The Downsides of Retiring Abroad the Cost-of-Living Math Leaves Out

The Taxes Follow You Across the Border

Two countries on Earth tax their citizens no matter where in the world they live. One is Eritrea. The other is the United States. Retiring abroad doesn't end your relationship with the IRS. It adds a layer. You file a 1040 every year for the rest of your life on income earned anywhere in the world.

The tax break everyone points to for living overseas doesn't even apply to retirees. It's called the Foreign Earned Income Exclusion, and the word that matters is earned. It only shelters money you work for, a paycheck or wages from a job. Your Social Security check, your pension, your IRA withdrawals, the money you actually live on in retirement, none of it counts. The one break people reach for skips right past a retiree's entire income.

The filing doesn't stop there. Once your foreign accounts combined cross $10,000, there's a separate form just to report they exist, called the FBAR. And the state you left can keep taxing you. California doesn't recognize the foreign tax credit, and it'll keep taxing you until you've cut every last tie. You can live on another continent and still file with a state you haven't set foot in for years.

Medicare Stops at the Border

The big one is healthcare. Medicare doesn't travel. The day you move to another country, it pays for basically nothing outside the United States. You spent your whole career paying into it, and the moment you cross the border it stops working for you.

So you face a choice that rarely comes up before the move. Do you keep paying the Part B premium, about $185 a month in 2025, for coverage you can't use where you live? Or do you drop it to save the money? That's where the trap sits. The penalty for dropping Part B is permanent. It adds 10% to your premium for every 12 months you weren't enrolled, and it never resets. Stay unenrolled for 10 years, then move back home, and that same coverage runs you around $370 a month, roughly double, for the rest of your life.

Day-to-day care in a lot of these countries really is cheaper. A doctor visit for $20, a dentist for next to nothing. That's what lulls people into dropping their Medicare. The everyday savings are real, but they have nothing to do with the bill that matters. At some point the problem isn't a checkup. It's cancer, or a cardiac event, the kind of care you trust with your life, and a lot of people get back on the plane to be treated in the system they dropped. If you want to keep real coverage over there, and I recommend it, expat health insurance for someone 60 to 65 runs about $600 to $800 a month. For a lot of people, healthcare is where the retirement savings disappear.

The Exchange Rate You Don't Control

Your income shows up in dollars. Your Social Security, your pension, your withdrawals, all of it. But your rent, your groceries, your utilities, your whole life over there gets paid in the local currency, and that link moves every single day.

Take the Mexican peso. About a year and a half or two years ago, a dollar bought around 20 pesos. Then the peso strengthened, and today that same dollar buys only about 17. Your rent and groceries cost the same in pesos, but now it takes more of your dollars to cover them. That's your cost of living jumping 15 to 20%, and you didn't change one thing about how you live. When you ran your numbers and the cheaper country looked like the obvious call, that math assumed today's exchange rate holds. It won't for long. The most attractive thing about moving abroad, the lower cost of living, sits right on top of the one number you control the least.

Your Own Accounts Can Lock You Out

There's a problem with your money itself. Because of US reporting rules, a lot of foreign banks simply won't take American customers. Too much paperwork, too much liability. It cuts the other way too. US brokerages have started closing accounts the moment you change your address to a foreign country. Vanguard, Merrill Lynch, Morgan Stanley, even USAA have restricted or shut down accounts over a foreign address. In 2025 alone, somewhere around 340,000 bank and retirement accounts were closed for this reason.

None of that shows up in the cost-of-living spreadsheet, and it can freeze the exact accounts your whole retirement runs on. You settle in, then a notice arrives that the firm holding your retirement money is closing your account, and you're scrambling to find somewhere that will take you from another country while your money sits in limbo.

Residency and Property Come With Strings

You don't get to move somewhere just because you want to. Most countries make you prove income to get residency, and the countries people pick to save money keep raising that bar. Costa Rica wants to see about $1,000 a month. Portugal wants around €900. Mexico right now wants $4,500 a month in provable income. People move to Mexico to stretch a thin budget, and the country asks them to prove more than $50,000 a year first. A visa or temporary residency can also be denied or revoked. You're there on that country's terms.

The home itself comes with its own rules. In a lot of coastal Mexico, a foreigner can't own property outright, so you hold it through a bank trust. In places like Thailand or Bali, foreigners can't own the land at all. When you pass away, local law can override your US will completely, and in much of Europe and Latin America a fixed share of anything you own there has to go to your children by law, no matter what your will says. I've been investing in real estate for over a decade, and the ownership rules in some of these countries would stop a deal that's completely routine here at home. You end up a beneficiary instead of an owner on title.

I've traveled a lot and lived overseas before for short stretches, and that's a big reason I keep my money invested here in the US. I want to know the rules aren't going to move under my feet.

The Cost of Coming Home

There's one more cost at the far end of the decision. What if you come back? I've seen this pattern play out more than once. Someone moves abroad to save money, and for a while it works. Then life happens. A health scare, a grandchild is born, a spouse passes away and the one left behind doesn't want to be alone in a foreign country. Or the exchange rate turns. The Philippine peso weakened against the dollar from around 2015 to 2018, and people flocked over for the cheaper cost of living. Then from 2018 to 2021 it strengthened, and the people who had been saving were priced out and came home.

Coming back, they find things a lot more expensive than when they left. Say they sold their house to fund the move. In the past four years alone, the typical US home went from about $320,000 to $400,000. That Medicare penalty is still waiting. They probably need a new car, maybe a new bank account, and a credit score that went dormant from years with no US activity. The move was supposed to save money, and coming home can cost more than they ever saved.

The people who handle it well treat the move as a trial run. They rent first instead of buying and keep a foothold back home, a way to reverse the decision without it costing a fortune. Plan for the return from the start and it's just a chapter. Skip that, and it can become a crisis. The cheaper cost of living is only one part of the decision, and one of the more fragile ones. People reach for the plane ticket home when the real problem is their income. Build income that covers your costs and the pressure to run somewhere cheaper goes away, whether you stay in Ohio or move to Lisbon. If you're thinking about retiring abroad, do it for the life, the adventure, the weather, the slower pace. Don't do it only for the math, because the math is shakier than it looks.