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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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How much it costs to apply for a retirement visa varies by country, and some countries don’t post clear guidelines. Retiree websites say the application fee typically ranges from $50 to $200. Translation and legal fees add to that cost. The visa in Belize is called Qualified Retirement Persons Incentives Program (QRP) and entails a $150 application fee. Malaysia’s My Second Home visa program entitles retirees who have $2,450 in monthly income, as well as assets of about $86,100, to import a vehicle and personal goods tax-free and is good for 10 years, according to Malaysia’s official website. An annual fee equated to about $22.40 as of press time.

FAR ABROAD. Although Central America and South America often are the focus of U.S. retirees, Malaysia and Vietnam are cited by expats and industry observers as places where you can retire at a fraction of the cost of living in the United States.

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MONEY TALKS. The strong U.S. dollar makes the idea of retiring abroad appealing. The dollar hit an all-time high against the Mexican peso in February 2016 and increased more than 17 percent versus  the peso over the past year. The dollar is trading at levels against the euro that haven’t been seen since 2003. The dollar’s value also has risen against the Colombia peso, Costa Rica colon and Nicaragua cordoba over the past 4 years. (In Ecuador and Panama, the U.S. dollar is an official currency.)

Today, you can get a lot more euros than you could 5 or 10 years ago, so that means that it’s a good time to buy that property in southeastern France, says Daniel Webber, who is the managing director of FXcompared.com, which provides information about international money transfers.

However, currency experts say recent trends are just that: Although the dollar was strong as of press time, exchange rates, like the stock market, are cyclical. Foreign-exchange company HiFX predicts that the Mexican peso and the euro will strengthen against the dollar in the remainder of 2016 and into 2017 (albeit remain weak overall). That means that a retiree’s cost of living could increase after he/she settles abroad.

Beyond exchange rates, how you access your money while you’re abroad changed in the past few years. IRS requires U.S. citizens to file tax returns no matter where they live, and requirements that took effect in 2014 could affect your ability to bank abroad.

The Foreign Account Tax Compliance Act (FATCA) applies to couples who have assets of at least $400,000. Although that threshold won’t apply to most retirees, FATCA also applies to financial institutions, and that caused many foreign banks to stop doing business with Americans abroad. FATCA requires foreign financial institutions to report to IRS on U.S. citizens who have an overseas account of at least $50,000. If they don’t, IRS can levy financial penalties against the banks. As of press time, 113 countries agreed to FATCA.

Rather than complying with what they view as an overreaching law, according to David McKeegan, who is the founder of Greenback Expat Tax Services, and others, many foreign financial institutions simply choose to stop doing business with U.S. citizens altogether. (You typically have to show your passport to open an account in a foreign bank.) He says FATCA affects every U.S. citizen who retires abroad.

FATCA is a huge hassle, says Vincenzo Villamena, who runs Onlinetaxman.com from New York and Medellin, Colombia. He notes that FATCA was intended to ensnare tax evaders through their offshore accounts. If you’re looking for a bank that abides by FATCA requirements, IRS can help. The agency enables you to search for a country’s compliant financial institutions. A guide on how to do that is at irs.gov/pub/irs-pdf/p5147.pdf.

Observers say FATCA made it more challenging to use a local bank account in South America, Indonesia and Europe. “If you’re an American [living] in Switzerland, you can’t open a checking account any more,” McKeegan says. “That makes it pretty difficult to go out and pay your electric or gas bill.”

Consequently, many retirees who live abroad simply maintain their U.S. accounts, access them online and withdraw money that they use locally through ATMs. That makes taxes simpler, according to Stevens and Jim Santos, because, on paper, you still are inside of the United States financially. Some U.S. banks and brokerages waive foreign-transaction fees or ATM fees that their customers will incur if they adopt this strategy. However, Webber says it’s better to go to a currency exchange than an ATM, because the rate that you get on any transaction won’t be as good at an ATM. “Your exchange rate might be 5 percent worse,” at an ATM compared with a currency exchange, Webber says. Over time, that adds up, he says.

