Can you afford to retire in Bermuda?

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On November 4, 2013 ETS Ltd chaired a seminar at the Chamber of Commerce entitled Coming To America. Steve Trow, Esq, an immigration attorney from Washington, DC, discussed immigration issues and I spoke about tax issues pre and post immigration. With 72 people in attendance in a room seating 48 and a request for an evening session the demand for US immigration information was evident.

Do You Want To Be An American?

The United States offers both temporary and permanent visas in a variety of categories. While the attendees had a variety of reasons for attending, three themes emerged from the seminar. One, were questions from individuals with a relative in their background who was a US citizen and the possibility of their also obtaining US citizenship as a result of this connection. Second, was the number of attendees with vacation homes in the United states who were surprised to hear that in certain circumstances they could spend up to 182 days in the US each year without being considered US tax residents. Third, and of interest to the speakers, were the number of Bermudian mothers who planned to give birth to their children in the United States so that the children would automatically become dual US/Bermudian citizens.

Can I Afford to Retire In Bermuda?

We increasingly receive queries from Bermuda nationals nearing retirement age as to the possibility of migrating to the US. The typical request comes from a single person or a married couple with no children, few or no siblings, who live a middle-class life in Bermuda. They have a nice apartment that they rent, have a car and take the occasional vacation/shopping trip to the US. However, they never bought a house or a condo and do not have a large savings account. Their annual compensation has always been under $80,000 and they expect their pensions to be in the $35,000 range.

Their question is can I afford to live in Bermuda when I retire at age 60 with a 20-plus year life expectancy and an annual pension of $35,000? If the person is currently paying $2,000 a month for rent they realise that they will immediately need to downsize to $750 to $1,000 a month for rent upon retirement With the cost of living escalator likely to disappear from their pensions and with rents likely to increase will they have to continue to downsize their living arrangement as they get older? And with a likely fixed pension how will they cope with cost of living increases in Bermuda for 20-plus years? For many Bermudians the answer is, no, I can’t afford to retire here. So, what are their options?

Where Can You Go?

The United Kingdom is an obvious answer and possibly the United States. The United Kingdom offers healthcare, free train and bus services for seniors and much lower rents, if you are willing to relocate to a rural location. Or one can opt for council housing in a big city. But the daily cost of living is just as high as Bermuda and it gets cold in the winter.

The United States is an attractive alternative in that a state such as Florida offers a similar climate, with significant available housing stock at a much lower price point than Bermuda and a much lower cost of living. The negative, very high healthcare costs which may be offset by ObamaCare. A sticking point in the past is the ability to obtain medical insurance, especially with those with a pre-existing condition and this hurdle may disappear after ObamaCare resolves its glitches. The other is the ability to obtain a visa to permanently live in the US.

US Social Security/Medicare

A significant issue for US citizens who have lived in Bermuda all their life and Bermudians who want to migrate to the United States is that it is likely that neither are eligible to receive US Social Security benefits or to have their healthcare costs covered by Medicare.

To receive either benefit you have to contribute to the US Social Security system for 40 calendar quarters. For US citizens living in Bermuda they can begin contributing if they have self-employment income or have US source earned income from business trips to the US with their Bermuda employer properly withholding US Social Security tax. How can you generate self-employment income? Sell art or homemade preserves to the tourists at Harbour night. Do landscaping work, house cleaning, office cleaning, etc, on nights and weekends and report such income on Schedule C. Currently, annual net self-employment income of about $5,000 should earn you about 4 quarters of credit.

2013 Tax Refund

If you expect a 2013 tax refund it will take awhile before you receive it from the IRS because of the delays dating back to the US government shutdown. Instead of waiting you might consider lowering your December 2013 withholding or not making your January 15, 2014 estimated tax payment. It has been reported that on the date the IRS reopened they had a backlog of 1,500,000 letters that were either unanswered or needed to be opened.

Report of Foreign Bank and Financial Accounts

As reported in our September column, as of July 1, 2013 Form TD F 90-22.1 Report of Foreign Bank and Financial Reports, commonly known as FBAR, must be filed electronically. The Treasury recently announced that Treasury Form TD F 90-22.1 has been replaced with FinCEN Form 114. Accountants can file this new form on behalf of their clients only after obtaining written authorisation on Form 114a.

2014 Tax Law Changes

Despite the seeming inability to agree both the House and Senate are hard at work on drafting legislation for major changes in the tax law. Not surprising, the Democrats want a bill with tax increases and the Republicans want a tax neutral bill. How do they reach a compromise? Likely by eliminating certain itemised deductions for individuals and tax credits for corporations. Who will be a winner? Lobbyists. Banks and real estate interests want to keep the mortgage interest deduction, state and local governments want to keep write-offs for property taxes, income taxes, sales taxes and tax free municipal bonds. Charities want to keep the charitable deduction. All are spending vast amounts on lobbyists to keep their particular tax perk.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd., PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: jsabo@expatriatetaxservices.com

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Published Dec 5, 2013 at 8:00 am (Updated Dec 5, 2013 at 8:24 am)

Can you afford to retire in Bermuda?

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