How to Afford Retirement: Move to a Foreign Country

In addition to moving from one American city to another (either now or at retirement) to save money, I've also suggested that some people may want to consider moving to a foreign country in order to be able to afford retirement. For some background on what I've said, see these posts:

• Can't Afford Retirement? Move to Mexico

• The Best Foreign Country for Retirees

• Best Financial Tips from FMF Readers, Part 7: Retire Overseas

• Comments: Best Financial Tips from FMF Readers, Part 7: Retire Overseas

• Comments: Best Financial Tips from FMF Readers, Part 7: Retire Overseas, Part 2

• Save Money: Retire in Panama

• Retire in Style South of the Border

• The World’s Best-Kept Retirement and Investment Secret

Admittedly, there are challenges in moving to a foreign land. However, US News brings up the idea (again) of retiring in a foreign land saying:

• “In Nicaragua or Ecuador, you can live on somewhere between $18,000 and $25,000 a year.”

• “If you’re going to go to Costa Rica or Panama, you’re not going to be happy with much less than $30,000 a year.”

No matter which of these you choose, you're going to spend a LOT less than retiring here in America.

They then list eight tips for making the move to a foreign land:

• Take a test drive. Before making any major purchases, rent and spend a few months in the country.

• Practice your foreign accent. It's no surprise that some retirees gravitate to foreign countries with large English-speaking communities. “I recommend that anyone who wants to go to a foreign county makes sure they go to place where there's a big English-speaking enclave, so [there is] a support group.”

• Streamline your standard of living. Some Americans will find that they can afford luxuries in other countries that they couldn't in the United States. But if your objective is to make your nest egg last longer, don’t go overboard with luxuries.

• Embrace the relaxed pace. It's relatively easy to open a bank account or call a plumber in the United States. But that's not always so in many parts of the world. “A main misconception is that life is going to go as smoothly as it does in the U.S.,” says Golson. “Often, life in these countries is more like a Department of Motor Vehicles [experience] with lines and inefficiencies.” Adjusting to a more relaxed pace may take some adapting.

• Get health coverage. Generally, Medicare doesn't cover health services outside the United States (although the hospital insurance part of Medicare is available to most Americans who return to the States.) So you'll need to hunt for an insurance policy. Luckily, quality health care is typically much more affordable outside the United States.

• Consider taxes. Some foreign governments offer tax perks to retirees.

• Maintain several bank accounts. Banking abroad presents a unique set of challenges when your Social Security payments, pension, and investment income are in U.S. dollars. “It’s wise to keep your money in dollars,” says Golson. But you don't want to get hit with currency exchange fees and ATM withdrawal charges every time you need some cash. It’s also a good idea to set up a local account for everyday expenses.

• Keep in touch on the cheap. A common drawback of moving abroad is watching your grandchildren grow up through photographs. Fortunately, E-mail and Internet phone services make it easier and more affordable than ever to keep in touch with friends and relatives still in the United States.

Here's my take on these issues:

• By all means, don't pack up everything and move to a new place sight unseen -- or even with a week (or two) on a vacation as a guide. Move down for a decent amount of time (call it an extended vacation if you like) to see if you really like it. If you don't, you could try another location in the same country or a different country altogether.

• Unless I knew the language VERY well, I'd move to a place where almost everyone (if not everyone) spoke English.

• Another option, if you want a higher-standard-of-living retirement, move to a foreign country. You can spend what you would have spent here and instead of "getting by" you'll be "living it up!"

• Going at a sloooooow pace would probably be the hardest part for me. Throw "service" and "speed" out the window.

• Fortunately, if you move to a foreign country you may be in the best spot for healthcare from both a cost and quality standpoint as more and more people are traveling overseas for medical procedures.

• Not sure about the tax implications of here versus there. I'd need to do a bit more research in that area to see the real trade-offs.

• Good idea on the bank account suggestion. Besides, it may offer another level of safety for your finances.

• One word: Skype. Besides, just because you're living in a foreign country doesn't mean you're farther away from family. If you live in New York and your family is in Arizona, a move to Mexico will put you CLOSER to them.

