Let’s face it: the way things are going, most people’s golden years are likely to be anything but. Depending on how you count, between 23% and 42% of people between the ages of 32 and 61 have no retirement savings to speak of. Even back in 2015, almost 14% of seniors in the United States were effectively living in poverty. The last thing you need during the time you’re supposed to spend on developing your hobbies, sharing your experience with the younger generation, and spoiling your grandkids is worrying about the price of bread.
There is a simple – but drastic – solution, though: moving to someplace where a dollar buys more. The easiest (though imperfect) way to measure this is called the Purchusing Power Parity Index: how much a “basket” of common goods including accommodation, food, utilities, and medical care costs the typical consumer in different countries:
As you can see above, retiring abroad really is cheaper – in Mexico and Portugal, but not so much in Sweden and France. In other words, if your objective is to make your life savings stretch further, here are a limited – though still wide – range of options with stable political systems, welcoming locals, a climate you can live with, and decent medical care.
You may have to think long and hard about what you’ll have to give up in order to enjoy a lifestyle that can be much more lavish in other ways. Are you willing to forego McDonald’s and your favorite brand of peanut butter in favor of local cuisine and products? Will being able to afford a full-time maid make up for leaving your social support network behind? Are you the type of person who embraces new experiences and adventures, or do you dread having to live in a country where you’re an outsider?
This is a very personal decision and there’s no simple, one-size-fits-all answer. Expatriate Americans make up a very diverse group in terms of political affiliation, economic background, temperament, and every other broad-strokes characteristic you can name. Some are unable to adapt to a new lifestyle and return to the States within a year; others get mad at themselves for not having emigrated sooner. At the end of the day, though, the reality remains that you can rent a three-bedroom house in many countries for less than what a cheap one-room apartment in major American city costs.
Table of Contents
- 1 The Problem with Relying on Social Security
- 2 The Pros of Spending Your Retirement in a Foreign Country
- 3 A Better Standard of Living
- 4 Free Medical Care
- 5 No Tax on Foreign Income
- 6 Access to New Hobbies and Activities
- 7 The Drawbacks of Retirement Abroad
- 8 Having to Learn a New Language
- 9 Culture Shock
- 10 Travel and Moving Costs
- 11 Less Impressive Infrastructure and Services
- 12 The Best Countries for Americans to Retire To
- 13 Try Before You Buy
The Problem with Relying on Social Security
Before we start thinking about enjoying grilled fish on a tropical beach or owning our own vineyard, we have to talk about why so many Americans – approximately 700,000 in 2020 – are leaving the comforts of home behind and spending their retirement in foreign lands. Forty percent of Americans aged 60 and over have no source of income other than Social Security, and the average monthly payout to a non-disabled retiree is only $1,462. This is, as they say in many popular ex-pat destinations, no Bueno.
As its cash reserve gets depleted, the Social Security system may well pay even less in the years to come, and that’s assuming that the whole shebang doesn’t break down somehow. Despite this, many people only start thinking seriously about retirement once they’re in their late 40s. On average, those who are about to retire have only 12% of what’s needed to maintain a comfortable lifestyle saved away. This means that they’ll have to curtail their expenses drastically just to survive, never mind start ticking items off their bucket lists.
Here’s the thing about having an IRA or 401(k): money you put into it today is worth a whole lot less than that you saved there 20 years ago. This is the magic of compound interest at work (figures are for a person earning $50,000 per year and contributing 10%, without any matching employer contributions and a return of 7%):
This graph shows you how dramatic this effect really is. More importantly, it illustrates the point that you can retire as a millionaire without earning six figures a year. A high salary doesn’t make you rich; saving early and consistently does.
It’s every financial planner’s nightmare, but unfortunately, way too common: a middle-aged couple wanders into his office with no savings, no investments, and no plan, then expect him to magic up a comfortable and secure retirement out of nothing. There’s no excuse for ending up in such a situation unless you’ve been struck by some catastrophe like illness or a financial crash. When you have some money saved up, retiring abroad becomes a choice instead of, at worst, your only option.
The Pros of Spending Your Retirement in a Foreign Country
Dreaming is easy, actually packing your bags and transplanting yourself overseas can be very, very hard. If things don’t work out “over there”, moving back can be just as agonizing, not to mention expensive.
In other words, you should know what you’re getting into and what you can expect to get in return. In purely financial terms, this often means spending less and getting more. With some luck and planning, you may even be able to retire earlier than you ever thought possible. Here are some of the positives to consider:
A Better Standard of Living
While it is possible to live on $1,000 a month in the U.S, particularly in rural areas, this generally requires you to cut back on some of the things that give you joy. In much of Asia and Latin America, by contrast, you can be quite comfortable on that budget and enjoy restaurant meals, weekend trips, golf, and whatever activities you already love or would love to take up. If your monthly income is twice that, you can achieve a lifestyle that would be considered an upper-middle-class in the United States.