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RENT VS. BUY. Buying a home in a foreign country is complicated, even more so than before. That’s because North American title companies that provided title services in Central America and South America pulled back in the past 6 years because of high costs and a lack of a guarantee of clear title, or a title that has no lien or levy from creditors, according to Tuey Murdock, who is an attorney and title coordinator who lives in Quito, Ecuador. She says title insurance, which is intended to protect an owner from unknown liens or fraud, still is an unknown concept in the region. Murdock says title insurance is easier to obtain in Europe and Australia than it is in Central America and South America.

Consequently, Kathleen Peddicord, who runs the Live and Invest Overseas website, recommends that retirees “rent first and maybe rent forever.” That way, you can be flexible if you decide to change locations or even countries, and you won’t have to deal with maintenance costs, she says.

Most buyers pay cash, according to Rita Santos, who is a real-estate agent, because mortgages typically are more difficult to attain for foreigners. If you can obtain a mortgage, you’ll find that the terms are stricter. For example, in Europe, you might get a 20-year mortgage with 50 percent down instead of the more familiar 30-year term with 20 percent down. In Panama, we found that if you’re age 60 or older, you can get only a 15-year mortgage, with 30 percent down.

However, even if you pay cash, consumer protections that Americans take for granted, such as required disclosures in real-estate or financial transactions, or the option to file a lawsuit when something goes wrong, often are nonexistent in Central America and South America, as well as parts of Europe and Asia, according to four of the experts whom we interviewed.

“Nothing’s transparent” in Central America or South America compared with the United States, Rayman says. That includes finding what people paid for a property, how long they owned it, what their mortgage amount was or records of taxes and liens.

“Your money is at risk, and you’re not a citizen of that country, so it’s very, very difficult to get your money back” if you can’t secure a title, Rayman says. She recommends that you have an attorney check on a property’s title and not rely on an agent.

What else can you do if your purchase goes sideways? Unfortunately, the answer often is “nothing,” experts with whom we spoke tell us.

Renting often is more affordable and simpler. According to cost-of-living comparison website Expatica, a 900-square-foot apartment that’s in Quito, Ecuador, rents for less than $900. Comparison website Numbeo says you can buy a similar-size apartment that’s in Quito for $91,970–$133,470, depending on the location. That means that if you stay about 9 years, buying would be less expensive.

In Southeast Asia, deals still can be made in Malaysia and Thailand, and we talked with expats who found inexpensive rents in Cambodia and Vietnam. For example, Wendy Justice, 62, and her husband David, 56, rent a fully furnished, 2,700-square-foot, five-story home that’s in the Embassy District of Hanoi, Vietnam, for $625 per month, and they live on a budget of just $1,200 per month. Many Asian countries have restrictive property-ownership rules for foreigners, so renting often is a better bet, Justice says. Stevens agrees, citing both Cambodia and Vietnam as attractive and affordable destinations.

Renting won’t help you to build equity, of course, but it also doesn’t put as much of your money at risk at once.

STAYING HEALTHY. The cost of health care for those who retire abroad almost always is less expensive than in the United States, says David G. Vequist IV, who is the director of Center for Medical Tourism Research at University of the Incarnate Word. However, health-care costs abroad are rising.

According to Aon Hewitt, health-care inflation was 5.3 percent in the United States in 2015, but health-care costs increased 16.7 percent in Latin America and the Caribbean. In Asia, health-care inflation was 10.4 percent. For 2016, Aon Hewitt projects that health-care costs will rise 20 percent in Latin America. Aon Hewitt specifically calls out the Bahamas, Costa Rica, Ecuador, Malaysia, Panama and Vietnam, which are popular retirement destinations for expats, as places where health-care inflation outstrips overall inflation by double digits. It’s unlikely that health-care costs ever will reach U.S. levels, but health care abroad won’t be as inexpensive as it used to be, according to Vequist and others.

