Is Offshore Retirement Still a Good Idea?

For many years folks who benefitted from the huge inflationary surge in the USA have taken their money out of the USA, bought property, and lived in retirement where the cost of living has been significantly less than in the USA. The monetary and social factors that always seemed to make this a good idea have changed over the years. Is offshore retirement still a good idea as we go into the second quarter of the millennium?

Reasons for Offshore Retirement

There are several good reasons why many folks have chosen to retire out of the USA over the years. These include lower cost of living, lower taxes, a better climate, a freer lifestyle, more affordable health care, ease of travel from your new home, and a social and political climate more to your liking. Each of these factors can be broken down into subfactors. For example, the cost of living in a country has to do with its own economy, the rate of exchange between their currency and the US dollar as well as inflation within that economy.

Panama City Panama Cinta Costera

Exchange Rates and the Cost of Living Offshore

The cost of living for an expat will be affected by the rate of exchange between the nation’s currency and the US dollar if the retirement country does not have a currency pegged to the US dollar. For example Panama, Costa Rica and Colombia are side by side in Latin America. The Panamanian Balboa is pegged one to one to the US dollar while the Costa Rican colon and Colombian peso both float up and down versus the dollar in the Forex market. Exchange rates change with the strength of the economies of the respective countries as well as when the central banks of the countries in question change their interest rates. We wrote recently about being careful of the Colombian peso carry trade for currency traders. The arguments we made in the article could equally be applied to retirees in Cartagena, Bogota or less “retired-to” cities like Manizales in Colombian coffee country. Just two years ago every $1,000 that you transferred into pesos to use in Colombian gave you more than four million pesos. Today it is closer to three million. That is a twenty-five percent loss in pesos at a time when inflation in Colombia has run from five to six percent further reducing your real purchasing power. By comparison, Panama has seen virtually no inflation for several years as well as having a currency pegged to the US dollar. However it still costs about a third less to live in Colombia versus Panama although the advantage is being eating away with Colombian inflation and currency rate changes. Inflation in Costa Rica has been negligible over the last three years and the exchange rate has made the dollar a quarter less valuable versus the Colon over the last five years.

Finding English Speakers Offshore

Ideally a retiree will choose to learn the language of the nation where they will retire or already speak it. Some nations, like Panama due to the long US presence, have lots of English speakers including families of former US military personnel. This is not the case with nations like Costa Rica or Colombia with exception of North American retirees who already live there. Beside the issue of being isolated socially if you don’t speak the language it can make life more expense living offshore if you are continually reliant on paying someone to do your business for you which should be a consideration when choosing an offshore retirement location.

Can You Invest and Do Business in Your Offshore Retirement Location?

Assuming you are fluent in the local language you will still find it hard to do business when you are commonly seen as a foreigner or interloper. The most successful kinds of offshore business include buying property and renting it out with the help of a local rental agent. As a rule if you want to be retired in an offshore location you will want to enjoy your retirement and not worry about losing your retirement capital in risky business schemes.

What to Do When Political or Social Risks Emerge in Your New Home

Just looking at our three Latin American retirement destinations, Costa Rica and Panama have been politically and socially stable for decades. However, Colombia has experienced decades of civil war only improved with a peace treaty ten years ago. However, there are rebel groups still operating in remote areas of Colombia, funding their operations with cocaine and marijuana sales. These groups have tended to enforce cooperation in areas under their control by violent means. Thus anyone who wants to retire to Colombia will do well to pick larger and safe cities such as Cartagena, Bucaramanga, or Santa Marta along the Caribbean or quiet cities like Manizales in the interior. A new factor in the mix for Colombia is the election of a far right president with great ambitions including building ten mega prisons to house drug selling guerillas whom he intends to arrest. This could well lead to a war similar to the Pablo Escobar era which resulted in thousands of death, billions of dollars in infrastructure damage, collapse of foreign investment in Colombia and a generally unsafe situation for foreigners retired in Colombia. This is a situation that one will be let play out a bit before choosing Colombia as a retirement destination. Aside from the threat to one’s health and safety, unrest in Colombia or in any retirement destination could result in one having to leave and being unable to sell now-devalued property and taking substantial losses. Useful news sources for keeping up on news from this part of the world include CNN Español, El Jazeera in English, and the BBC much more so than US news sources.

Economical Retirement Destinations in the USA

If offshore retirement issues make such a choice unpalatable you may simply wish to look for an inexpensive place to retire within the USA. Money Talks News has a useful list of possible retirement destinations for folks on a budget. The list includes Chattanooga, Tennessee, Fayetteville, North Carolina, Augusta, Georgia, Dover, Delaware, Huntsville, Alabama, Birmingham, Alabama, Columbia, South Carolina, Fort Smith, Arkansas, Memphis, Tennessee, Huntington, West Virginia, Mobile, Alabama, Cheyenne, Wyoming, Knoxville, Tennessee, Casper, Wyoming, and, first place, Montgomery, Alabama. Foreign exchange rates and finding English speakers will not be an issue if you go this route but you will still want to look into good and affordable health, the local culture, and taxation. Good luck with your search!

Practical Offshore on Onshore Retirement Location Advice

Years ago a Panama English language news source on the Pacific coast published a pole of American retirees. One finding pertinent to anyone thinking of retiring offshore was that folks who rented and lived in the country for a year before choosing where to live and buying a home were universally happier than folks who moved to the country and immediately purchased a home, especially in gated and isolated retirement communities.