OR, IF YOU'D RATHER, RETIRE ABROAD
(FORTUNE Magazine) – Most likely Frank Sinatra's "South of the Border" isn't the first tune that comes to mind when you think about retirement. But Mexico and a handful of other foreign havens have been attracting increasing numbers of U.S. retirees. It's not just romance; leaving the U.S. can be a way to double your retirement dollar. Pick the right country, and you may be able to trade up to a larger house, get a pool, hire servants--and guarantee visits from your kids.
Mexico is bargain numero uno. A newly retired couple can set up housekeeping for $1,500 a month--$500 each for living expenses and $500 to rent a house. Why rent? Retirement planning experts suggest you give yourself at least six months to decide whether a country agrees with you. If Mexico does, a nice house will cost you about $100,000. You may want to pay cash: Generally it's impossible to get a mortgage from a U.S. bank; interest rates on Mexican mortgages run as high as 80%.
A variety of locations appeal to retirees, from placid, colonial San Miguel de Allende to the rugged port town of La Paz on the lower Baja Peninsula. The greatest concentration of retirees is in the central state of Jalisco. Its Guadalajara/Lake Chapala region is home to about 15,000 American seniors, the largest such population outside the U.S. Guadalajara has modern hospitals, an international airport, shopping galore, and a climate to retire for, near 70û year-round; peaceful, exurban Lake Chapala puts you just 40 minutes outside town. Knowing Spanish helps, but you can get by without it: The area has three English-language newspapers and some 80 organizations for American expats, including bridge clubs, line dancing groups, and a culinary society. Lake Chapala attracted Bob and Maile Bowles from Danville, California, after he retired as an insurance broker in 1989. They built a four-bedroom house with a swimming pool, fish pond, and fountain for $170,000. Their living costs are about $18,000 a year, including flights home, a maid and a gardener, and membership in a country club. Says Bob Bowles, 68: "In the States, retiring with even a semblance of our previous lifestyle would have been impossible. Here we've actually improved on it."
America's northern NAFTA neighbor also offers retirement havens. The Okanagan Valley in British Columbia is what Peter Dickinson, editor of the Retirement Letter in Potomac, Maryland, calls "a real Shangri-la." Stretching from the Washington border north 100 miles to the town of Vernon, it spans lush countryside where peaches, plums, cherries, and apples grow in abundance. The region boasts Canada's longest golf season and 39 courses on which to enjoy it; the weather is temperate (27û in January and 68û in July, on average). A condo will run you about $65,000, a three-bedroom house about $115,000.
Before you migrate, be warned that Canada has a national tax burden that would turn Newt Gingrich's hair a shade whiter. The federal sales tax is 8%, with add-on provincial sales taxes as high as 12%. Expect also to pay income tax to both Canada and Uncle Sam. The U.S. has a treaty with Canada, as with many countries, to prevent double taxation. Result: You pay income tax to both governments, but you also get credits from each meant to offset the other's taxes. When the dust settles, you'll wind up paying Canada's higher rates, which can add ten percentage points or so to your tax bill.
The U.S. taxes its citizens no matter where they move. If you relinquish your citizenship (few retirees do), you still must pay as a nonresident alien on income from U.S. sources, including your pension. The U.S. also has laws to tax retirees who shift assets to the Cayman Islands or other tax havens. The bottom line: Retire abroad for cost-of-living advantages, and leave tax finagling to high rollers.
Want an adventurous retirement--to a tropical island, say? Remember that cost-of-living bargains in exotic locations can be negated by other factors. For a country to be a viable retirement spot, it needs a stable government, good health care, a friendly attitude toward Americans, and, unless you're going into self-imposed exile, relatively painless travel to and from the U.S.
COSTA RICA passes all the tests. It's a model democracy that abolished its military in 1948. Health care is good; Costa Rican doctors performed Central America's first kidney transplant, and people visit from around the world for inexpensive, high-quality plastic surgery. Nonstop flights lasting around five hours connect to such U.S. cities as Miami, Houston, and Los Angeles.
Yet Costa Rica is truly another world. This is, after all, the country in which Jurassic Park was set. Slightly smaller than West Virginia, it has a widely diverse climate that meteorologists break into 177 separate microclimates. Because beach living tends to be scorchingly hot, many retirees opt for communities like Escazu and Santa Ana on the mountain slopes above the capital city of San Josa. A nice house costs about $120,000; monthly living expenses run about $600 per person. Here, as in Mexico, it helps to know Spanish.
If there's any trouble in paradise, it is the cost of imported goods. A gratifying way to trim expenses is to take advantage of the bananas, mangoes, and squash that grow in nearly every yard, and to buy local goods. Advises Harry Cooper, 78, a festival director who retired to Costa Rica from Hawaii: "You can get the local-brand pancake mix or buy Aunt Jemima, which will cost three times as much." (More advice for newcomers: Avoid exotic-sounding investments such as macadamia nut farms, teak forests, and coconut plantations. Often they're scams.)
Many of Europe's famous retirement havens--Spain's Costa del Sol or the Algarve in Portugal--are priced out of reach. But if you don't mind a climate that's closer to Maine's than Morocco's, consider Ireland. Comfortable living can be found in the countryside, particularly in such western counties as Mayo, Sligo, and Galway, where a cottage costs about $90,000.
The hot list of foreign retirement havens changes with the rise and fall of governments and the boom and bust of currencies. The best bargains are often in emerging countries that have gained economic and political stability. Tip for the future: Keep an eye on Honduras and Uruguay.