Experiences and Suggestions from Cheryl Pruss
In June of 2004 my husband and I decided to embark on an adventure in retirement. We decided to build a house outside of the US (specifically in Costa Rica), with the goal of having it pay for itself (once complete) with weekly vacation rentals. In the 4 years since we began we have met many people who have opted to retire outside of the US. I have learned through observation that retirement outside of the U.S. is an option available to retirees at various income levels – low and high. Because of my interest in this topic, my experience buying property and building a house in another country and my access to friends that have decided to retire outside of the United States. I decided to write these articles. In the first article I will discuss the topic of retirement outside of the U.S. – why you might want to, what to consider and
give you some links for more information (should you be interested). In a subsequent article I will discuss what we learned while buying property and building in Costa Rica, as well as key learnings from friends that have retired outside of the U.S.
One question that confronts a retiree is where should we live in retirement. You may consider moving to another state (possibly for tax purposes), you may consider moving to a smaller house in your current location, or you may consider moving closer to elderly parents or children / grandchildren. Here are some items to consider regarding where you will live in retirement and what we thought about when we considered these questions:
- What kind of lifestyle do you want? In our case, we want an active lifestyle – to help us stay in shape (Costa Rica has this with surfing, white water rafting, canopy tours, golf, horse back riding, great hikes etc). We also wanted a project to keep our minds active (in the building stage and later while living in our house). Learning Spanish (the language in Costa Rica) would be very good for keeping our minds active. We were both interested in being part of a “pioneering” expat community.
- How close do you want to be to family and friends? How involved do you want to be with your grandkids lives ? Both my husband and myself have parents living in the US, as well as a son and grandkids (ages 7 and 13). As a result, permanently moving to another country was not in the cards for us. We decided that we would spend about 6 months a year in Costa Rica and that we would alternate living in Costa Rica and living
in the U.S. to prevent burnout in Costa Rica. Another related factor- we can get to Costa Rica or back to the U.S. in 1 day and there is only a 1 hour time zone difference.
- What kind of climate do you prefer? We love the ocean and we wanted to be near warm water – being 12 degrees N of the equator in Costa Rica works well!
- What is your health or medical situation? Do you have a reason to live close to specialized medical facilities? In our case we are both very healthy and have no medical reasons why we can’t live in another country. But, since we are in our 50’s we are concerned about having good medical care, should we need it in the future and Costa Rica has affordable healthcare.
- What can you afford? Since my husband was a builder prior to retirement it was a logical choice to take on a project of building a vacation home. We wanted to build in a place where the building costs would be much less then the U.S. In addition, we thought that by creating a vacation rental the house would pay for itself – after our initial investment in the land and building. We decided that we wanted to build a house that we could sell for at least for the amount we had into it at the end of the project, should conditions change and we decide to bail on the whole idea. We chose a location that we thought would appreciate in value (due to good security, the building of a 5 star JW Marriott within our gated community , good restaurants and services close-by, and paying a relatively low price for the land on which to build).
An increasing number of people when considering these factors decide to live outside of the US. You may find that you want to live water front and it may be possible to purchase a house on a lake or ocean, outside of the US, at a much lower cost. You may be able to get domestic help to assist you with upkeep for a fraction of the cost. You can have Social Security payments deposited in a bank account in the US for use in the country that you choose to live, or sent directly into a foreign account. Taxes can be complicated – but it’s possible that state taxes can be avoided. You may also avoid paying taxes on retirement income, or be taxed at a lower rate while living in another country. You may be eligible to access the public health care system in the country that you move to and greatly reduce your health care costs, or you may just take advantage of significantly lower costs of medical treatments in another country (with less expensive locally purchased health insurance). Costs can be significantly reduced for locally produced food. Utilities can cost less in areas where temperatures don’t vary much season to season. And you may find that costs for basics such as phones and car repair are much more affordable. In summary, there can be many financial benefits to retiring abroad.
Here are some steps to take to learn more about retiring outside of the US, as well as possible downsides to retiring outside of the U.S.
- Learn more about retiring abroad, in general. Some book titles that might help, include: The Grown Up’s Guide to Retiring Abroad (Rosanne Knorr), and How to Retire Abroad (Roger Jones). AARP and Modern Maturity have had articles about retiring in various locations. Here are some web sites where you may be able to learn more from Americans who have retired abroad: www.overseasdigest.com,
www.expatexchange.com, http://www.internationalliving.com, http://www.expatforum.com, http://www.aarp.org.
