Can Retirees Live Better Abroad?

My husband and I are seriously considering another country for retirement. What should we consider?

November 2, 2004: 12:16 PM EST
By Lewis Schiff, the Armchair Millionaire

NEW YORK (Armchair Millionaire) - Dear Armchair Millionaire: My husband and I are seriously considering relocating to another country for retirement. What are the financial issues we should consider in this kind of move? -- Ready to Retire

Dear Ready,

If you do end up retiring abroad, you may find that you have plenty of American neighbors. Because the U.S. does not track the number of its citizens who leave the country, it's tough to get an exact number of how many Americans retire overseas. However, the U.S. State Department estimates that there are about 4 million U.S. non-military citizens living abroad, and that about a quarter of them are retirees.

Our recent question about retiring abroad to members of the Armchair Millionaire community revealed some interest there, too. Here are a few of the comments we heard:

"Yes, I have thought of moving to another country. Costa Rica would rank right up there at the top because of its beautiful climate, scenery and cheaper cost of living." -- John C.

"New Zealand. Just a beautiful, lush countryside. English-speaking. Dollar is strong. Imagine California with only a population of 3 million instead of 33 million and coastline on the north, east, south and west." -- Joey

"I consider moving out of the States all the time. Contrary to what many Americans believe, there are now several countries -- including Canada, the Nordic nations, and other parts of Western Europe -- that now boast a higher standard of living than we do (not to mention superior healthcare for the dollar). Also, more than ten countries now tout more civil rights and freedoms than we do (disappointingly ironic when you consider the label, "Land of the Free"). And for retirees, there's always the option of taking your American dollars where they buy more. -- Jon

Pulling up roots and moving to a new country is obviously a huge step, so above all else you should make the decision carefully. There are dozens of issues to consider, from cultural and language issues to the weather. My checklist zeros in on the key financial issues you should consider.

The Armchair Millionaire's Checklist of What to Consider Before Moving Abroad

What is the real cost of living? While the lower cost of living in many countries is one of the primary things that makes living abroad attractive, you need to figure in additional costs that you might occur abroad that you might not here in the U.S.

Travel back and forth between your adopted country and the U.S. is one obvious cost that will offset the lower cost of living, but you will also want to look at whether the exchange rate is favorable to you or not.

How will you obtain health care? Medicare does not cover health services outside of the United States, so you will need to explore how your medical needs will be taken care of.

Some countries with government-sponsored health insurance also extend coverage to resident foreigners. In other countries, you may need to purchase private health insurance. As a last resort, you may need to rely on a U.S. health insurance company that will provide coverage for Americans living abroad.

What will you pay in taxes? As a U.S. citizen, you still have to pay taxes on your income regardless of where in the world you may be living.

However, living abroad may qualify you for various deductions and credits that you would not otherwise receive. So consider whether your tax liability will substantially change if you choose to live abroad.

How are the communications? While we take reliable phone and Internet links for granted here in the U.S., they do not exist every where.

Given that you'll probably want to manage your U.S. banking, investments and bill paying activities online from your home abroad, you'll need access to a good telecommunications system.

Can you buy a home? Many countries do not allow foreigners to buy real estate, or place restrictions on which property you may buy.

If buying a retirement home is in your plans, be certain to understand any restrictions in the country of your choice in advance.

THE BOTTOM LINE: Moving abroad -- whether for retirement, a new job opportunity or just to sample another way of life -- can be a complicated and costly step. Be sure you understand exactly what you're getting yourself into before making the move.

Shopping the World for a House

The real estate boom knows no borders. It's not just the rich and eccentric who are buying abroad.

June 22, 2004: 11:24 AM EDT
By Sarah Max, CNN/Money senior writer

BEND, Ore. (CNN/Money) – Eyebrows went up when Dale Anderson and his wife, Kim, told their friends they were buying a second house in Paraiso del Mar, a new housing development in La Paz, Mexico.

"They thought it was outrageous," said Anderson, 63, a small business owner in Canton, Ohio. "Then they started looking into it themselves."

Like a growing number of Americans, the Anderson's friends soon realized that buying property outside the country isn't such a far-fetched idea. Seaside condominiums and golf course homes in Paraiso del Mar, for example, range from $180,000 to $375,000. That's a bargain considering what similar property would cost in California, Florida or South Carolina.

"This will be a major life change," said Phillip Allen, 55, a business development consultant in Denver who plans to relocate to Paraiso del Mar with his fiancée, Trish Rudeen, as soon as construction on their two-bedroom home is completed next year. In the mean time, they've bought a share in a sailboat and a copy of "Spanish for Dummies."

"I had never been to Mexico until this past May," said Rudeen, 53. "I was pleasantly surprised."

It's a small world after all.

Real estate agents in Mexico, the Caribbean and Central America say they've seen an influx of American buyers over the past couple of years. "We have definitely noticed a trend of more buying abroad," said Jeff Hornberger, manager of international business development for the National Association of Realtors.

