Budgeting for Housing When Retiring Overseas

Housing costs abroad are often much less than in the U.S.

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Before you consider where in the world you would like to spend your retirement years, you need to figure your retirement income. This is the total amount you could have available to fund your retirement overseas including pension, Social Security, and investment income and the proceeds you would realize if you liquidated all your assets. This amount will determine where you are able to comfortably retire.

[See 10 New Retirement Hot Spots.]

Then you need to think through your expenses, item by item. The cost of housing is one of the most variable expenses in any retire overseas budget. Your cost of housing wherever you decide to settle will be your rent or mortgage and can vary dramatically among different locations or even within a particular city, region, or country. You’ll also need to factor in other budget costs including groceries, health care, Internet, and electricity, which can be more consistent within a particular city or region.

Living anywhere in Panama City, for example, your food, utility, and medical costs could be equal. However, your monthly housing expense could be modest or great, depending where in Panama’s capital you locate yourself. You could spend $3,000 a month on rent in the high-end banking district, $1,200 a month in the up-and-coming El Cangrejo neighborhood, or $600 a month in Las Cumbres, a suburb near enough to still be considered part of the capital.

[See 10 Necessities for a Great Retirement Spot.]

The fundamental question when considering your housing expense anywhere is: Will you rent or own? I strongly recommend that, no matter where you decide to settle, you rent first rather than purchase your new home overseas immediately. Sometimes renting long term can also be a good idea.

You need to determine how much you can afford in rent given your retirement income. A good rule of thumb is to avoid spending more than half of your monthly retirement income on rent. For example, if your retirement income is around $1,000 per month, this means you have $500 (or perhaps less) available to budget for rent. It is possible to find a comfortable rental for that amount in many places, including parts of Panama and some places in Colombia, Belize, Ecuador, and Thailand.

[See The 10 Best Places to Retire in 2012.]

If your total retirement income is $1,000 to $2,000 per month, your options expand. An income this size could allow you a monthly rental budget of as much as $1,000, which should afford you a better-than-reasonable rental accommodation in most of the world’s top retirement havens.

If your total monthly retirement budget is more than $2,000 per month, you're golden. You could manage a comfortable rental almost anywhere in the world.

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.