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Friday, June 26, 2015

Retiring Abroad: Stretch Your Dollar

Many older adults are finding that their dollar goes further in other countries. Not only is healthcare cheaper, but so are housing and other necessities. While Central and South America's low costs and proximity to the United States have long attracted retirees, many are also heading to distant destinations such as Malaysia, Thailand and the Philippines.
Many older adults, especially those struggling to live on Social Security, are finding that their dollar goes further in other countries. Not only is healthcare cheaper, but so are housing and other necessities.

The number of Americans retiring abroad has increased over the years, by 307,000 from 2008 to 2011, according to Social Security Administration figures on benefit checks sent abroad. And, as many as 3 million U.S. baby boomers plan to retire abroad, according to trade publication the Travel Market Report.

While Central and South America's low costs and proximity to the United States have long attracted retirees, many are also heading to distant destinations such as Malaysia, Thailand and the Philippines. (See “Retiring Abroad: Look Before You Leap” in this issue of the Senior Spirit for a list of the more desirable countries to move to.)

Several countries in Southeast Asia are among the world’s least expensive places to retire. Savings can be found everywhere from the Internet ($12 per month in the Philippines) to rent, phone service, electricity, groceries and healthcare (from US News: Money ).

Even Western Europe, once considered too expensive for most retirees, has become more affordable in recent years, especially away from the major metropolitan areas.
Lower Cost of Living

Depending on the country of your choosing, your money can go five times as far as it can in the United States (Fine Retirement). Seniors who retire in countries with a lower cost of living than the United States extol the benefits of living overseas. “[Ecuador is great] for single women who can’t survive on paltry Soc. Sec. payments,” writes one retiree, and another in Ecuador reported that “we average $27 a month total . . . for gas, electricity, water, and trash pickup.” (Quotes from Huffington Post) and International Living.

Affordable Housing

Besides less expensive healthcare (see “Retiring Abroad: Best Countries for Healthcare” in this issue of Senior Spirit), housing prices can be significantly lower in many countries popular with retirees. In Mexico, you can find a nice three-bedroom villa near the beach for as little as $150,000 (Next Avenue). In Costa Rica, you can buy a lovely two-bedroom home on about an acre of land for $100,000-$300,000, according to one U.S. retiree (Wall Street Journal).

Bigger cities can be more expensive. In Panama, one of the more popular destinations for U.S. retirees, housing prices range from $1,415 a month to more than $3,200. However, in small towns, two-bedroom homes can rent for as little as $400 a month (from Panama for Real).

Other Costs

Depending on which country you choose, gasoline can be more expensive. For example, in Costa Rica, you can pay $5 -$6 a gallon. At the same time, many countries offer good and cheap public transportation, so, depending on where you live, a car may not be necessary.

Food costs are often lower if you buy local products. One woman who moved to Costa Rica reported she saved money on her food bill. “We spend about $50 a week on food (for two people). Native fare is rice and beans (about $2 for about two pounds), potatoes, yucca, onions, red peppers and carrots (about 25 cents each). For $1 you can buy three cantaloupes, or two avocados, or four mangos, or three oranges (in season), a watermelon, or a whole pineapple and enough fish to feed two. Two pounds of ground beef (86% lean) or boneless chicken cost about $4. On occasion, I'll splurge, paying about $6 for a bag of Cheetos or miniature chocolates” (from Wall Street Journal).

And you may have to pay far more for anything that needs to be imported, such as electronics or American food and clothing (Money).

Taxes and Other Financial Issue

If you decide to pack up your possessions and move abroad, be aware of financial issues.

Transfer fees. Although Medicare doesn’t travel, your Social Security payments do. Your benefits can be directly deposited to a U.S. bank account. However, foreign banks charge fees for transferring money and converting U.S. dollars to local currency, anywhere from $15 to $100 per transfer. This can add up quickly if you have regular transfers. Research which financial institutions offer the lowest transaction fees and best exchange rates.

Volatile currency markets. Fluctuating exchange rates could affect how much local currency you are able to purchase with U.S. dollars and play havoc with your monthly budget. To protect your budget, you could set aside extra money to compensate for money that you lose if the U.S. dollar weakens.

Taxes. If you’re still a U.S. citizen, you need to pay income taxes to the IRS, including federal and state (unless you establish a residence in a no-tax state ahead of your move). In addition, you’ll likely have to file tax forms in the foreign country in which you reside. However, dozens of countries have tax treaties with the United States, which help limit the effects of double taxation.

In addition, some countries impose heavy taxes aimed mostly at foreigners, for example, a large tax on the sale of your home. To partially mitigate the double-taxation burden, the United States provides a foreign tax credit.

Property. Some countries limit or even prohibit foreigners from owning property. For example, the Mexican constitution bars foreigners from directly owning property within 62 miles of any border and within 31 miles of any coastline (from Kiplinger).

If you want to buy property in these areas, you must do it through a trust that gives a bank title to the property. Make sure you know the ownership laws of the country you are moving to. (Avoid this problem by moving to one of three U.S. jurisdictions—Guam, Puerto Rico and the U.S. Virgin Islands.) Also, be aware that some foreign countries may not have the investment safeguards of the United States.

Travel. Don’t forget about the added expense of trips back to the United States, especially if you need to return often to see family and friends. Living in someplace like Malaysia can be very inexpensive, except when you start adding in the costs to fly back and forth to the States.

Finally, experts recommend that before you decide to retire abroad, check out your destination first by living there for a period of time. You can rent a home or apartment for a month or two, especially in the worst weather season, so you know the worst to expect. 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 United States.
Retiring Abroad: Stretch Your Dollar was featured in the May 2015 edition of Senior Spirit.

Blog posting provided by Society of Certified Senior Advisors