Although it's tough to track overseas real estate transactions, traffic on EscapeArtist.com and its affiliated sites reflects a growing interest in living and buying real estate abroad. The site has 1.5 million unique visitors of a month, according to founder Roger Gallo, and 700,000 people subscribe to the site's online newsletters, which include the "Offshore Real Estate Quarterly."

"We are adding between 4,000 and 5,000 subscribers a month," said Gallo, speaking from his office in Panama.

La Paz, Mexico is an emerging second-home market for Americans. Money Magazine named it a "Best Place to Retire" in 2003.

Good weather, inexpensive real estate and, in some countries, low taxes are part of the appeal. At the same time, rising home values stateside have made it easier to pay for second properties. The Internet, meanwhile, makes it easier to shop the world market for real estate, and in the case of some overseas buyers, live outside the country full time.

"Prior to 9/11 it was a lot of retirees looking for somewhere warm and cheap," said Les Nunez, a Canadian who moved to Costa Rica nine years ago to open a RE/MAX franchise. "Now I'm seeing a lot of younger American buyers particularly people with portable skills, like graphic artists and software designers."

According to Nunez, a 2,500-square foot condo in Costa Rica's capital, Santa Jose, ranges from $150,000 to $200,000. Property taxes for that same condo run about $200 a year, he said, and capital gains taxes are "nonexistent."

Gallo's countries of choice for real estate investments include Argentina, Brazil, Ecuador, Uruguay and, of course, Panama. "You can build here for about $35 a square foot," he said, adding that this is one country south of the border where financing and title insurance are widely available.

Americans are also heading north. According to Scott Brown, senior vice president for Playground Destination Properties in Vancouver, British Columbia, Canada – and Whistler in particular – has long been a popular market for buyers from nearby Washington. "But about year and half ago we started seeing the Texas buyer," he said. "People want to come here to ski in the winter and escape the heat in the summer."

Still an emerging market

Taking your home search to different parts of the globe requires even more scrutiny of the fine print.

In Mexico, for example, foreigners are technically not allowed to own land within 50 kilometers of the coast. They can buy such land via a fideocomiso or trust deed that makes them beneficiaries of the land for 50 years, after which point it can be renewed. Still, many Americans may not be comfortable with such an arrangement. "I love Mexico, but I wouldn't buy there," said Gallo.

According to John Glaab, vice president with The Settlement Company in Los Cabos, a number of reputable companies, including Stewart Title and First American Title, offer title insurance in Mexico, thereby protecting buyers if they lose their property because of a dispute in ownership.

Another consideration for Americans buying abroad is financing. In most countries mortgages are not widely available, but that seems to be changing in Mexico and elsewhere.

"You're starting to see 20 or 30 year mortgages that are similar to what you'd get in the U.S.," said John Fair, the developer of Paraiso del Mar, adding that the rates are about two percentage points higher, while down payments of 20 percent to 30 percent are typically required.

Property taxes, though they depend on where you buy, are generally quite low. "In La Paz, they're about 0.2 percent a year," said Fair. That's about $600 a year for a $300,000 house.

Sellers don't get the same capital gains break they get in the United States. The capital gains tax equivalent in Mexico is 33 percent this year and will go down to 32 percent next year, said Fair, though sellers can deduct what they owe in Mexico from their capital gains liability in the United States.

"I know capital gains [tax treatment] is not as good as it is in the United States, but that's not a factor for us," said Phillip Allen. "We don't plan to sell."

Decision Restricts Coastal Development

By Rebecca Kimitch

More protected coastal forest and less beachfront development could be the result of a recent pronouncement by the Government Attorney’s Office.

The office has ruled that municipalities cannot grant concessions for development in forested areas of the Maritime Zone. Though the ruling is not a new law, but rather an interpretation of pre-existing laws, it challenges the reality practiced for years by municipalities and developers up and down Costa Rica’s two coasts.

The Maritime Zone is the first 200 meters of land from the high tide line along most of the country’s shores and belongs to the state by law. The first 50 meters are considered public terrain and cannot be developed privately for hotels

, restaurants or homes , through concessions granted by municipalities.

The recently released Government Attorney report clarifies that forested areas in the Maritime Zone are part of natural patrimony and should be overseen by the Ministry of Environment and Energy (MINAE).

While natural patrimony is not an officially protected area , it “means you cannot built any project that goes against the conservation of the area”, said that Alvaro Ugalde, director of the Osa Conservation Area, in the Southern Zone.

Environment Minister Carlos Manuel Rodríguez explained that MINAE does not have the power to grant concessions.

This, in effect, means concessions can no longer be granted in the maritime zone where forest exists, explained Ligia Flores, an expert in the field of concessions in the maritime zone.

“The report is nothing new, it is just being applied ….and it is absolutely right”, she said , adding it is in sharp contrast to municipalities’ existing practices.

FLORES is owner of Consultores Turisticos Asociados, which helps developers acquire maritime concessions. She said she has at least 100 clients from the southern port town of Golfito to the northern province of Guanacaste – who are in the process of soliciting concessions and could be affected by the Government Attorney’s pronouncement.