The Growing Allure of Overseas Retirement
Do you dream of retiring along the Coronado beaches of Panama, settling into a colonial home in Granada, Nicaragua, or calling the melting pot of Kuala Lumpur, Malaysia, home? Maybe you’d rather spend your retired years in Oaxaca, Mexico, surrounded by the rugged Sierra Madre mountains, living in a city with more than 200 dialects?
Keep dreaming? Not really. Immigration may be a contentious issue in the U.S. and Europe, but a handful of emerging markets have put out the welcome mat for silver-haired immigrants. It’s a safe bet that the competition for retirees and their dollars will increase in coming years. “Foreign retirees bring in outside dollars and they spend them,” says Kathleen Peddicord, author of How to Retire Overseas. “Attracting foreigners can be a really big deal for a developing nation.”
Of course, living abroad isn’t for everyone, especially today’s fifty- and sixtysomethings. The growing trend is for aging folks to stay in the communities where they worked and raised families, rather than pick up for retirement enclaves in Florida and Arizona. Near-retirees are also hesitant to pick up stakes for another country -- or even another state -- with home values down and retirement savings plans stagnant over the past several years. Still, the combination of adventure and a higher standard of living is alluring. The U.S. Census Bureau estimates that the 65-and-older population will more than double between 2010 and 2050, from 40.2 million to 88.5 million. It’s likely that a good number of them will move to an emerging market.
That’s the lesson of recent history. Aging northern Europeans took their pensions and started moving to cheaper southern European countries in the 1950s. Costa Rica began attracting older Americans with tax incentives in its “pensionado” program, established in 1971, and, although the tax breaks are long gone, the Central American nation is home to more Americans per capita than anywhere else outside the United States.
Mexico has seen a large influx of American and Canadian retirees, especially in established expatriate communities like Los Cabos and San Miguel de Allende. “I wouldn’t say that retirees living overseas spend less,” says William Dendy, a certified financial planner and president of Elite Financial Management. He has worked with a number of clients who moved abroad, including to Oman and Turkey. “They spend about the same as in the U.S., but with a better lifestyle.”
Many of us carry fond memories of overseas vacations, backpacking and hosteling when younger, taking cooking lessons and staying at hotels when older. There's romance in spending time in different cultures, trying native foods and wines, swapping tales of everyday life with strangers at a coffee shop. Retiring abroad is vastly different from a two-week journey, however.
Two top money issues to explore are taxes and health care. Investigate whether the country you may move to has a tax treaty with the U.S., and run some numbers to see what your tax liability is likely to be once you move.
Medicare stops at the U.S. border. (Social Security doesn’t.) You'll need to factor in the cost of private health insurance if you can't join the country's national health insurance program.
The good news is that managing your money in the global economy is remarkably easy. There’s no problem dealing with finances and running an investment portfolio over the phone and the Internet. But one requirement for the retired expatriate is a sense of humor. (Think I’m kidding? Read Under the Tuscan Sun.)
A number of nations are working at bringing in more outside money with special tax breaks and money-saving discounts. Most notably, the Nicaraguan government in 2009 overhauled its residency requirements and retirement laws to attract more foreign retirees. Specifically, foreigners over the age of 45 are allowed to bring in $20,000 worth of household goods and personal items duty-free, import a car with a value of up to $25,000 tax-free and pay no taxes on out-of-country earnings.
Belize is another hot spot. Its ten-year-old policy allows qualified retired persons to quickly gain permanent residency and permanent exemption from all Belize taxes, from income to estate. And Panama is luring thousands and thousands of pensioners with “the most extensive and generous package of discounts and other special benefits for foreign retirees available anywhere in the world,” says Peddicord, who lives there with her family.
An Asian country that is making a concerted effort at building up a large foreign presence is Malaysia. The signature attraction is its My Second Home Programme (MM2H), launched in 2002. (It replaced the Silver Hair Program, which targeted retirees only.) Foreigners and their families can live in Malaysia under a ten-year, renewable multiple-entry visa. The foreign income of an MM2H resident, including pension, dividends and interest, is exempt from all Malaysian taxes.
The two most populous destinations for U.S. retirees, Mexico and Costa Rica, seem to be falling out of favor, however. The former is a victim of drug wars and the latter suffers from a perception that it’s crowded and expensive.
Here’s the thing: If the dream of living abroad doesn't work out, or if after several years, it’s time to move back to family and familiar doctors, this is one of those times when, yes, you can go home again.
Contributing columnist Chris Farrell is economics editor for American Public Media’s weekly Marketplace Money show and author of The New Frugality.