Most Americans haven’t saved enough to have a luxurious retirement in the United States. But your current retirement account balance could be more than enough to retire in a low cost country abroad. Kathleen Peddicord, author of How To Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad and founder of liveandinvestoverseas.com, says you may be able to retire younger by exiting the U.S. for sunnier and more inexpensive countries. Peddicord, an American, spent much of her career based in Ireland and France and now runs her business in Panama City. U.S. News asked Peddicord how retirement abroad affects your finances and lifestyle. Excerpts:
Could you get by on just Social Security payments in a foreign country?
Yes, definitely. The average Social Security check is about $1,200 a month and there are at least a dozen places in the world right now where you could live very comfortably on $1,200 a month or less. The cheapest place in the world where you would actually want to call home is Cuenca in Ecuador. You could live there on $700 or $800 dollars a month.
Can most retirees afford extra luxuries abroad?
Reducing your cost of living is a very compelling reason to think about moving to another country, but it’s not the only reason. Many people are moving to live on less, but what they find is their lifestyle is enhanced. You can afford luxuries that you could never afford in America like a full time maid or driver or a massage therapist who comes to your home. In other places in the world you can live dramatically better. In Buenos Aires, Argentina you can live almost a life of luxury for the cost it would be to live an average life in the U.S. It depends on your point of view. If you live in San Diego most places in the world look cheap. If you live in a small town in Iowa a lot of places look more expensive.
Do you need to speak the language?
You don’t have to. You could live in some places without learning the local languages like Belize or Ireland. If someone is really not interested in the idea of learning a new language there are still good options where they speak English. If you are looking for super cheap or a more Latin experience, you can still move to say Mexico or Argentina and not learn Spanish. I recommend that if you are going to move to a country where the language is not English that you have an openness and interest in at least learning a few basic phrases of the local language. It’s almost impolite to not even learn a bare minimum. The more you learn the deeper your experience will be because the better able you will be able to make local friends.
What should you do about health care?
Medicare does not travel with an American outside the U.S. and your other U.S. health insurance likely won’t move with you either. You have two options: one is an international health insurance policy through a major international health insurance agency or local health insurance in the country that you move to. Even full comprehensive coverage is going to be cheaper than typical U.S. insurance. We pay $400 a month for my husband, son, and I for coverage all over the world, which isn’t expensive by typical U.S. standards. We could have a local Panama policy for as little as $100 a month, but that local policy would cover us only in Panama and we want coverage that covers travel all over the world.
What are some of the tax perks other countries offer retirees from the U.S.?
It’s possible for an American to move to a very tax friendly jurisdiction like Panama or Belize or Uruguay and make it so that he effectively lives tax free. It’s certainly possible for an American to cut their annual tax burden significantly. If you are an American living in Panama and you earn no income in Panama then you pay no taxes in Panama. The U.S. taxes you on worldwide income, but if you are living abroad then you may qualify for the foreign earned income exemption.
Is it a good idea to convert your nest egg to the local currency?
It depends on the currency of the country you are moving to and your best educated guess about what is going to happen with that currency. It depends on how long you are going to be there. If you are planning to be there the rest of your life it could make sense to convert your money. The currency in Costa Rica is moving very dramatically against the dollar. There are a lot of American retirees who are losing purchasing power month by month. But it can be good to hedge it: to move some of the money into the local currency and leave some in U.S. dollars. Or maybe diversify even more and have some money in dollars, some money in Euros, and some money in the currency of the country you are moving to. There are good options for countries that use the U.S. dollar. One option to consider if your retirement pension and Social Security is going to be in U.S. dollars is a country where you can spend U.S. dollars, such as Panama.
What’s the biggest drawback of moving abroad in retirement?
It’s very hard to walk away from grandchildren. That’s a strong tie. But it doesn’t have to be all or nothing. Move somewhere part of the year, but maintain a residence in the U.S. Spend part of your time overseas where the grandchildren will want to come visit. What a treat for kids to have grandparents living in the South of France and they can visit for a month at a time or go spend their summer vacation with them. Accessibility to the states is key. Look at places that are serviced by a number of different airlines and where you don’t have to travel a long distance to the airport.
[Check out these 8 Affordable Places to Retire Abroad.]
How should you adjust to the new pace of life in other countries?
In Panama, for example, the pace of life is much slower. It’s a real part of your life you will just have to deal with. You aren’t going to move there and change the way that these people live. You are moving there and you are going to have to adjust to their way of life and culture and attitude. In this part of the world that means slowing down. You can’t move to these countries expecting that business is going to be conducted in the way that business was conducted in North America. You have to adjust your attitude and keep your sense of humor. People will promise you that the plumber will show up on Thursday and the next Wednesday you get a call from the plumber’s cousin explaining why he wasn’t there last week and how he will be there next Tuesday. We had at least six appointments with a plumber who has yet to show up. If those types of things will drive you crazy then you shouldn’t move into a Latin culture.
How do you know if moving abroad for retirement is right for you?
If you are kind of infatuated with the idea or have it in the back of your mind, take a trip somewhere that seems interesting to you and maybe go for month. Just go and try it out and see where it leads. You might find that you miss your home and your grandkids too much. You may not want to deal with learning another language or you are just homesick. In all these years that I have been covering this beat I have never met anyone who has tried a new country and regretted it. What people regret is that they didn’t do it sooner.