Of course, this doesn’t mean that you can live just like you did in your hometown, only as if you had more money. You will probably look for a home somewhat off the beaten track – you’re retired, after all, so commuting is a thing of the past. The brands of product you like and the food you prepare could probably also do with a readjustment to suit local conditions and prices better.
Free Medical Care
Drumbeating, rhetoric and various flavors of politics aside, it’s a proven fact that Americans pay way too much for healthcare. Also, many other countries, even in the developing world, regard medical treatment as a social good if not a human right and have somehow found the money to provide it to all – even non-citizen residents.
Though you may have to wait a while if you go for the “free”, taxpayer-funded option, you can also choose the private route. In many countries, consulting a doctor may be no more than $20, and medication costs a fraction of what it does in America. We do recommend that you still get health insurance, but chances are that this will be significantly cheaper, too. Medicare generally doesn’t apply to Americans living abroad.
While hospitals elsewhere may not have access to truly cutting-edge equipment, service providers’ professional competence tends to be pretty much the same. Huge numbers of Americans, including retirees, are crossing borders to access affordable healthcare.
No Tax on Foreign Income
While this will probably not be your primary consideration, it’s worth mentioning that some countries don’t expect you to pay tax on money earned abroad. The specific terms vary from country to country and change from time to time; if (for example) you own shares in a business in the U.S, you should really seek expert advice on this topic.
As an American citizen, you will still have to pay federal income tax – the U.S. is the only major country that taxes its people regardless of where they might be living. Renouncing your citizenship to avoid paying Uncle Sam his cut is a major step and one you can’t undo easily, but it’s worth knowing that this option is open to you. This is neither required nor suggested if you want to retire in a foreign country, however. Although it isn’t always obvious, American citizens have a number of advantages, including being able to use financial services in the U.S. without having to jump through some hoops.
Access to New Hobbies and Activities
One of the sneakiest pitfalls of retirement is suddenly going from having way too little time for enjoying yourself, to having hours each week with nothing to fill them. Expat retirees have a much wider range of options to choose from in this case.
Many bored entrepreneurs use the know-how gained in the U.S. to spot an opportunity and start a business for their amusement as well as profit. Others buy a boat (a very expensive proposition) and explore the coastline, volunteer as teachers in the local community, or garden and keep animals on a far bigger plot than they could ever have afforded in America. Whatever piques your interest, there is almost certainly someplace in the world where you can practice it to your heart’s content.
The Drawbacks of Retirement Abroad
Almost every major decision in life involves giving up something to gain something else. The trick to making these transactions work is to sacrifice only things you can replace, like time and effort, for those that matter.
Many people get to the point where they’re almost ready to buy a plane ticket, then back down and decide not to retire abroad at all. There’s nothing wrong with this: take your time weighing both the positives and negatives, and if you choose to remain at home, after all, you’ll at least know that this was a rational decision. Some reasons people have for not emigrating when older include:
Having to Learn a New Language
Many people like the idea of being fluent in Thai or French, but getting there is a little less glamorous. As a general rule, anybody can learn a language well enough to ask for five pounds of potatoes at the store. However, when it comes to more complicated interactions, like those you’ll have when applying for a visa or driver’s license or striking up a friendship, you don’t want to sound like you’re parroting a phrasebook.
Now, every language is different, but you can generally expect to need about 600 hours of work before being able to communicate. If you can only practice an hour each day, that’s almost two years! This is one of the biggest obstacles faced by people who retire abroad. Often, they end up hanging out only with other foreigners and the few locals who speak English, which cuts them off from much of the social and cultural tapestry they were hoping to experience.
Many U.S. citizens think of themselves of having ethnic and cultural ties to some distant country and assume that they’ll fit right in. When they actually visit, however, they find that a Boston accent stands out like a sore thumb in Dublin, while actual Italian food is very different from what they serve at Olive Garden. You can even offend people by doing things that are perfectly normal in America: giving a bottle of wine to a Frenchman who’s invited you for dinner is a serious faux pas (choosing the right wine for the food is the host’s privilege). Some cultures see a firm handshake as an attempt to intimidate, while in others any greeting that doesn’t leave your fingers blue appears insincere.
Meanwhile, in many oriental countries, sticking chopsticks upright in a bowl of rice designates it as an offering to ancestral spirits, which isn’t always appropriate at dinner. In various parts of the world, wearing shoes indoors is seriously frowned on, while seemingly innocent hand gestures can get you into an argument or worse. Politeness, it turns out, is about a lot more than saying “please” and “thank you”: leaving a tip for a waiter, for instance, may be either mandatory or extremely demeaning.
