What you should know about retiring in a foreign country

More people are choosing to spend their retirement years abroad, with over half a million Americans collecting their Social Security benefits in different countries around the world, recent federal data shows.

Many retirees decide to leave the U.S. for reasons like a lower cost of living and the ability to be immersed in a different culture. Some of the most popular destinations for U.S. expats retiring abroad include Mexico, Canada and the United Kingdom. Factors including proximity to the U.S. and ease of language, in addition to friendly relations with those countries, make these locations attractive.

Cost of Living

Mexico topped International Living's list of best places to retire in 2017, thanks to subsidized medical care, a current exchange rate that is favorable to the U.S. dollar and closeness to the U.S. Expats reported living well for as little as $1,200 per month. 

Considering how little money most Americans have saved for retirement and that the average Social Security check is just over $1,300 per month, it's no wonder people are considering the move. Still, choosing to retire abroad shouldn't be undertaken lightly -- there are a number of things you should take into account before hopping on the plane.

First, it's essential to understand the visa and other legal requirements for becoming a resident in a foreign country. Your visa status can determine your ability to purchase property, open a bank account or qualify for a credit line, for instance. A language barrier can make it harder to jump through the hoops.

On the financial front, if you are planning your budget in U.S. dollars, remember that the exchange rate of the currency in your new country may fluctuate. That will change your spending and saving calculations.

Health Care

How will you handle health care and insurance abroad? Medicare can be maintained while you are out of the U.S., but it generally doesn't cover the cost of any health care received while you're abroad. The upside is that certain kinds of medical care, such as elective surgeries and dental care, is often cheaper in other countries, even for high-quality services. (just ask the thousands of "medical tourists" going abroad every year.)

If you decide to forego Medicare coverage, you should check that your adopted country offers access to insurance, or at least affordable out-of-pocket care, and factor the costs into your budget.   

Retirement Benefits

Make sure you can receive Social Security payments in your chosen country. There are some countries where the U.S. government will not send Social Security payments, either due to sanctions or because the banking system is not sufficiently developed or secure.

Also understand the tax implications: The U.S. has friendly tax treaties with many nations in terms of retirement-related investment accounts, such 401(k) plans, but it is case-by-case. 

"You will always be liable for U.S. income tax, and may need to pay extra tax overseas, depending on the tax treaty," said independent financial planner Hui-chin Chen. "Also, you may need to make extra filings to declare your foreign assets or accounts if you move funds abroad."

Another potential pitfall: If you decide to move money into a foreign banking system, it will need to be reported. U.S. citizens or permanent residents are required to fill out a separate form declaring the amount of money in foreign bank accounts, brokerage accounts, mutual funds or other financial accounts if the value exceeds $10,000 at any time during the calendar year, or if the person has financial interest in more than one account.

"If you move overseas, you have to clear your bank or custodian on board with the fact that you don't have a U.S. address," financial adviser Matthew Hague told CBS MoneyWatch. "In some cases, people can establish a P.O. box in the states which might work for this purpose, but you have to see if that's an issue for your taxes."