5/23/2014 3:15 PM ET|
How to budget for an overseas retirement
Before you say 'Bon voyage,' brace yourself: A move abroad is likely to include these common costs.
Can you afford to retire wherever you want to? The opportunity for doing just that could be greater than you might imagine.
The most important thing to understand when trying to determine how much retirement lifestyle your retirement budget will buy is that you can control your cost of living anywhere in the world within parameters. You choose where you want to live, how you want to live, how often you dine out, whether you have help around the house, where and how frequently you travel and where and how you shop.
This is why there's really no answer to the question: How much does it cost to live in a given place? The more relevant question is: How much money do you have to fund your retirement? Figure that amount and then identify the destinations overseas where that budget will buy you the retirement lifestyle you're looking for.
The bulk of any budget is given over to housing, typically rent or a mortgage, so start there. Are you going to rent or buy?
I strongly recommend that you rent at least for six to 12 months to give yourself a chance to try the place on for size before committing. However, if you do eventually decide to invest in a home of your own, recognize that property ownership comes with carrying costs. As a homeowner, you'll have maintenance and repair costs, insurance, property taxes and maybe groundskeeping. As a renter, you have none of these liabilities, which is why renting long term can make a lot of sense for retirees abroad.
The other key housing consideration has to do with where in a country you want to settle. For example, in Panama your rent could be $1,500 a month for a two-bedroom apartment in a nice building in Panama City with a doorman and a pool, or it could be $300 a month if you choose to settle in a little house near the beach in Las Tablas, a beautiful, welcoming, more remote and therefore much more affordable region of this country.
Here are other key expenses to factor into your retire-overseas budget:
Transportation. Will you need a car where you're thinking of relocating? If so, this likely will be your greatest expense after housing. In some places the cost of owning a vehicle can be greater than the cost of your rent. If you're not up for the expense or hassle of car ownership, consider less remote options and cities with good public transportation. Living without a car, transportation can go from being one of your biggest expenses to a negligible line item in your monthly budget.
Food. Groceries are a hugely variable expense everywhere. Your monthly food spending depends on how you want to live and eat. In Panama, Ecuador or Nicaragua, for example, a couple could spend less than $300 a month on groceries. On that budget, you could eat well, but you'd be eating like the locals. Or you could shop at the U.S.-style grocery stores (which exist in these countries) every week and load your cart with imported cheeses, specialty hams, wine and prepared foods, in which case a couple's monthly grocery spending could be as much as $600 or more.
- Also on U.S. News & World Report: 11 keys to a successful overseas property purchase
Grocery costs also vary according to region. In Paris, we lived in the seventh arrondissement, in the historic heart of the city. We discovered that prices in the grocery stores in our neighborhood were sometimes 25 percent more than prices for the same items in grocery stores in the fifteenth arrondissement, a more working-class district.
Gas. This is often used for cooking and typically a negligible expense of a few dollars a month.
Electricity. The climate in the overseas retirement haven where you choose to hang your hat will dictate your monthly electric bill, which can be a big budget item in a place where you have to run your air conditioning around the clock to be comfortable. The budget-conscious should think about places like Medellin, Colombia and Cuenca, Ecuador, where the weather is spring-like 12 months a year, and you can get by most of the time without either heat or air conditioning.
Telephone. This cost varies greatly by country and region. France is a big winner when it comes to telephone expense. You can buy a phone package from Orange, for example, for about $50 a month that includes unlimited free calling to the United States and Canada, much of Latin America and the Caribbean and all Europe.
In most of the world, though, if you're not careful, your monthly international phone bill can be a shock and even the most costly item in your entire budget (including housing and transportation). The answer to controlling this budget item is a Voice Over Internet Protocol (VOIP) service such as Skype.
For local calls, a pay-as-you-go cell phone may be all you need. These are easier to obtain than a phone with a contract in most of the world. Depending on where you’re living and your lifestyle, a $10 calling card for your pay-as-you-go cell phone could last you all month.
