Retiring Overseas

I've previously suggested that cash-strapped retirees consider moving overseas to be able to afford the retirement they want. The main reason: they can save a TON of money by moving from the (usually much more expensive) U.S. to a foreign land. Throw in some GREAT weather as well, and you have a recipe for success, right?

Well, a growing number of people sure think so. Here's what Smart Money has to say about the growing trend of retiring overseas:

No one knows how many American retirees now reside overseas. They aren't counted by the U.S. census, and many operate under the radar on renewable tourist visas. But according to the Social Security Administration, the number of retired Americans receiving benefits overseas has soared 32 percent since 2002, a figure experts say is gaining steam. Some are ex-snowbirds, flying straight past Florida to a Caribbean paradise; others are holing up in quaint French villages. Still others are moving into newly minted gated communities as far afield as Malaysia and Thailand, navigating lifestyles as foreign to them as the locales. "The actual numbers are tough to quantify," says Demetrios Papademetriou, CEO of the nonprofit think tank Migration Policy Institute. "But it's a phenomenon that can only grow larger."

But experts say that, even without a whole industry behind it, life outside the land of $4 coffee has an obvious appeal to anyone on a budget, especially retirees. Even in an improving economy, older Americans face higher unemployment rates than other groups, and for many, crash-battered nest eggs have never fully recovered. According to a recent study by Generation Mortgage Co., nearly 80 percent of U.S. boomers are afraid they won't be able to retire comfortably. Indeed, it's the kind of fear that has them contemplating lifestyle compromises. So what if, say, Nicaragua is in the hurricane zone, it just last year proclaimed itself "land-mine free," and the only use for a Nordstrom card will be as a coaster under your rum punch? The price per square foot for an ocean-view condo is cheapest in Central America, and the government, like many, offers generous financial incentives for American retirees to come crack open their piggy banks.

Whether it's groceries, housewares or real estate, how much you pay depends on how much of a taste of home you want. Prefer the four-burner Whirlpool gas stove at Do-It Center? That'll run $679. A similar Mexican brand costs $400. But whatever their budgets, expats proudly trumpet the financial benefits of their newly adopted land: No property taxes for 20 years if you build a house. Generous government discounts on everything from airline tickets to prescriptions. And cheap, high-quality health care. The Heyers say they can live "like royalty" for $2,000 a month, compared with $7,000 back in Palo Alto. Their health insurance dropped from $1,000 a month to—Martine pauses for emphasis—$1,000 a year. Lunch for two at a typical Panamanian restaurant runs about $6; dinner for four with wine at a more upscale place might cost $50. And for breakfast, the "patio chickens" strutting around their yard provide free fresh eggs.

Anyone interested? At least kind of? ;-)

How about a different spin on this idea -- a combination investment/retirement option for those of us who aren't as concerned about pinching pennies in retirement? Consider this:

• Identify a nice vacation travel destination you might like to live in.
• Attempt to purchase a home/condo in this area right now while the economy is soft (I'm assuming it is at least relatively soft almost worldwide -- if not, you can always keep your eyes open for a "bargain").
• Rent out the condo/home throughout the years while also enjoying it yourself.
• When the time is right, retire there yourself -- using the home as your home.
• If the time is never right, then sell the place and move on.

I know, there are a lot of details in each of these steps, but the outline summarizes my overall thinking.

As long as you could rent out the home for enough to cover your expenses (mortgage, maintenance, etc.) and you bought at a good price, it's very likely that you'd break even at the worst if you had to sell, right? But you could do quite well if the economy comes back and real estate starts to appreciate again.

Some additional thoughts that go along with this idea:

• Worried about not being near family? Buy a decent place by a tropical beach and you'll see more of your family than you would living in most other places. A co-worker of mine said she saw more of her family when she lived in Florida than she did when they lived a couple hours away from them in Michigan.
• You don't have to wait to retire to make the idea above work. You could take early semi-retirement and make it happen sooner rather than later. As long as you could make some income while living overseas, why not make the move at 55 rather than 70?

