How to Retire Abroad
If your dream is to live overseas, we tell you what you need to know.
For many seniors with a sense of adventure and an updated passport, the ideal retirement destination lies outside the U.S. Attracted by a lower cost of living, high-quality health care and an exotic locale, retirees are putting down roots across the border and around the globe. The Social Security Administration sent benefit checks to more than 346,000 retirees living outside the U.S. in 2011, the latest year for which figures are available. That's up from about 307,000 in 2008.
While Central and South America's low costs and proximity to the U.S. have long attracted expats, intrepid retirees are also pursuing the good life in places as far-flung as Malaysia, Thailand and the Philippines. Even Western Europe, once considered out of reach for most retirees, has become more affordable in the wake of the economic downturn.
Ed and Beaty Fomby, both 68, moved to Costa Rica from Crockett, Tex., in 2011 and live comfortably on $2,500 a month. They built a home overlooking Lake Arenal, a resort area in Costa Rica's northern highlands, that cost them about $320,000, including landscaping. A similar lakeside home in Texas would cost about $750,000, Ed says.
Ed, a retired dentist, says the couple had saved enough for a secure retirement, but moving to Costa Rica has enabled them to enjoy a lifestyle they couldn't have afforded in the U.S. They have a gardener and housekeeper who come once a week. The housekeeper charges $14 for half a day; the gardener—who fills vases in their home with fresh tropical flowers—charges $4.50 an hour. The Fombys eat out frequently and travel around the country. "We don't economize much at all," Ed says.
Even if you're convinced the expat lifestyle is for you, consult the experts before you venture outside the U.S. You can find a wealth of online resources at www.internationalliving.com, www.topretirements.com and www.expatinfodesk.com. Also, take a look at our picks, 8 Great Places to Retire Abroad.
Once you've settled on a country, try it out. Rent a home or apartment before you buy. In many countries popular with expats, rental properties are plentiful and cheap. In Costa Rica, for example, you can rent a three-bedroom home for $500 a month. Renting will also permit you to get a realistic estimate of your personal cost of living before you make a long-term financial commitment. Do you consider air conditioning a nonnegotiable necessity? You'll pay more for it in South America, where electricity is generally more expensive than it is in the U.S.
You'll also pay a premium for gas in most countries—sometimes, a very big one. That's not a problem for Daniel Prescher, 59, special projects editor for International Living, who lives in Cotacachi, Ecuador, with his wife, Suzan Haskins, 57. "We had a car for years and thought we couldn't get by without one," Prescher says. "Public transportation is so cheap, we sold it."
Another option is to become a part-time expat. That alternative is popular with retirees who aren't comfortable living year-round in a foreign country but want to take advantage of better weather and a lower cost of living for at least part of the year. "If you can save money living abroad full-time, you can save money living abroad part-time as well," Prescher says.
Anne-Marie Simons, 73, author of Taking Root in Provence, and her husband, Oscar Rodriguez-Rozic, 76, have lived in Aix-en-Provence since 1998. They have kept costs down by living like the French, shopping daily for fresh food at local markets and walking instead of using their car for short trips around the city. For longer trips, they use public transportation whenever they can, taking advantage of discounts for seniors. The French health care system provides outstanding care at a fraction of the cost of health care in the U.S.
Simons and Rodriguez-Rozic live in an apartment they purchased with the proceeds from the sale of their home in Washington, D.C. While Aix-en-Provence is a relatively small city, it's home to a world-class opera festival every summer and an annual literary gathering, La Fête du Livre, that attracts dozens of renowned authors. The rural villages in the south of France are beautiful, but "my husband and I are both too urban to live year-round in the countryside, no matter how beautiful it is," Simons says.
Living in France isn't cheap, but it's more affordable away from the major cities. Culture is heavily subsidized in France, which reduces the cost of museums, concerts and art exhibits. "We may not live cheaper here than in the U.S., but we live better," Simons says.
Managing your money
Technology has made it much easier for expats to conduct routine financial transactions. Retirees can arrange to have their Social Security benefits and other income deposited directly into their bank accounts.
Gloria and Paul Yeatman, who retired to San Ramon, Costa Rica, in 2009, have Gloria's pension, Paul's Social Security check and checks from a rental house they own in Baltimore deposited in their U.S. account. Once a month they write a check from that account to their Costa Rica bank and use money in that account to cover their expenses. Three years ago, they invested about $30,000 in a certificate of deposit denominated in colons, which has paid interest of between 11.25% and 12.5%. "Our savings, instead of being depleted, have increased," says Gloria, 56.
Keeping a bank account in the U.S. is a good idea, particularly if you return frequently to the States. However, expats who no longer have a U.S. address could run into bureaucratic difficulties. Some banks have closed expat accounts, citing Patriot Act provisions designed to thwart financing of international terrorists, according to American Citizens Abroad, an advocacy group. Some expats get around this problem by maintaining a U.S. mailing address, Prescher says. (For advice on how to deal with a U.S. bank that refuses to open an account or closes one you already have, go to www.americansabroad.org.)
If you use a foreign bank account to pay bills and provide walking-around money, you'll probably have to file an annual Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Treasury. This form is mandatory if the total value of your foreign financial accounts exceeds $10,000 on any day during the calendar year. Failure to comply with this reporting requirement could trigger stiff penalties.
The requirement isn't limited to foreign bank and brokerage accounts, says Christine Ballard, a certified public accountant in the international tax division of Moss Adams LLP. It also extends to some retirement-savings accounts, foreign life insurance with a cash surrender value, foreign annuities, and foreign mutual funds that are held directly (rather than through a brokerage account).
Other factors to consider:
Residency. While many countries are eager to welcome expats, you'll need to comply with residency requirements. Some countries require you to earn a specific amount of income every month to qualify for residency; in others, owning property is sufficient. For example, under Panama's pensionado program, seniors qualify for residency as long as they receive regular pension income (Social Security counts) of at least $1,000 a month.
Barriers to ownership. Mexico's low costs and proximity to the U.S. make it a popular destination for retirees. However, the Mexican constitution bars foreigners from directly owning property within 62 miles of any border and within 31 miles of any coastline. If you want to buy property in these areas, you must do it through a trust that gives a bank title to the property.
Ken Bell, 62, has owned a condo in Baja's Rosarito Beach for more than ten years through a bank trust and doesn't view it as a problem. "I can rent it, I can sell it, I can do anything I want with it," he says. "It's equal, in my view, to a family trust I had in the U.S." Bell, a former senior staffer for the California state legislature, says that Mexico's low cost of living enabled him to retire in his fifties—something he would not have been able to do in California.
Crime. Dedicated expats say reports of crime outside the U.S. are often exaggerated. For example, International Living's Prescher, who previously lived in Merida, the largest city in the Yucatán peninsula, says drug violence in Mexico is limited to isolated border areas. Still, American retirees may be targets for crime, particularly in countries with a high poverty rate. For an unvarnished view of the risks, check out the State Department's Retirement Abroad advisory. The page also provides information about road conditions, natural disasters and civil unrest.
Conveniences. Many retirees who move abroad embrace the slower pace in their adopted country. In exchange for a more laid-back lifestyle, though, you will probably have to give up some amenities that U.S. residents take for granted. Internet is available in most places, but it may be slower than it is in the U.S. Getting a phone installed could take months.
In the U.S., "you can get anything you want, anytime, anywhere, with the push of a button," Prescher says. "That's not true in the rest of the world. There isn't a 7-Eleven or Walgreens on every corner."