More and more Americans are relocating their retirement dreams abroad — to countries where living costs are low but quality of life is high. The global economic downturn has made some attractive retirement destinations even easier on the wallet.
Example: Mexico is home to one million Americans — more than live in the UK or Canada. A dollar buys about 13 pesos, up from about 10 in August 2008, and many economists say the peso will fall further. Expatriate colonies in Mexico have been unaffected by the recent drug-related violence, which occurs overwhelmingly in border towns.
Many countries provide monetary incentives to retirees. Panama, for example, offers steep discounts (up to 30%) on local transportation, 25% off airline tickets, 50% off entertainment tickets, multiple tax exemptions and relaxed requirements for residence visas for foreigners.
Here is what two people need to live comfortably — including housing with modern amenities, occasional travel, dining out at a restaurant a couple of times a week and possibly domestic help — in a dozen countries whose climates and cultures are drawing American retirees.
Rule of thumb: The farther you settle from the most popular tourist spots and expatriate colonies, the further your dollar will go. For instance, in places with famous beach resorts, you’ll get more for your money by heading inland. That’s why several countries appear more than once on the list below…
An excellent resource is www.expatforum.com, which has a section on living costs in 19 countries. Also check out my books, Retirement Without Borders and Gringos in Paradise, for the benefits and expenses in more than 30 destinations.
It’s usually best to keep your money in dollars to protect against devaluation and maintain financial continuity when you move. Plus, automated teller machines (ATMs) world-wide dispense local currency at the prevailing exchange rate at the moment of withdrawal. (Your bank may charge a transaction fee — about 2% — and so might the foreign ATM.)
To pay bills, use a US bank account that offers online banking and allows you to make online payments overseas. The payments will be converted to the local currency by the bank. Or pay bills using a credit card that does not charge a foreign currency transaction fee, such as Capital One. Set up automatic online payments whenever you can.
In most countries, you must prove income to qualify for permanent residency, generally a matter of showing what you receive in Social Security, any pensions, annuities, etc. Officials in some countries may ignore income entirely if you have brokerage statements showing sufficient assets.
Another financial factor that varies widely is taxes. Generally, property taxes are lower abroad than in the US — nearly nonexistent in much of Latin America, for instance. Uncle Sam allows US citizens and residents living abroad to earn tax-free income each year (up to $91,400 in 2009). If you make more, the US has treaties with many nations to reduce or eliminate your US tax on the same income.
For info on taxes for expats, download Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad, at www.irs.gov.
Caution: Although living “under the radar” tax wise is something of an expat tradition, it’s wiser to follow your host country’s rules.
Americans tend to think of a paid-up house as the ultimate in retirement security, so expatriates often want to own a home in their chosen country. But think carefully before sinking a chunk of your wealth into real estate abroad. The advantages of renting include…
