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Retiring abroad as a pensioner is truly living a second, more fulfilling life. It\u2019s like your do-over. And I think people need to approach it that way.<\/p>\n
After figuring out\u00a0my FIRE number<\/a>, I realized I\u2019m on track to retire by age 59.<\/p>\n If you haven\u2019t heard of FIRE, it stands for financial independence, retire early \u2014 a movement within the personal finance community that encourages frugal living with the goal of putting more funds toward investing. The more we invest, the faster we become work-optional or retirement-optional.<\/p>\n If I continue to contribute 20% of my income and\u00a0invest by way of index funds<\/a>\u00a0using a 401(k), Roth 401(k), and a\u00a0Roth IRA<\/a>, using a conservative 7% rate of return and having my retirement end-goal of $1.2M already\u00a0calculated<\/a>, age 59 is when I become work-optional.<\/p>\n But I want to retire even sooner than 59. And I can \u2014 without having to increase my investing contributions at all.<\/p>\n The secret is geo-arbitrage: moving somewhere with a lower cost of living to make my retirement dollars stretch further and reach financial independence sooner.<\/p>\n I have my sights set on Panama as my retirement destination. I was drawn to Panama for its large expatriate community, tropical climate, and first-world amenities. Dubbed \u201cthe hub of the Americas,\u201d the Panama Canal helped boost the country\u2019s economy. Panama is also outside the hurricane belt, and close enough to home with a major airport.<\/p>\n But it was Panama\u2019s low cost of living that I found the most attractive.<\/p>\n Applying this concept to my family\u2019s finances: moving to Panama means retiring five years sooner \u2014 reducing my retirement age from 59 to 54.\u00a0 Here\u2019s how I evaluated Panama as my future home, and how you can apply the same thinking to your financial future.<\/p>\n My first geo-arbitrage success was when I relocated from the expensive New York area to the Carolinas eight years ago to save on living costs. That move is one of the reasons I\u2019m now able to save 20% of my income for retirement. Before the move, I was saving 5%.<\/p>\n There is a lot to consider before making a geo-arbitrage move\u2014especially an expat move. With any relocation, there are\u00a0tax implications<\/a>\u00a0to consider, as well as distance from family and friends, and also potential language and cultural barriers.<\/p>\n But retiring abroad to any country with a lower cost of living can shave years off your timeline to financial independence.<\/p>\n Jim White<\/a>\u00a0left his IT management job at age 43 and moved his family from Ohio to Panama in 2019. \u201cI wanted to spend as much time with my family as I could and not at work. I realized I didn\u2019t have to be rich,\u201d White told me. \u201cI just had to make enough money to carry my expenses.\u201d White did this by saving an incredible 60% of his income. But even saving 60% over 10 years wasn\u2019t enough to retire at 43 in the U.S., said White. The cost of living is simply too high.<\/p>\n The Whites looked at cheaper places to live, and their research led them to Panama. \u201cIt\u2019s not the absolute cheapest place to live, but it is less expensive than America, with similarities to the U.S. that we liked, with a good healthcare system, and close enough to home,\u201d said White.<\/p>\n There were enough advantages that he was able to change his entire timeline. \u201cIf we didn\u2019t relocate to a cheaper place to live, we couldn\u2019t have retired when we did. I would have had to keep working longer,\u201d said White.<\/p>\n The fact is, you can live on less in other countries. \u201cThe true benefit [to retiring abroad] is a person\u2019s cost of living can decrease significantly depending on where they live,\u201d says\u00a0Mark Henry<\/a>, founder and owner of Alloy Wealth Management based in Charlotte, NC. \u201cDepending on the country, the value of the dollar will go further.\u201d<\/p>\n Moving to another city can be scary, let alone another country. The financials have to add up along with feeling comfortable with the big change. For me and my family, we combined our retirement goals and values to create these four things to help us evaluate our retirement destination.<\/p>\n Healthcare in America is expensive, especially for aging seniors living on a small retirement income. If making a geoarbitrage move, low-cost and quality health care is the first benchmark I looked at.<\/p>\n Currently, my South Carolina-based health insurance costs $581 a month for our family of three, and this is considered inexpensive and quality coverage by American standards. This equates to $6,972 per year. For many years I did not use the insurance. But it was important to have it just in case of hospitalization, which would result in major medical bills.