Even if you avoid these kinds of errors, you may still have a great deal of trouble fitting in: how loudly you speak, how close you stand to others and how much familiarity you show to different people all translate poorly in an international sense. What many Americans fail to understand is that you have to conform to the customs of your new home: the locals may be understanding if you make an honest mistake, but they are certainly not going to adopt U.S. mannerisms just to please you. If, like an unfortunately large number of ex-pat retirees, you’re unable to accept this simple fact, you’ll have trouble making friends, fewer people will go out of their way to help you and you will be miserable no matter how much money you save by living abroad.
Travel and Moving Costs
Many people love the idea of “getting away from it all” until they actually try it. Homesickness and loneliness are bound to catch up with you sooner or later, so it’s essential to include a few trips home each year in your ex-pat retirement budget. If you can afford it, of course, it’s much more fun to invite friends and family to come to stay with you for a few days and see the sights your new homeland has to offer.
There’s also the cost of getting your household goods to your new home. Unless you plan to hire a shipping container, you will probably have to say goodbye to almost all of your furniture and knickknacks and buy everything you need from scratch.
Less Impressive Infrastructure and Services
As much as we all like to complain about the condition of American roads, internet speeds, and call centers, the typical consumer actually has it quite easy in the United States. If you’ve grown used to same-day delivery, “the customer is always right” attitudes and even paved roads, you may be in for a shock if you expect the same standards to apply all over the globe.
If you’re the kind of person who doesn’t start tearing their hair out if the plumber who promised to show at 2 p.m. turns up at four, or indeed on Tuesday, you have a head start on many ex-pat Americans. One of the perks of being retired is that time is now on your side, so relax and learn to go with the flow. In several countries, this is practically a survival skill: many cultures think of the time-is-money rat-race attitude that’s so common in the U.S. as uncivilized and even a little deranged.
The Best Countries for Americans to Retire To
A nice climate is probably high on your list of requirements for paradise. To this we can add:
- political stability
- low crime rate
- good food
- some cultural stimulation
- lenient residency requirements
- cheap flights between there and the U.S
- and of course a low cost of living.
You’ll be glad to discover that the retiring American expat is really spoiled for choice when it comes to foreign retirement destinations, even within a given country. In Costa Rica, for instance, you can choose to live in the bustling capital, a small fishing village along the coast or the much more temperate Central Valley.
Let’s take a brief look at some of your best options, though we’d be the first to admit that there are numerous cheap, pleasant and safe countries to choose from aside from those on this list:
While plenty of Mexicans head north every year with hopes of a better life, a very similar number of Americans cross the border in the opposite direction in search of a less fast-paced lifestyle, better weather and a lower cost of living. Certain locations are indeed known for gang activity and high levels of violent crime, but the majority of the country is quite safe and peaceful. Americans there can keep their Medicare benefits, though the low prices local pharmacies and doctors charge may make this unnecessary.
While not mandatory in some towns popular among expats, learning Spanish is definitely a good idea. Mexicans are known for their welcoming attitude to foreigners while going to and from the United States presents no problem. You’ll have to pay income tax in either Mexico or the U.S, but not both.
Navigating the Italian bureaucracy is famously difficult, but this country does offer one great advantage: non-employed foreigners can join the government-run healthcare system, potentially saving you huge amounts of money. The cost of living varies greatly depending on where you live: you’ll spend a lot more in Rome or Milan than in a smaller town.
Though the people tend to be welcoming, learning at least a little Italian is a must. The proximity to the rest of Europe is a definite pro for people who like to travel, though taking a trans-Atlantic flight every time you want to visit relatives may be a bit of a burden. Italy has a double-taxation agreement with the U.S.
Beautiful architecture, a highly educated populace and lovely countryside views all make this country worth considering as a retirement destination, though learning this Slavic language is far from easy. Especially outside the capital Prague, the Czech Republic offers the canny ex-pat a European lifestyle at a fraction of what you’d need to spend in Berlin or Paris.
The Czech medical system is actually regarded as one of the best in the world, yet treatment costs next to nothing. In terms of culture, this country is far more Western than Eastern. It’s also worth mentioning that the Balkan states of Slovenia, Croatia and Montenegro share many of the Czech Republic’s virtues, along with languages that contain way too many consonants.
Ecuador is one of the easiest and most popular countries to emigrate to: a simple one-time investment of $40,000 in a bank certificate of deposit or real estate grants you residency, as does having any accredited college degree (even if you don’t plan on working in that field). Your living options cover virtually the whole spectrum: tropical beaches rise to pastoral highlands where the temperature remains pretty much constantly around 65 °F year-round, while you can find both Colonial architecture and modern buildings in the cities. Healthcare is generally of a high standard, with many doctors having trained in Argentina, Cuba and of course the United States.