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Like health-care costs, private medical-insurance premiums are less expensive abroad than they are in the United States, according to International Living. Despite the increase that Aon Hewitt noted, a couple who are in their 60s pay $145 per month for health insurance in Panama. In Colombia, residents pay a flat rate of 12 percent of their retirement income to participate in a government health plan and have supplemental insurance available, which allows you the choice of private hospitals, for about $400 per year. In Malaysia, prices range from $400 to $1,000 per year for private health insurance, depending on your age and health status, according to International Living.

These insurance costs compare with about $7,000 per year in the United States for a 65-year-old couple who have Medicare and a supplemental insurance policy, according to HealthView Services. Whether the coverage is comparable with U.S. standards varies from country to country. In general, experts whom we interviewed found that health care was easier to access in foreign cities, regardless of whether consumers paid for insurance.

“In general, you can expect to spend about 50 percent less” on health care when you’re outside of the United States, depending on the procedures and how you pay, Vequist says. For example, Jim Santos had arthroscopic shoulder surgery in Ecuador. His overnight hospital stay totaled $6,000. The same procedure stateside would cost $14,000–$28,000, according to Kaiser Permanente’s Treatment Cost Calculator.

Santos decided to pay out of pocket. He also had the option to get a private medical-insurance policy ($400 monthly premium) or, because he qualified because of his residency visa, have the operation performed through Ecuador’s national health system. The latter typically would mean fewer hospital and care-provider choices, less specialized care and longer wait times.

Unsurprisingly, health-care systems abroad vary depending on the country, but statistics show that the quality of health care in developing countries has been improving for years. World Health Organization (WHO) statistics show that life expectancy increased in popular expat locations since 1990. WHO says, that as of 2013—the latest statistics that the organization lists—a 60-year-old of either gender can expect to live an additional 24 years in Colombia and Panama, 23 in Costa Rica (the same as in the United States), 22 in Ecuador, 19 in Malaysia and 21 in Thailand. Life expectancy statistics are a typical measure of health-care quality, experts say.

More first-rate health-care facilities exist overseas today than ever before, according to Vequist. For example, Hospital Punta Pacifica in Panama City, Panama, is affiliated with Johns Hopkins University. Colombia and Malaysia are home to several hospitals that have accreditation from Joint Commission International, which is a U.S.-based organization that sets the benchmark for standards. According to WHO, Colombia’s health-care system ranks 22 out of 178 countries, which is the best in South America, compared with Canada (30th) and the United States (37th). The analysis is based on health-care efficiency and life-expectancy outcomes.

That’s good to know, because the goal is to enjoy your retirement years  and not spend that time worrying about health care.

Joe Bousquin is a former staff reporter for The Wall Street Journal. From 2004 to 2007, he lived and worked overseas in New Zealand.


Finding Your Way Back

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Even if you’re certain that you want to retire abroad, you should recognize that this commitment could change, experts tell us.

Many people eventually return to the United States, says Jennifer Stevens, who is the executive editor of International Living magazine. “They come back to the states for the grandkids’ graduation or to see the new baby,” she says.

Stevens suggests that if you retire abroad, “it can make life at a distance easier if you keep a bank account open” in the United States. Of course, leaving enough money in the accounts to avoid paying fees makes sense. You also should keep paying into Medicare, Stevens says, so you won’t have a gap in coverage if you come back. For example, if you were to let Medicare lapse, you can re-enroll only during certain periods, and even then, you might be subject to late-payment penalties or even all past unpaid premiums, depending on your plan. How much that you might owe depends on the number of premium payments that you miss and whether premiums increased. According to Centers for Medicare and Medicaid Services, the 2016 premium increase is 52 percent, to $159.30 per month from $104.90.

Finally, expats Jim and Rita Santos suggest that you hang on to your U.S. home even if it means renting it for a while, as a “safety net,” the Santoses say.