- Get to know the country you are interested in retiring to. Read books, magazines and web sites to learn more. We used the book: Living Abroad in Costa Rica (Erin Van Rheenen). You can find forums where expats discuss living in specific countries you may be interested in like: http://groups.yahoo.com/group/CostaRicaLiving (for Costa Rica) or http://groups.yahoo.com/group/life-in-mexico (for Mexico) or http://board.panamatotal.com (for Panama). A good web site to compare countries is https://www.cia.gov/library/publications/the-world-factbook. Beware of websites that may be selling real estate – they may present an overly optimistic viewpoint.
- Investigate tax ramifications. Does the U.S. have a tax treaty with the countries that you are interested in? (The U.S. has tax treaties with more than 50 countries. In general the treaties call for each country crediting the amount of tax paid to the other country). If there is no treaty you could be taxed in both countries – resulting in higher taxes! The Internal Revenue Service publishes “Tax Guide for U.S. Citizens and Resident Aliens Abroad” – call 1-800-829-3676 to get a copy (Publication # 54). You can also check the internet publication list at www.irs.gov for additional information.
- Find out about visa and residency requirements for the countries that interest you. Some countries encourage U.S. residents to retire there, others like Canada won’t let you choose full-time residency – so you can’t live there year round. Some countries have specific requirements for foreign retirees such as minimum income, no police record, and good health that you may need to be able to prove in the application
process. You may be able to bring in items to set up your household (furniture, clothing, kitchen items etc) – it may be duty free or taxed depending on the country you move to. You may or may not be able to work legally in another country. You can check with the embassies of the countries you are interested in for more information.
- Go to the country that you are considering retiring to. Take an extended vacation in the country of your interest. Learn about the countries culture, traditions and history through reading and your visit. Learn housing prices in various locations, about the safety and security of the country in general and the places that you may be interested in living specifically, through reading local publications (such as the Tico Times in Costa Rica – an English language newspaper). Consider renting a place for an extended period and try living in the location of your choice to see if you really do like it. Try to visit the country in different seasons, to see the variety of weather that you will experience. Interested in giving back? Volunteer opportunities (from something as simple as donating soccer balls and buying pizza for a small town’s children’s soccer team – which we did, to building houses for Habitat for Humanity) may abound in poorer countries – check into this on your visit. Attend local events – from fiestas, to live music nights, to
fund raisers – you will learn more about the locals and the expat community as a result.
- Learn about asset ownership laws in your country of interest. Can you own property? What steps will you have to go through to own property? Are there any pitfalls that can come up with property ownership in another country? How do the laws work with respect to inheritance of property owned in the foreign country if one or both of the owners (in the case of a couple) were to die? You will need to learn how to leave your foreign property to heirs in the U.S. In Costa Rica, corporations may own property and expats can be shareholders in corporations – you will need to form a corporation to buy property. One possible pitfall in Costa Rica is that “squatters” can move on to your property and can have rights to remain there, so you may need to have a full time caretaker who is paid to keep your property secure.
- Learn about health care and insurance. Will your existing healthcare insurance coverage extend to other countries? Can you buy health insurance in the country that you are interested in? Will you be eligible for government provided health care in your adopted country etc? Medicare benefits are not internationally portable, meaning that if you are Medicare eligible you can’t access the program without returning to the U.S. Friends of ours who had a baby in Costa Rica thought that their Blue Cross insurance would cover the birth at a great hospital in San Jose (the capital of Costa Rica). When settling the bill, they found that they were not paying for the Blue Cross policy that includes that benefit – so they would have to pay the entire bill themselves! To their surprise, the bill was less than their deductible would have been for the baby’s birth in the U.S.
- Find out from expats living there, what they think about health care facilities and their experiences with local doctors. (Many doctors outside of the U.S. may have trained in the U.S., hospitals may be affiliated with U.S. hospitals and people may speak English).
- Consider visiting hospitals and talking to health care providers to judge the quality for yourself prior to making your decision.
In summary, retirees may choose retirement destinations based on factors like climate, or local culture; visa, tax and property ownership policies also pay a role in the decision; but the #1 factor why people decide to retire or live outside of the US is some form of economic consideration.
(Special note: Costa Rican friends that I met at Intel, were key to my husband and I deciding that we could take on this adventure. My good friend, Rocio Valverde was most helpful at various steps along the way. Rocio passed away in January of this year, an incredible person, an incredible life….we miss her dearly.)
Deciding to Retire Abroad,www.bankrate.com
America’s Emigrants: US Retirement to Mexico and Panama, migrationinformationsource.org
Retire like royalty in a low-cost paradise, moneycentral.msn.com
Retirement Living Options, www.grandtimes.com/Retirement_Living.html
Retire Abroad – Live Well for Less, www.liveabroad.com
Retiring Abroad, www.segundajuventud.org