Unfortunately, due to a combination of low oil prices and several years of overspending on social services, this country is currently in the middle of an economic crisis. This will probably result in real estate becoming significantly cheaper, but may also lead to political turbulence. Ecuador hosts one of the most vibrant and helpful expat communities in the world.
While most American retirees live in either Bali or the capital, Indonesia has all the postcard-worthy variety you could ask for with no fewer than 17,000 islands. All that’s needed for a couple to apply for residency is a joint income of $36,000 and employing one local, for example as a housekeeper. Indonesia has signed a double-taxation treaty with the United States, so you’ll only have to pay one government its share.
You should be able to find your way around without learning Indonesian or Malay, but there are currently no direct flights to the U.S. Both the cost of living and the crime rate are surprisingly low, while the local doctors and hospitals should satisfy anyone not requiring very specialized treatment.
While you probably don’t want your new neighbors to think of you as a carpetbagger, the fact remains that the ongoing debt crisis has made Greek real estate dirt cheap. If you’re willing to give up steak and hamburgers in favor of kleftiko and kolokithokeftedes (say that three times fast!), and certainly if you have an interest in ancient history, the Hellenic world may be exactly the paradise you’ve been looking for.
A large proportion of the population speaks at least some English and the rest of Europe is only a short plane ride away. You should know, however, that unemployment there is sky-high and the economic outlook for the future is uncertain.
Like Greece, Portugal was hammered badly by the economic crisis of 2009, which has both good and bad implications for the American retiree. On the one hand, essentials like accommodation can be had at a good price; on the other, certain opportunities may be limited.
Financially speaking, all you need to retire there is a guaranteed income of $15,000 annually or an investment of $600,000 in the country. You should be able to get along just fine with English alone, though enjoying the profound local culture will be much easier if you manage to pick up the language.
Costa Rica is closely tied to America both economically and politically. You’re not likely to mistake it for Kansas, however. Latin culture predominates, relatively few people speak more than a smidgen of English, and the climate is definitely tropical. Pristine rainforest, beaches on two oceans, volcanoes and huge conservation districts are some of its highlights.
You won’t feel out of place, though: Costa Rica makes a point of attracting foreign retirees, including by not taxing foreign income like Social Security. Houston is only a three-hour flight away, traveling within the country is easy and healthcare is both good and cheap. Unfortunately, most bargain properties have already been snatched up, and some items are expensive due to many goods being imported. Though Costa Rica’s literacy rate is one of the highest in the world, crime is a significant problem in some parts of the capital.
An exceptionally pleasant climate, a well-established community of expatriate retirees and no income tax on foreign income all count in Panama’s favor. A low crime rate, affordable, high-quality healthcare and proximity to the United States make this destination even more attractive.
As part of their program to reverse deforestation in this country, the government offers a unique visa program whereby virtually anyone can buy a timber plantation for $40,000 to $80,000 and gain immediate residency with unlimited border crossings. Alternatively, you can start a “non-retail” business based in Panama or prove a guaranteed joint income of only $1,000 per month for a couple.
Although not as popular with expatriates as it used to be, Thailand remains an absolute jewel of a country. The climate is impeccable, as is the scenery, and the cost of living is low enough to let you afford luxuries like massages, sightseeing and dining out.
Crime is extremely low, and Social Security and pension payments are exempt from taxation. The main requirement for a retirement visa is $22,000 in yearly income. The drawback of retiring here is that travel to the United States is troublesome and foreigners are forbidden from owning land. In addition, though the country is generally peaceful, recent years have seen several coups and periods of military rule.
Try Before You Buy
It’s never a good idea to decide whether or not to retire abroad in haste. After every election, for instance, all of the countries listed above see a noticeable influx of American immigrants, most of who sheepishly return after a few months and several thousand dollars spent in vain.
Scouting out the situation in your intended location for a few weeks needn’t be all that expensive; in fact, you should look at it not only as a holiday but an investment in making a better decision. There’s no real substitute for experiencing the ambiance and culture of a foreign country for yourself, but prior to your in-person survey you can also reach out to expat clubs, visa and relocation consultants and, of course, Google.
Choosing how and where to spend your retirement is one of the most significant decisions you’ll ever make. Hopefully, we’ve made the pros and cons of retiring abroad a little clearer, as well as give you a starting point for your own research. Do you have a story about retiring abroad? Do please let us, as well as our other readers, know in the comments – perhaps someone out there just needs a little nudge in the right direction.