Of course moving to a foreign land is fraught with many issues and trade-offs that many Americans might not be willing to make. But with the market where it is and people's retirement accounts taking a hit, many people will need all the creative retirement funding ideas they can muster. This is simply one to consider.

Comments

[Welath Pilgrim]

Very exhaustive resource. Whew....

From a financial angle, yes, this is a great alternative. I personally would rather work longer than move to a place where I don't have my community of friends.

That's just me.

[Baker @ ManVsDebt]

I love this concept! My wife and I have considered taking mini-retirements once we become debt-free by living in specific countries. There are some places a dollar can really go a long way. In addition, the ability to make even minimum wage online becomes a really powerful tool!

I've bookmarked this post and look forward to weeding through all these links!

[Mike Hunt]

You have to understand the visa issues for staying long term. Here in Thailand, these seem to change regularly. Also foreigners can't own land, only condos (where a majority of tenants in the complex are locals).

Also keep your money spread out around the world to hedge your bets. Easy to do in the 21st century.

As an American you still need to file and pay taxes however if you can pass a bona fide residency test in a foreign country (and spend less than 34 days in the US in a given calendar year) you can get an excemption on foreign earned income up to $87k per year. However you don't get any credit on foreign taxes paid.

It's a great way to open your eyes though. Obama lived overseas, so did Geithner (when he flubbed his taxes). Try it, the world isn't so big and people are people the world round.

-Mike

[Jim]

I'd seriously look at the crime rates and infrastructure of these countries before considering moving. THe murder rate in Nicaragua, Ecuador and Panama is about 2-3 times the rate in the USA. The murder rate in Panama City would make it one of the 10 worst in the USA.

Also look at health and disease issues. Malaria and Tuberculosis are not uncommon in these countries. There are half as many doctors per capita in Panama compared to the USA.

I don't want to paint these countries as horrible or anything, but people should be well aware of all the differences that would impact quality of life if they consider moving out of the USA. We take a lot of stuff for granted in the US like not dying from malaria.

[Kyle]

I live in a developing country (Chile) and it has enabled me (a 25 year old recent grad) to save up about 25k in a year because I work online earning a low U.S. salary. With about 30k my husband and I live excellent here.

However, "relaxed pace" is bullshit. That's actually code for "nothing, and I mean NOTHING works."

[MLR]

Nothing worked in the Dominican when I visited. But it was soooo beautiful.

I want to go back :/

[Craig]

Yes, living overseas can save a fortune! I currently live in Papua New Guinea. Here's how it saves us money:

1. A doctors visit is only 60 cents. Surgery is $7.50. It costs us $2 to mail a claim to our international health insurance company. Needless to say we don't make many claims. But, international health insurance has doubled in the last two years.
2. Pressure to decrease your lifestyle. My family of four lives in a moderate sized three bedroom house. The locals call it a mansion. We feel embarrassed to buy too much.
3. Can't find a T-shirt for $35. Right now I'm vacationing in Canada and went to a Roots clothing store and saw a T-shirt for $35. I couldn't even find a shirt in my hometown (Alotau, PNG) for more than $10. Someone couldn't ethically charge me that kind of money for a piece of cloth.

[TStrump]

It seems very tempting to move to a cheaper country but I'm used to a certain amount of infrastructure, ie. things that work.
I'm not saying foreign countries are less desirable, I just might find it frustrating to deal with inefficiency.

[F]

The idea of moving away is good, but I'm skeptical whether it's going to be fun without friends and family. Which may not be a big deal when you're working, but when you're retired, with so much time on your hands... might be lonely. Mexico might be an option for Californians.

[F]

Another thing: I think inflation is higher in developing countries than in the western world (they're catching up with us, and prices reflect that). Over a long timespan (like 30 years) small percentages add up. I have no idea whether an extra 2% inflation is realistic, but say it is, then at the end of the 30 years your costs will have risen twice as fast as in the U.S. No foreign retiree seems to be thinking of this, but I think they're going to be surprised. My point: be conservative in your spending.

[AdamCO]

When I was in Peace Corps, the wife and I lived comfortably on a stipend of about $5000/year plus about $2500 worth of rent. This was in an Eastern European capital. One could easily live in the smaller towns for $6000/year and the life there is pretty good, but it would be lonely until you learned the language.