<\/p>\n Many other countries\u2019 health care systems are easier to access, have less limitations, and are cheaper, says\u00a0Vanessa Menchaca-Wachtmeister,<\/a>\u00a0the creator of\u00a0Wander Onwards<\/a>, a finance and travel blog. \u201cI think it\u2019s really important for people to understand how health care works outside of America, because it truly is this simple,\u201d says Menchaca-Wachtmeister, who is originally from Los Angeles and has since\u00a0lived in the U.K., China, and Germany<\/a>. Residents of some other countries can afford to pay out of pocket; some non-U.S. health care insurance networks have no yearly caps, no deductibles, and no copays, she says.<\/p>\n The health care system is one of Panama\u2019s main attractions. There, health insurance isn\u2019t a must, according to expats who live there now, because medical costs are affordable. But it\u2019s still available if you expect to have high medical bills or expensive medical treatments.<\/p>\n Jackie Lange<\/a>, 66, is an expatriate from Texas who moved to Panama in 2010. Lange, a real estate investor, says the stable government, strong economy, lower cost of living, and spring-like weather attracted her and her husband to relocate to the Boquete mountains of Panama. They now own and operate a local business called\u00a0Panama Relocation Tours<\/a>\u00a0which provides transportation, lodging, and tour guide services for potential expat retirees visiting the country.<\/p>\n Lange was paying around $1,000 a month in premiums for health insurance while living in the U.S. After converting to Panama insurance, Lange\u2019s premium dropped to $102 a month ($1,224 a year). Through the Panama relocation tours, Lange learns of similar situations from other aspiring expat retirees.<\/p>\n Lange named two popular Panamanian insurance companies.\u00a0MAPFRE<\/a>\u00a0and\u00a0Family Medical Care<\/a>. Depending on age and coverage, you could pay anywhere from\u00a0$30-$180 a month<\/a>. No matter what type of plan you choose or what age bracket you fall into, your premium will always be cheaper than what is available in the U.S.<\/p>\n In Panama, many people opt out of buying insurance completely, says Lange. \u201cIf you go to one of the public clinics or the public hospitals, it\u2019s only $2 to see a doctor,\u201d she says, which might sound unbelievable to a U.S. resident. \u201cIf you need to see a specialist like a cardiologist or ophthalmologist, it\u2019s $5.\u201d<\/p>\n \u201cMy neighbor had a heart attack a couple of years ago,\u201d Lange recalls. \u201cHe was in the public hospital for 10 days, and after all the tests and the cardiologists, they put a stent in his heart. It was $895.\u201d For that type of care in America you would need to add a couple of zeros to that number, Lange says.<\/p>\n Geo-arbitrage doesn\u2019t work if you can\u2019t reduce your cost of living. That\u2019s why it\u2019s important to look at housing costs. Menchaca-Wachtmeister, for example, has a two-bedroom penthouse apartment in Germany with a 300-square-foot balcony. Including her food, transportation, and phone bill, she pays $1,500 a month.<\/p>\n Here are some U.S. statistics for comparison:<\/p>\n Housing is less costly in Panama. \u201cA couple can live comfortably on $2,000 per month in a $700 rental,\u201d says Lange.\u00a0 As a real estate investor, Lange provides a few housing scenarios to help illustrate how much home you can get:<\/p>\n Rental examples provided by Lange:<\/p>\n Rental example provided by White:<\/p>\n Home purchase examples, provided by Lange:<\/p>\n Under current Panama government guidelines, If you purchase a home under $120,000 you are\u00a0property tax-free<\/a>. For houses valued at $120,000 to $750,000, property taxes cost 0.5%% of the value of the home at the time of purchase. For example, a home purchased now in Panama for $180,000 at an\u00a0estimated tax rate of 0.5%<\/a>\u00a0will cost $900 a year.<\/p>\n While this expense is not in my budget today, I\u2019m trying to prepare for the future \u2014 and the fact is that as we age, we will eventually need help, whether that is provided by a family member, care facility, or in-home care. Elder care is very expensive in the U.S. and can drain a retirement fund fast.<\/p>\n According to a 2016 report from the\u00a0National Association of Insurance Commissioners<\/a>\u00a0(NAIC), roughly 15.2% of aging persons 65 and over will spend more than $250,000 on long-term American care. My nest egg breaks a little when I read that number.