Internet. Retire to a city almost anywhere in the world today, and reliable Internet will cost you $30 to $50 a month. However, if you’re interested in retiring to a more remote region, the cost of Internet can be a significant part of your budget. If you choose to settle somewhere where you have to invest in satellite Internet, for example, budget $500 in hardware and set-up and then $200 a month or more for service.
Cable TV. Again, this is a significant budget item only if you're living outside a city. In most populated areas basic cable costs about $20 a month.
Condo, building and homeowner's association fees. If you choose to live in a private development community or an apartment, you’ll likely have a monthly condo or HOA fee. This is your contribution to the costs of maintaining and managing the shared areas of the development or the apartment building, perhaps including things like security, grounds-keeping, internal roads, a swimming pool and sometimes a concierge in an apartment building in Paris or Buenos Aires. You can incur this expense as an owner or a renter, and it’s an important thing to ask about before signing a lease.
Property taxes. Not every country imposes a property tax. For example, you won't be liable for any property taxes in places like Ireland, Croatia or Buenos Aires (though you will pay annual tax on property you own elsewhere in Argentina). In places that do levy a property tax, the cost to you will likely be considerably less than you may be paying for property tax now, either because the percentage is less, the value of the real estate is less or both. And if you intend only to rent, property tax won't be an issue for you anywhere.
Household help. This can be one of the big benefits of living overseas. You can arrange full-time help around the house for as little as $150 a month in Nicaragua, Belize, Ecuador, Panama (outside Panama City) and Thailand. And anywhere in Latin America or Asia the cost of part-time household help will make the idea of this kind of support irresistible.
Entertainment. This is one budget item that is completely controllable. Your monthly entertainment bill can be zero if you choose never to go anywhere or do anything. But that misses the point, doesn’t it? Retiring to a new country isn’t only about reducing and controlling your cost of living. It’s also about improving and enriching your quality of life.
In remote regions of any country, your entertainment cost can be minimal – say, $100 a month – largely because there may be little to spend your money on. Living in a city offering many options for dining out and filling your leisure time, you’ll want to be able to budget more generously for entertainment.
- Also on U.S. News & World Report: The world's best 8 places to retire this year
Travel. You’ll probably want to travel both within your new country of residence and for visits home. Your biggest expense when returning home will be airfare. But also remember to budget for in-country travel. You're taking a big step and making a big effort to relocate somewhere new and exotic. Once you're there, you'll want to get out and see the place.
Health insurance and medical care. Depending where you choose to retire, this can be the biggest cost benefit of all. In some countries it’s possible to arrange good local health insurance for less than $100 per month. And in a few places, especially in Asia, it can make sense not to invest in health insurance at all. International-standard medical care in Thailand and Vietnam, for example, can cost so little that it doesn’t make sense to insure against it.
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Interesting to note that the last item of concern for retirement overseas in this article is 'Healthcare'. In the United States it is the 'number one' concern.
Hey, I thought Canadian healthcare was suppose to be bad where one had to go on a waiting list for services. Heck, no one but no one is getting ahead of the United States when it comes to VA Healthcare.......we'll just 'wait you out' until you die, how very sad and 'un-patriotic'.....it's sickening.
And don't forget the taxes that you have to pay to the centralized federal government required to support those who are unwilling to support themselves.
You can still earn approximately $90K per year overseas free of US income taxes ($180K if married). Your goal is to protect other assets from US taxes so that the only "income" that is required to be reported as taxable to the federal government is as small as possible and does not interfere with the benefits you have paid for ie Social Security and Medicare, note that you want to maximize the benefits that you are able to receive from the federal government, as it one way to receive a return on the investment after paying for these benefits.
The possibilities include development of an overseas blind trust, the starting of an overseas business, etc. All of these could be used to legally shelter assets from those that are unwilling to provide for themselves, a seemingly growing number under the current administration and the politicians that use the tax code to purchase their support.
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