There are various rules of thumb that help you determine how much you should save for retirement. One rule is “save at least eight times your ending salary” (done in increments; for example, you should have saved 1X your salary by age 35, 2X your salary by age 40, 3X by 45, etc. until you reach retirement age). Another is “aim to replace 70 to 80% of your pre-retirement income during retirement” (with Social Security, retirement-account savings and any other source of retirement income).
Although these guidelines make great starting points, it’s important to recognize that the amount of money you’ll need to save for retirement depends on many factors specific to you (and your spouse, if you're married), including your age at retirement, life expectancy, lifestyle, location, health and any plans you have for travel.
Of course, if you are one of the many Americans who hasn't saved enough for the type of retirement you planned – for whatever reason – you’ll have to make some changes. For example, you might delay your retirement a few years, or downsize to a more affordable home. Another option to consider – one that is growing in popularity – is retiring abroad to somewhere that will provide the quality of life you envision at a much lower cost of living.
How Cheap Is It?
Just how cheap is it to retire abroad? The answer depends on many of the same factors that apply to retiring at home – age, life expectancy, health, lifestyle, plans – and how adventurous you are.
If you are ready for adventure and willing to give up certain conveniences, you could live very well in a number of developing countries throughout the world. It’s possible to retire in Nha Trang, Vietnam, for example, for as little as $650 a month, including rent. You’ll find a welcoming community of expats and locals, beautiful beaches, comfortable weather and reasonable healthcare. But at 8,767 miles from New York City, a retirement destination like Nha Trang might be a little too adventurous for some.
See Retirement Abroad: 5 Unexpected Foreign Cities for more ideas. And when you're doing your research, check the latest figures in International Living's annual Global Retirement Index.
What It Costs: An Example
For the purpose of illustration, we’ll look at the costs of retiring in one popular Central American city. Panama City, Panama, situated at the Pacific entrance to the Panama Canal, is comparable to many a U.S. and European metropolis in terms of culture, atmosphere and conveniences.
Its skyline is predominantly high-rise, but the old quarter of the city (Casco Viejo) features traditional architectural styles, including well-preserved Spanish colonial buildings. A vibrant art scene with an impressive variety of art shows, dances, plays and festivals keeps retirees entertained.
Although certainly not the cheapest place to retire in Panama, retirees can live modestly for about $1,500 a month in Panama City, including rent, which might run about $1,000. Living comfortably could up the bill to around $2,000 a month.
Healthcare costs are considerably cheaper than comparable care in the U.S. What you spend, and the standard of care you receive, will vary depending on where you seek care. A major hospital in downtown Panama City, for example, provides facilities and services similar to what you’d find in any U.S.-based hospital, for about half the cost; smaller clinics offer a variety of services at about a quarter of the cost.
Panama’s Pensionado program gives retirees, including expats, access to wide-ranging discounts, which can help you save a lot of money on everything from entertainment (50% off) to medical expenses (10% to 20% off), restaurants (15% to 25% off) and utilities (25% off your power bill). Foreign pensionados also get a one-time duty-free import for household goods, and a tax exemption every two years when importing or purchasing a car.
Keep in mind, it’s possible to spend a lot less if you’re willing to move away from a big city like Panama City. Travel a few hours down the coast to the Azuero Peninsula and you’ll still be able to take advantage of the Pensionado program, but you’ll pay only about $600 a month to rent a house on the beach.
With direct flights from many U.S. cities, travel to and from Panama City is easy and affordable. (At the time of writing, for example, a nonstop, roundtrip flight between Atlanta and Panama City cost $345; travel time: 65 minutes).
Balance Cost and Comfort
Retiring abroad can save you lots of money on everything from housing to food and entertainment, but you shouldn’t (and, one hopes, won’t have to) move somewhere you hate just to save money. It will take some time and research, but it is possible to find a location that matches your needs in terms of both costs and comfort.
If you enjoy the serenity of white, sandy beaches, simple meals and a quiet lifestyle, for example, you might be right at home in a place like Nha Trang. But if your ideal retirement involves something a bit more urban – with shopping, museums, fine dining, and access to music, art and the theater – a cosmopolitan destination like Panama City might be a better bet. The trick is to spend the time to find a place you’ll enjoy, and that you can afford.
When budgeting, remember to factor in air travel to and from the good ol' USA. The cheapest flight (at the time of writing) between Atlanta and Nha Trang, for example, was listed at $1,616. If you and your partner fly home twice a year, that will add $6,464 to your annual bills, not including ground-transportation costs and hotels at either end. Travel expenses shouldn’t dissuade you from retiring in your dream destination, but they must be considered.
You’ll also need to include your one-time, upfront costs, such as relocating your household and moving you, your belongings and your pets to your new home. Depending on the destination, you might also have to factor in the price of a retirement visa. Some countries charge a considerable fee for this type of visa and/or require you to deposit a substantial amount of money in a local bank. To get a Temporary Retirement visa for New Zealand, for example, you’ll need to invest NZ $750,000 (almost U.S. $590,000) over the two-year term of the visa, which could be a deal breaker if cost is key.
Remember, You’re Not on Vacation
Even if you retire to an affordable spot, it’s easy to spend too much. One mistake that many new expats make is acting – and spending – like they’re on vacation. If you live like that every day, spending lavishly on restaurants, attractions and the like, you can quickly burn through your budget. See 5 Signs You're Spending Too Much In Retirement.
One way to prevent over-spending is to find out where the locals dine and shop for groceries, nightlife, entertainment, attractions, etc. Get to know the local vendors and farmers, and find out where you can buy things at the “local” rate instead of the “tourist” rate. This is a hugely important step in maintaining a low cost of living abroad. You probably already do this at home (without even thinking about it), and know where to find the best deals, and which places to avoid because they are overpriced. Do the same thing abroad and your money will last much longer.
The Bottom Line
In many cases, retiring abroad costs significantly less than retiring in place or even moving to a smaller house in the U.S. It won’t be the right choice for everything, but it provides an alternative for retirees looking for a change of scenery, new cultural experiences, access to affordable healthcare and a lower cost of living. See Retirement: U.S. Vs. Abroad.
It goes without saying that before retiring abroad, you need to do your homework. Rules and regulations vary by country, including visa and residency requirements. In addition, taxes for those retiring abroad can be quite complicated. Work with a qualified attorney and/or tax specialist when making plans and consider talking to a local attorney in your proposed new location as well.
Above all, invest in several trips to your new home before making the final move. Try to visit in different seasons and spend time in a variety of settings to see what would suit you best.