Millions of people retire overseas in search of a better climate, new experiences, access to affordable healthcare and a lower cost of living. While many established expatriate communities are halfway around the world (think: Thailand and Vietnam), one destination is a short two-and-a-half-hour flight from Miami or just four hours from New York City (NYC): Puerto Rico.
This U.S. territory in the northeastern Caribbean is an archipelago known for its stunning scenery, beautiful beaches and enviable climate – not to mention a wide variety of rums, as well as locally grown and roasted specialty coffees. Here’s a quick peak at how long $200,000 in savings will last in Puerto Rico, plus what the country’s current economic troubles might mean for would-be retirees.
Cost of Living
City and country database website www.numbeo.com maintains several indices that compare costs in various cities around the world, relative to the same costs in NYC. One of these indices is the Consumer Price Excluding Rent Index (CPI), which is a relative indicator of the prices of consumer goods, including groceries, restaurants, transportation and utilities. The CPI for Puerto Rico is 68.43, which means the cost of consumer goods in Puerto Rico is about 68% of their cost in NYC.
Another index, the Consumer Price Plus Rent Index, compares the costs of consumer goods plus rent for a particular city (again, relative to NYC). For Puerto Rico, this index value is 43.06, so overall costs of living are about 43% of the costs in NYC. Knowing that NYC is notoriously expensive, how do costs compare to the U.S. in general? Consumer prices including rent are 21.43% higher in the U.S. than Puerto Rico, and rent costs, on average, are 78.47% higher in the U.S. than Puerto Rico.
Like anywhere else, what you pay in rent in Puerto Rico depends on the property’s location, size and features. The average monthly rent for a one-bedroom apartment in a city center is $590, according to numbeo.com; outside a city center, the rent drops to an average of $477 per month. For three-bedroom apartments, the average monthly rent is $984 within a city and $768 elsewhere.
There are no restrictions on foreign ownership of property and, depending on your situation, it might make financial sense to buy a home rather than rent. According to numbeo.com, the average cost per square foot to buy in a city center is $142; outside a city, you’re looking at an average of $124 per square foot, or about $124,000 for a 1,000 square foot condo. (Note that Numbeo updates its data regularly and these numbers may vary somewhat from the numbers.)
Budget Estimates and Your $200,000
The cost of living in Puerto Rico has increased over the year and is high compared to many popular retirement destinations abroad, such as Belize, Ecuador, Nicaragua, Vietnam, the Philippines and Thailand.(Click on highlighted countries for details on retiring there.) Although some things are cheaper – such as property taxes – other costs, such as utilities, are much higher than in the U.S. That said, while you wouldn’t necessarily move to Puerto Rico to find a lower cost of living and save money, it is possible to live on about 80% of what you spend back home. So, if your budget back home is $2,000 a month for the basics – rent, food, utilities and transportation – you might be looking at about $1,600 a month in Puerto Rico (provided you stay away from expensive areas, such as San Juan).
If your at-home monthly budget is $4,000, it might be closer to $3,200 a month in Puerto Rico. Of course, if you live in an expensive city in the U.S. (e.g., NYC), your costs in Puerto Rico may end up being less than 80% of what you’re used to spending. Conversely, if you currently live in a relatively inexpensive corner of the U.S., your budget in Puerto Rico could be close to what you’re already spending. No matter where you are – in the U.S. or abroad – what you spend each month depends on your particular lifestyle, preferences and spending habits.
So how long will your $200,000 savings last? If you’re frugal and your budget is on the lower end – say, $1,600 per month – your savings might last about 10 years ($200,000 ÷ $1,600 = 125 months, or 10.41 years). Keep in mind, this is an overly simplified example that assumes your monthly expenses stay the same over the years, and that you have no other money coming in or going out.
Beyond Your Savings
Odds are, you’ll have more than just your savings in retirement. Even without a pension, 401(k) or individual retirement account (IRA), you’ll likely have monthly Social Security benefits throughout your retirement years. Nine out of 10 people who are over age 65 receive these benefits, which represents about 38% of their income. For 2015, the average retired worker’s Social Security benefit is $1,328 per month, which could cover a good chunk of a monthly budget in Puerto Rico.
The Current Economic Outlook
If you’re considering retiring to Puerto Rico, it’s also important to take into consideration its economic travails. Three factors, in particular, are weakening the Puerto Rican economy, according to an independent report commissioned by the Government Development Bank (GDB). These are:
• An “unpayable” debt. Standing at $73 billion, Puerto Rico’s debt is higher than that of most U.S. states. Because it’s not a state, Puerto Rico is prohibited from using bankruptcy to help restructure its debt. Four U.S. senators have introduced a bill into Congress that would allow Puerto Rico’s public entities to file for bankruptcy under federal laws.
• Economic hardships. The country’s economy has been struggling for nearly a decade. In 2006, federal tax breaks for U.S. manufacturing firms doing business in Puerto Rico were eliminated, causing many major businesses on the island to leave. As a U.S. territory, Puerto Rico was also heavily affected by the recession of 2008.
• A declining population. The 2008 recession stimulated migration to the U.S., and Puerto Rico’s population has started dropping as a result. Estimates show that the population will continue to fall by 1% a year.
The Bottom Line
The GDB report notes that the country struggles with high unemployment, high poverty rates, decreased competitiveness and decreased tourism numbers. What does all this mean for would-be retirees heading to Puerto Rico? Like any country dealing with serious economic trouble, Puerto Rico faces an uncertain future. For now, sitting on the sidelines while the government attempts to restructure its debt might be the best bet. Retirees ready to give it a go despite the economic uncertainty can always plan their retirement move on a short-term or “trial” basis.
For more on whether or not you should retire abroad, see Things to Consider Before Retiring Abroad and What Does Retirement Abroad Cost? You may also want to see The World's Lowest Cost of Living for Retirement.