Retire South of the Border

Warm weather and a low cost of living lure retirees from the U.S.

When Sid and Barb Williams began searching for the perfect place to retire, they never thought they'd wind up living outside the U.S. But in the course of their research, they kept hearing about the benefits of retiring to Panama.

The Central American country not only offers a warmer clime than their former hometown of Cincinnati but also provides a lower cost of living, generous financial incentives for retirees, and a reliable and affordable health-care system. Plus, Panama uses the U.S. dollar, so there's no need to hassle with foreign currency.

After visiting Panama, the Williamses were so entranced by the area's beauty and value that they decided to go for it. In 2008, just as the stock market began to head south, they did, too. For less than $250,000, the Williamses purchased a three-bedroom, three-bathroom (plus maid's quarters) condo in a new, nine-story building overlooking the Pacific Ocean. Sid estimates a similar place close to the water in North or South Carolina would sell for well over $1 million. The couple downsized their belongings and shipped some crucial possessions -- their car, their plasma TV and their Xbox -- to temporary digs in Panama City, where they stayed for a few months while their new home was being built in Punta Barco Village, about an hour's drive from Panama City.

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Today, they are happy about both their decision and their timing. "We could have retired comfortably in the U.S.," says Sid, 66. "But we live three to four times better down here."

Do a reality check

For some retirees, the recession has made relocating to another country an attractive way to cut expenses while still living the dolce vita. But don't let wanderlust blur your vision. Before digging into the details of living abroad, do a reality check.

Although your cost of living may plummet and your quality of life could improve, make no mistake: You won't be in Kansas anymore. If you don't thrive on change and aren't comfortable in new situations, retiring to another country may not be the right choice. It also helps if you're intrigued by foreign cultures and customs.

Living in a non-English-speaking environment is just the beginning. "Everything, from grocery shopping to celebrating Christmas, will be different," says Kathleen Peddicord, a longtime expatriate and author of How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad (Hudson Street Press, $25.95). "If that will be a source of frustration, retiring overseas is not for you."

It's hard to say exactly how many U.S. citizens retire abroad, but the number appears to be growing. The Social Security Administration sent benefits to more than 509,000 retirees living overseas in 2008, the latest year for which such data are available. The figure has been climbing steadily every year since at least 2000, when the government sent benefits to just over 396,000 Social Security recipients in foreign countries.

Stretch your dollars

Some Latin American countries offer financial incentives to attract transplants. In Panama and Mexico, for example, you can import your household goods tax-free, which could save you thousands of dollars on your move.

With all of its benefits and active expatriate community, Panama is among the most affordable and appealing options for retirees. In fact, for several years running International Living magazine has ranked Panama one of the best places to retire. Panama's generous pensionado program offers U.S. retirees who relocate to the country discounts on utilities, airline tickets, doctor bills, hotel stays, and even movie tickets and cultural events. To qualify, you need a guaranteed pension of just $1,000 a month for an individual plus an additional $250 a month per dependent (your Social Security check counts). You will need a Panamanian lawyer to file your papers. To find a local lawyer, ask other expats, or use an online resource such as, which provides a wealth of guidance on the logistics of relocating to the country. (Anyone over age 18 who meets the financial requirements can apply for the pensionado program.)

Mexico, with its inexpensive real estate, good health-care system and relatively relaxed visa policy, is another affordable option for retirees. International Living ranked Mexico as the number-one retirement haven for two of the past three years. (In 2009, it slipped to the number-two spot, behind Ecuador.)

Areas popular with retirees, such as Lake Chapala and San Miguel Allende, are far from the volatile border towns that have been plagued by drug-cartel violence. Costa Rica, another popular destination, also scored a slot in International Living's top ten. Real estate profits there are exempt from capital-gains taxes, and the country offers tax incentives to start your own business. The attractive financial climate adds to the allure of a country already known for its tropical weather and beautiful beaches.

Margie Davis, a former resident of the Sarasota, Fla., area, retired to Costa Rica in 2005. Davis, 60, who works part-time as a freelance marketing writer, rents a two-bedroom apartment in a gated community in Santa Ana for just $650 a month. She pays $250 a year in property taxes on a Costa Rican condo that she bought five years ago as an investment for $75,000 and that has appreciated more than 65%; it's now worth about $125,000.

Davis, who also teaches English on the side, says she decided to leave the U.S. because she had few family ties after a divorce. The "perfect" weather and low cost of living made the idea all the more appealing. "I liked the idea of getting back in touch with my adventurous side," she says.

Do your research

If you're toying with the idea of going beyond U.S. borders when you retire, consult the experts. Aside from talking to other expats, you'll find a wealth of online resources at, and In addition, Yahoo forums -- such as Panamaexpats and Viviendo en Panama, both English-language e-mail groups -- are good resources.

Once you settle on a destination, it's a good idea to visit several times during different seasons to see whether you can envision yourself living there and not just exploring the place as a tourist. If you've picked a city but aren't precisely sure where to live, rent before you buy to be certain you're happy with the neighborhood.