Ok, maybe it's the long Michigan winter that's caused me to yearn for warmer climates, but I think this plan is a distinct possibility (as long as you do your due diligence, of course.) What about you -- do you think this is a viable idea? Why or why not?

Comments

[Matt]

Very difficult to say. I don't like the idea of being an american in a foreign land. The government might change to something you do not like.Plus it is so obvious you are a foreinger. I don't trust healthcare in a foreign land. A friend who lives in New Zealand came back to the US to have kidney surgery. She did not trust New Zealands healthcare. You can find cheaper living and standard of living cost here in the US if you just look.

I have visited Jamacia and talk about a great divide between the haves and have nots. I would not trust that country. You live in a house with security cameras and fortified like a prison to keep the undesireables out. I felt safer in downtown Detroit.

I had a 10 day stint in San Diego which is the opposite of all the above. Housing is outragious,food is expensive along with gas and a whole slew of other things. Above all it felt like I was in a foregin land and I did not like it AT ALL. Sunshine and all. Even though the street people are not as bold as here in Detroit there is the simple fact that there are street people.

So beware of the divide between the haves and have nots.

[Jon]

My wife and I have been thinking about this quite seriously recently. First, we need to go check out some tropical destinations to find one we like, though. Been thinking about Costa Rica for several years - I have a number of colleagues there that keep inviting me down.

[Terri]

I mentioned this one of the last times you had a post like this, but my husband's parents did this for awhile (a relatively nice expat community in Mexico), but ended up coming back because they were constantly targeted for burglary. Also, they were constantly getting amoebas and we had a "Sorry, we may have exposed your newborn to typhoid!" scare after they came to visit us.

So, please investigate the downsides, if you are considering it -- it's not all about the money/cost of living.

[Jess]

Having just returned from visiting my sister in Shanghai...yes, it is less expensive, and you can get some luxuries on a regular basis that would be too expensive in the US perhaps (hour-long massages for $7, other inexpensive salon services such as hair and nails). However, there's also a lower standard of living, including increased pollution and lower sanitation standards -- I have to believe that these things take a toll long-term on your health. Add in the difficulty of getting things done and the near total isolation from everyone else because of the language barrier plus unfamiliar food, the time difference that makes it difficult to communicate with family back home, etc... I'm not sure living overseas is for me.

[spivey]

I think this sounds interesting, but I don't think it would appeal to me to move overseas as a full-blown expat. Maybe a few months as year as an extreme snowbird would be nice.

The world may be very different by the time I'm thinking of doing this, though. I'm 25 years old.

[am_sa_lp]

If you have the option to live outside the country before retirement I think this may open your eyes quite a bit.

Having been someone who has lived abroad, taxes would be my first concern. Be aware that there may be taxes in the location you plan to live. Also do not forget the fact that on the first page of the US tax code states (summarized), if you are a US citizen you are bound to pay US taxes regardless of domicile.

The idea of dual taxation is always something to be avoided on these financial blog web sites. I'd suggest some lengthy discussions with an international tax adviser prior to making any choice.

I am not even sure a CPA in the US would be a good choice, you need someone who is familiar with tax codes and laws internationally.

[Old Limey]

We have vacationed all over the world. Our favorite destination, and one that we visited five times for lengthy vacations was Bali. The people are incredibly friendly and the cost of living is very low indeed. We found the Hindu culture fascinating and immersed ourselves in it, making many friends, even to the point of often dressing like the Balinese. There is one major problem that would totally deter us from ever living there and that is the climate. Bali is near the equator, 12 hours of day and 12 hours of night all year round, but there are only 5 or 6 weeks of the year that the climate would suit us, the rest of the time it's either too humid, too hot, raining too much, or a combination of all three.

