Robert A. Di Ieso, Jr.
By Donna Rosato
September 30, 2014

Q: I hear a lot about people retiring overseas to make their retirement savings go further. My wife and I are pretty adventurous. But can we really save money retiring in another country?

A: Retiring abroad isn’t for everyone—but more and more people are doing it. Nearly 550,000 Americans receive their Social Security benefits abroad, up from nearly 400,000 in 2000, according to the Social Security Administration. That’s a small number compared to the 43 million people over 65 receiving Social Security benefits. Still, 3.3 million of America’s 78 million Baby Boomers say they are interested in retiring abroad, according to Travel Market Report.

The growing interest in overseas living isn’t all that surprising, considering the worries of many pre-retirees about making their money last. There’s no question that you can live well on less in many countries. But to make that happen, you’ll need to plan carefully, says Dan Prescher, an editor at International Living, which publishes guides on the best places to retire overseas.

For most Americans, the biggest savings are a result of the lower prices for health care and housing overseas, says Prescher, who lives in Ecuador with his wife Suzan Haskins. The couple co-authored a book. The International Living Guide To Retiring Overseas On A Budget.

Most countries have a national healthcare system that cover all residents, and monthly premiums are often less than $100. It’s relatively easy to become a resident of another country, which typically involve proving you’ll have at least a modest amount of income, perhaps $1,000 a month.

But quality of health services varies, so research carefully, especially if you have medical problems. Even in countries with well-rated health care systems, the best services are centered around metropolitan areas. “Larger cities have more hospitals and doctors. The farther out you go, the quicker the quality falls off,” says Prescher.

Though Medicare doesn’t cover you if you live abroad, it’s still an option, and one that you should probably keep open. If you sign up—you’re eligible at age 65—and keep paying your premiums, you can use Medicare when you are back in the U.S.

Home prices, property taxes and utilities can be significantly lower in Mexico and countries in Central and South America, which are popular with U.S. retirees. In Mexico, you can find a nice three-bedroom villa near the beach for as little as $150,000, says Prescher.

But you’ll pay a premium for many other needs. Gas and utilities can cost a lot more than in the U.S. And you will also pay far more for anything that needs to be imported, such as computers and electronics or American food and clothing. “A can of Campbell soup can easily cost $4.50,” says Prescher. “You have to ruthlessly profile yourself, and see what you can or can’t live without, when you are figuring out your spending in retirement.”

Then there are taxes. As long as you’re a U.S. citizen, you have to pay income taxes to the IRS, no matter where you live or where your assets are located. Even if you don’t owe taxes, you must file a return. If you have financial accounts with more than $10,000 in a foreign bank, you must file forms on those holdings. In addition, the new Foreign Accounts and Tax Compliance Act (FATCA), which requires foreign banks to file U.S. paperwork for ex-pat accounts, has made many of them wary of working with Americans. You may also need to pay taxes in the country where you reside if you own assets there.

Check out safety issues too. Use the State Department’s Retirement Abroad advisory for information for country-specific reports on crimes, infrastructure problems and even scams that target Americans abroad.

The best way to find out if retiring abroad is for you is to spend as much time in your favorite city or village before you commit. Go during the off-season, when it may be rainy or super hot. See how difficult it is to get the things you want and what’s available at the grocery store. Read the local papers and check out online resources. In addition to International Living’s annual Best Places to Retire Overseas rankings, AARP writes about retiring abroad and Expatinfodesk.com publishes relocation guides.

The most valuable information will come from talking to other ex-pats when you’re visiting the country, as well a through message boards and online communities. “You’ll find that ex-pats have to have a sense of adventure and patience to understand that things are done differently,” says Prescher. “For many people, it’s a retirement dream come true.”

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