)
One of the main reasons is cost, as many countries offer a lower cost of living than the U.S. When you’re relying on Social Security as a main source of income, it’s important to do what you can to reduce your expenses.
Take Neil, for example. Neil, who is 52, is considering retirement in Costa Rica, a location that offers amazing scenery as well as a cheaper lifestyle. According to the real estate company Coldwell Banker, housing expenses in Costa Rica are about 63% lower than in the U.S., while groceries are about 36% cheaper. Health care and public transportation costs are typically cheaper there as well. (3)
Yet despite these financial advantages, Neil is worried about taxes and Social Security while living abroad. Here’s what he needs to know about retirement benefits for Americans living in a different country.
He may be required to come back to the U.S.
While Americans are permitted to live abroad and collect Social Security benefits, there are a few restrictions that apply to certain countries. In fact, the SSA has an online tool that Neil can use to determine if the country he’s considering moving to is on the U.S. government’s blacklist.
Additionally, Neil may be able to get his Social Security benefits deposited electronically into a foreign bank account, depending on where he settles. Once he starts collecting Social Security abroad, he’ll have to fill out a questionnaire every one to two years to see if he’s still eligible for benefits. However, he doesn’t necessarily have to return to the U.S. (4)
But if Neil was a non-citizen who’s entitled to Social Security benefits, he may have to return to the U.S. for a full month every six months to continue being eligible. That might not be a problem if he lives in a country that’s close to the U.S., such as Costa Rica.
However, if Neil were to retire to Europe or Asia, it could end up becoming too expensive and time-consuming for him to return to the U.S. that often. (5)
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He still has to pay U.S. taxes
If Neil is indeed a U.S. citizen, he’s required to file a federal income tax return every year, even if he’s not living in America. (6)
This means Neil’s Social Security benefits will be taxable if he retires abroad, regardless of his income level.
Neil should also know that if he decides to retire in Costa Rica and work part-time, he’ll be subject to income taxes in Costa Rica. However, Costa Rica will not tax him on IRA or 401(k) withdrawals, as he’s only subject to taxes on income earned in Costa Rica. (6)
And since he’s required to file a U.S. tax return, Neil will have to pay taxes on IRA or 401(k) distributions — just as he would if he were living in the U.S. — unless he has a Roth IRA. He may also owe U.S. taxes on other investment accounts that he may have.
Neil should know what he’s getting into
Although retiring in a foreign country can be rewarding and less expensive compared to the U.S., there are some pitfalls that Neil should be aware of.
First, he might struggle with a language barrier. That said, Neil can take courses to familiarize himself with conversing in Spanish, which is the official language in Costa Rica. And once he’s living abroad and is immersed in the language, he may find that he picks it up pretty quickly. But that doesn’t mean a potential language barrier isn’t something to heavily consider.
Another thing for Neil to consider is losing his support network. If he retires abroad, he may not know anyone in his area. And while it’s always possible to make friends later in life, he may want to check online for advice so that he’s able to focus on countries — and areas within those countries — that tend to attract other U.S. retirees.
Neil should also know that some countries will require him to show proof of income before becoming a resident. In Costa Rica, there are three main residency options for retirees: (7)
- The retirement (Pensionado) visa, which requires proof of a lifetime monthly pension of at least $1,000 from a government agency or private organization
- The fixed-income (Rentista) visa, which requires proof of $2,500 in income per month from a guaranteed source for at least two years
- The investor (Inversionista) visa, which requires an investment of at least $200,000 in real estate or a Costa Rican company
Ultimately, the decision to move abroad in retirement may be one of the biggest decisions of Neil’s life. Before he makes his decision, he should spend some time doing research on Costa Rica to learn about its costs, requirements, taxes, health care system and general way of life.
Additionally, Neil can check out websites like Expat.com to connect with people who have made the leap to retirement abroad and ask about their experiences. Getting firsthand accounts could give him a good idea of what he may be getting into.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
United States Department of State (1); Western & Southern Financial Group (2); Coldwell Banker (3); USA.gov (4); Social Security Administration (5); Greenback Expat Tax Services (6); Osa Tropical Properties (7)
This article originally appeared on Moneywise.com under the title: I’m 52 and want to retire in Costa Rica — but will it mess with my Social Security or complicate taxes? What to know
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.