Another destination that we have visited three times is Northern Thailand. In many ways it is similar to Bali but with a fascinating Buddhist culture, lovely people, and a low cost of living, however it suffers from the same climatic problems as Bali as far as we are concerned. There are 5 or 6 weeks/year that are great and the other times it's high heat, high humidity, or monsoon rains.

Costa Rica is also a very pleasant and peaceful country. It suffers from another type of problem which the following story will explain. One day I asked our guide a question, "Why is it that every single window in this whole country has thick steel bars in front of it". The answer was, "The Costa Ricans believe it to be very decorative". We got the true story after talking to an American student that we encountered, it also explained why there was an armed guard protecting the entrance to every place that we stayed, and why the outer walls has broken glass and razor wire to keep intruders out.

Mexico is likewise inexpensive, has quite a few American communities but once again there is the crime problem that is even far worse than some of our worst cities.

This is why we chose to continue to spend our retirement in the same place that we moved to in 1960, then it was called "The Valley of Heart's Delight, or the Santa Clara Valley" but you know it best as "Silicon Valley". The orchards are no more, they have been replaced by Industrial Parks for companies like Google, Facebook, Intel, HP, Cisco, Apple etc. etc. but the climate is still as wonderful as ever and the surrounding mountains are as pristine and beautiful as ever and contain lots of open space preserves and a 330 mile long hiking trail called the Bay Area Ridge Trail. Right now they are a verdant green with loads of wildlife & wildflowers. Unfortunately in spite of the drop in housing prices, prices are still exorbitant compared with the rest of the country. I guess you can't have it all.

[jim]

My wife and I are not interested in leaving America.

If you want to live with a 3rd world standard then that is cheap. If you want an American standard of living then that is not so cheap. Some of these places may be perfectly nice places to live at a reasonable price. But so is rural Florida.

Potential down sides to keep in mind:

High crime rates,
poor quality health care,
lack of paved roads,
high poverty rates,
unstable electricity grid,
non democratic government,
high corruption rate,
sweltering heat and humidity in summer if not year round,
language barrier,
anti-American sentiments from locals,
lack of potable water,
pollution, etc.

[Amanda L Grossman]

I am definitely somewhat interested:). My husband and I love to travel, and love to live in foreign countries. Right now we are young though, with no kids, so that could change as we age.

[Kyle]

I am an expat (not retired) and it has worked out really well for me. I am a wedding photographer and I travel back and forth to the U.S. to end up spending about 5-6 months total here and the rest of the year we live in Chile. In Chile we can afford a maid, we go out to social events regularly, our health care is amazing and costs 220 USD a month, overall we enjoy a very nice standard of living.

However, like most pointed out in the comments, retiring abroad is not as easy as simply becoming an expat. You have to realize that the slower pace of living applies to everything -- meaning getting things done is WAY harder. Americans tend to think that slower pace of living means they'll live a more relaxed lifestyle while people working in customer service will scramble and live a faster lifestyle to serve them more efficiently. That just doesn't happen. When people move to a country with a slower pace of living, they get a slower pace of living in EVERYTHING.

[Jerry]

There is also much higher inflation in other countries. You may compare the grocery cost today, but as others pointed out, taxes and inflation would eat into your savings. For example, clothes, electronics, and other consumer goods are cheapest in the US. Anywhere else, you'd be spending 2x or 3x to get the same quality and quantity of consumer goods. You would also be living with sub-standard amenities in some cases, not all. Other countries don't have as much open space or low population density as US.

It all works out while you are still earning in the US and travel overseas on vacation. Reality might be different when you move there and dip into your savings which are earning very low interest rates in the US. You may get barely on-par interest rates if you took your money with you and deposited them in a bank overseas. Remember, there won't be any FDIC insurance upto $100K - it will be more like $5K or $10K.

I have moved overseas to be with family and aging parents. There are enough reasons for me to stay overseas - finance is not one of them.

[Mike Hunt]

If you are not willing to stretch yourself and get out of your comfort zone, don't leave the USA.

If however you are willing to give it a shot you will be potentially richly rewarded.

-Mike