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Winning Strategies for Retirement Abroad

Tax Breaks • Banking • Rent vs. Buy • Health Care

Although spending your golden years outside of the United States can help you to stretch your retirement health-care and housing dollars, several factors curtail the financial attractiveness.

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In 2013, Jim and Rita Santos paid $220,000 for a four-bedroom, four-bathroom condominium in the resort city of Salinas, Ecuador. Their retirement home has wraparound views of the Pacific Ocean. Their monthly living expenses (minus a mortgage) decreased to about $1,500 in Ecuador—a far cry from their previous life in suburban Washington, D.C.

The Santoses are part of an increasing number of U.S. retirees who live abroad. The exact number of U.S. retirees who live abroad is difficult to pinpoint. However, as of April 2016, the latest period for which information is available, Social Security Administration made 638,332 payments to beneficiaries who live abroad. That number increased from 605,166 at the end of 2013 and is 40 percent higher than the 413,737 benefit payments that were sent abroad at the end of 2001. These data likely underreport retirees abroad, because many retirees receive benefits through direct deposit into U.S. bank accounts and access their money through an ATM card, according to seven travel experts and expats with whom we spoke.

Observers say the trend of retiring abroad has been spurred by the lower cost of living outside of the United States, the relative strength of the dollar compared with other currencies, and improving infrastructure and access to quality health care globally.

Although U.S. retirees settle around the world, our report focuses largely on Central America and South America, because that’s where U.S. retirees tend to flock. Jennifer Stevens, who is the executive editor of International Living magazine, which publishes an annual ranking of retirement destinations, says that although no statistics support that assertion, “there is no question that a much greater percentage of American retirees abroad choose to stay in the Western Hemisphere than choose to go farther afield.” Stevens says that’s because, when it comes to Mexico, Central America and South America, “the time zones match up.” In other words, it’s easier to keep open the lines of communication for family and financial interests in the United States, she says. She also notes that the close proximity makes flights to the United States typically quicker than they are from Europe or Asia.

Regardless of whether you head south or choose a more distant retirement destination, economic breaks exist, as do lifestyle benefits that expats, or Americans who live abroad, tell us include a more-relaxed pace of life, healthier diets that are rich in fresh and unprocessed foods and a less consumption-focused outlook.

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However, that isn’t the whole picture, according to 19 people whom we interviewed. Consumers who are considering retiring abroad in 2016 and beyond should know that health-care and real-estate costs, although still less expensive than they are in the United States, are increasing. In Latin America, for example, health-care inflation will increase 20 percent in 2016, according to consulting company Aon Hewitt.

Other expenses are going up, too, according to Carla Rayman, who is the liaison for National Association of Realtors to Central America and the Caribbean. “It used to be about half [as expensive]” if you retired in Central America. “Now, you would save about a third,” she says. This means that your retirement dollars won’t stretch as far as they did before.

WELCOME MAT. The internet makes it easier than ever before to get a feel for potential destinations. However, Rayman says that after you settle on a location, you should rent to get a sense of your intended country before you buy. Even then, Stevens says, you should buy only “what you see.” In other words, you shouldn’t take a developer at his/her word that a shimmering pool will be built in the future courtyard of your condominium complex.

To get a well-rounded picture of your prospective home beyond what a tourism website provides, Stevens advises you to read expat social-network pages. These can provide insights on pitfalls that were encountered by those who made the move. For example, we found an expat page that relayed accounts of water problems and flagged expensive locations in Costa Rica.

Although each country’s visa requirements vary, a handful of countries that are in Central America and South America as well as Malaysia issue special retirement visas that give tax breaks or discounts to U.S. retirees if they meet modest income or asset requirements, which vary. For example, Panama in 2012 improved its retirement visa—called a pensionado—to entitle U.S. retirees to discounts on medical services, entertainment, restaurant meals, airfare, electricity and phone bills. U.S. retirees must prove $1,000 in monthly income. Similarly, Ecuador and Nicaragua pensionados also provide discounts.

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