Next, get to work on the logistics. Handling your taxes, your household budget, your visa and your health insurance from outside the U.S. will initially add a layer of complexity to your life. It's a good idea to hire someone to help you with your taxes, particularly in your first year or two abroad. "The regulations can change so often that you should find a good tax adviser," says George Eves, founder of, another online resource for expats. Eves, a British citizen who lives in Moscow, advises new transplants to retain a tax adviser or an accountant in both their home country and their new place of residence. Look for someone who specializes in giving advice to Americans living abroad (ask fellow expats for recommendations).

Rethink your finances

At a bare minimum, you should open a bank account in your new country. Keep the bank account you have in the U.S. so that you can take care of bills you have at home. Even if you don't maintain a home in the U.S., you'll still owe federal income taxes; you can pay them directly from the U.S. account. Use the account abroad for your day-to-day needs.

That's how Sid and Barb Williams, who maintain a summer cottage on an island on the Vermont side of Lake Champlain as well as their home in Panama, manage their finances. Sid uses their online HSBC account back in the States to pay their U.S. bills and taps their HSBC Panama account for local expenses. He also uses an account at Charles Schwab Bank to get cash. His Schwab account charges no ATM fees and reimburses the ATM fees of other banks up to a limit (recently $9). When he needs to replenish his HSBC Panama account, he deposits cash in person to avoid paying a bank-transfer fee.

American retirees who relocate to a foreign country and who do not maintain a stateside address may have problems keeping a U.S. bank account. American Citizens Abroad, an organization representing U.S. expatriates, says some Americans have been denied access to banking services or have had existing accounts closed as a result of Patriot Act provisions designed to thwart funding of international terrorist operations. The group has asked Congress to investigate the issue.

You can usually receive Social Security benefits almost anywhere you live around the world, but it's easier to have the check deposited directly into a U.S. bank account that you can access abroad, as the vast majority of beneficiaries do (see Your Payments While You Are Outside the United States). In some countries, you can have your benefits deposited directly into a local bank account.

You may also want to apply for a Visa or MasterCard in your new country. A local credit card will eliminate the conversion fees most U.S. cards charge when you use them outside the U.S. (A few credit cards, including ones issued by Capital One, waive conversion fees; see Cut the Fees Overseas.)

Protect your health

Unlike your Social Security check, Medicare won't follow you to a foreign land. So you need to research your health-insurance options. The good news is that in some countries south of the border, government-sponsored health care is inexpensive, accessible and just as good as -- if not better than -- what you get in the States.

In Costa Rica, for example, visitors can use the affordable state-run health program, called Caja Costarricense de Seguro Social (CCSS). You can get your teeth cleaned for about $30 and a crown replaced for about $150. If you bypass the public health system and consult a private dental practice, you'll still pay less than you would stateside. An office visit will run you about $40. In many cases, dentists and doctors are U.S.-trained.

Similarly, in Mexico, the public Instituto Mexicano del Seguro Social (IMSS) is available to outsiders. Since Mariano Arturo and his wife, Abbie, relocated from Anchorage to Lake Chapala, Mexico, in 1996, he has had several medical procedures, including a stent to open a blocked artery in his heart and two knee-replacement surgeries. The knee surgeries cost far less than they would have in the U.S.-- and his retiree health insurance from the state of Alaska reimburses him for his medical expenses in Mexico.

Health care isn't just cheaper in Mexico; Arturo, now 66, thinks it's better, too. His surgeons even gave him their cell-phone numbers. "You don't ever get the impression that it's money first and health care second," he says, adding that doctors in Mexico still make house calls.

Even part-time residents and tourists can take advantage of Mexico's health-care system. Hospitals, clinics, and private medical and dental practices welcome foreigners willing to pay cash for procedures that are inexpensive by U.S. standards (but well above the cost for participants in the national health-care system). Akaisha Kaderli and her husband, Billy, quit the rat race some 20 years ago -- when they were in their late thirties -- and launched a vagabond lifestyle that includes traveling in Mexico, South America and Asia. The Kaderlis maintain a home base in Mesa, Ariz., but during a recent visit to Guadalajara, Mexico, they paid $100 for an echocardiogram. In nearby Lake Chapala, they paid $20 each to have their teeth cleaned and shelled out $300 for cancer screening. "There's none of the delay you get in the U.S.," says Akaisha.

Some countries, such as Panama, offer hospital insurance plans, which, except for emergencies, require you to receive care at a certain facility. Rates are affordable, and the plans cover most medical expenses. Sid Williams has a policy that costs about $70 a month. When he felt dizzy one day, Williams went to his local hospital and was seen by a specialist within 45 minutes. He got a full blood work-up, an MRI and an x-ray of his skull. (It turned out that the dizziness was caused by an ear infection.) The procedures took a total of three hours, says Williams, and he received excellent care for a mere $28, including prescriptions.

For retirees with a sense of adventure and a taste for the good life -- even if they lack a bank account to match -- a change in latitude might be the perfect plan. "All you have to do is think outside the box and beyond your own borders," says Peddicord. "You'll discover opportunities for a completely new and improved life available for a bargain price."

Associate Editor, Kiplinger's Personal Finance