<\/p>\n When I calculated my FIRE number, I did not account for this giant cost possibility. I prefer not to put the burden on family members to take care of me and pay for home care costs myself. And you guessed it: in-home senior care is affordable in Panama. Paying less for it can help protect my retirement assets.<\/p>\n Based on Lange\u2019s experience networking with retired seniors, she was able to give an approximate estimate of elder care costs in Panama:<\/p>\n Assisted living or nursing homes aren\u2019t as popular in Panama, but they do exist, according to Lange. Home health care is more common. \u201cYou can have a registered nurse come in during the day once in a while, or every day. You can also have live-in help,\u201d says Lange. \u201cThat includes cooking, cleaning, medications, assistance with bathing or other needs, shopping, etc.,\u201d says Lange.<\/p>\n Comparing this to the U.S. on a monthly basis, the national average costs for long-term elder care in the U.S., according to 2016 data from the\u00a0Administration for Community Living<\/a>:<\/p>\n Lastly, I judge where to live based on how much I perceive the receiving country wants me there. One way to do this is by taking a look at their visa programs. And by the look of it, Panama really wants retirees to move there.<\/p>\n Menchaca Wachtmeister cited Panama as one of her\u00a0top six easy countries to move to<\/a>\u00a0because of its Visa program. Inversely, Australia is known to have more restrictive visas with age requirements. \u201cThey [Australia] want to persuade younger people to come and pay into the system and dissuade older people,\u201d says Menchaca-Wachtmeister.<\/p>\n To get residency status with this visa, the applicant must prove they have a minimum income or a pension of $1,000 a month, and $250 per month for each dependent or spouse, according to the\u00a0Panama embassy website<\/a>.\u00a0 For senior couples that rely on fixed income, like Social Security, $1,250 per month is the requirement for this visa. According to the AARP, the average\u00a0estimated Social Security retirement benefit<\/a>\u00a0in 2021 is $1,543 a month. \u201cYou can actually live here on that, that\u2019s what\u2019s even more amazing,\u201d says Lange.<\/p>\n Panama\u2019s Visa Pensionado program is specifically marketed to entice seniors with retirement income to move to and spend their retirement dollars in Panama. Women over 55 and men over 60 who have the visa are eligible for the\u00a0following perks and discounts<\/a>:<\/p>\n When doing your expat research, make sure to check your destination country\u2019s embassy website for the accessibility of its Visa programs. I recommend comparing a few before making any big decisions.<\/p>\n Feliz Retiro<\/em>\u00a0\u2014\u00a0<\/em>or\u00a0\u201c<\/em>happy retirement\u201d in Spanish, the primary language spoken in Panama \u2014 is my ultimate goal. One way I found I can achieve this goal is through downsizing my cost of living. And it wasn\u2019t until I visited a few other countries, talked to locals and other U.S. expats, and read up on the subject that I realized the grass may actually be greener on the other side.<\/p>\n \u201cRetiring abroad as a pensioner is truly living a second more fulfilling life. It\u2019s like your do-over. And I think people need to approach it that way,\u201d says Menchaca-Wachtmeister.<\/p>\n \u201cA lot of people are concerned that they\u2019ll leave the country and miss out on life or relationships in the United States. And I don\u2019t think people realize how much of a beacon you are for people to come visit and to come explore,\u201d says Menchaca-Wachtmeister.<\/p>\n I have a lot to be thankful for as a privileged American. Investing in the American stock market is what\u2019s giving me the ability to even consider retiring early. But at age 54 (or sooner) you know where to find me.<\/p>\n If you haven\u2019t started your retirement plans yet, it\u2019s\u00a0<\/em>never too late<\/em><\/a>. To learn more about retiring and investing, visit\u00a0<\/em>NextAdvisor\u2019s library of resources.<\/em><\/a><\/p>\n Get Vaccinated and stay safe!!<\/p>\n\n <\/p> \n
A Winning Strategy: Geo-arbitrage<\/h2>\n
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How to Find the Best Place to Retire Outside the U.S.<\/h2>\n
1. Low-Cost, But High-Quality Health Care<\/h3>\n
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2. First-World Housing Amenities, for Less<\/h3>\n
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Property taxes:<\/h4>\n
3. Long-Term Elder Care<\/h3>\n
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4. Accessible Visa<\/h3>\n
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Feliz Retiro<\/h2>\n
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