Retiring Abroad - Why Not?
In the early decades of the century past, my grandfather’s grandfather journeyed to the shores of a distant land called Florida to live out the rest of a life spent on Midwestern prairies. It was territory foreign, exciting and exotic back then.
Today Florida just isn’t as exotic or appealing, and more and more Americans are opting to spend those retirement years abroad. While the head count might be as accurate as the census of angels who could occupy the head of a pin, the U.S. State Department estimates that nearly four million Americans, exclusive of military and embassy personnel, go about their daily lives in foreign countries. Canada, Mexico, Belize, and Costa Rica are among the favorite retirement postings, but Ireland is gaining in popularity.
REASONS FOR LEAVING THE HOMELAND
Something more than the idea of swaying palms and balmy mid-January breezes impels that run for the border. Some go to revive memories of favorite vacation venues. Some restore family ties and search out ancestral roots. Others may have enjoyed school, military, or work assignments abroad, and still others may have pined away for the days of the Peace Corps.
The sentimental idea of an easier, simpler life, coupled with romantic notions of expatriate life, sends forth a powerful siren call. And some simply find new challenges in the adventure of discovering and flourishing in a culture not their own. Some American lawyers find the prospect of retiring a daunting proposition unless they relocate to an area far from home, just because they can’t resist the lure of the practice.
The temptation to practice just a little bit of law fades in the light of life abroad, but packing up and moving to any foreign country requires far more planning and effort than heading for the golf courses of Florida or the Arizona desert.
NEW REFERENCE POINTS
Life for a retiree abroad can spell anything from fulfilled dreams of social success and enhanced quality of life to head-in-the-hands baffling frustration and shattered dreams. The refrain of "Something tells me we’re not in Kansas anymore, Toto" rings in every expatriate’s mind more than a few times. There are days when adjustment to a new culture far away from the shores of the American homeland can make the lousiest day any lawyer ever faced in the practice seem like a day at the beach.
American lawyers usually know the names of their state supreme court justices, but Americans who live abroad almost always know the name of the American ambassador to their adopted country as well as the consul in their area. Lawyers who retire somewhere in the United States generally are treated as just another retired lawyer, but lawyers who retire abroad may find themselves treated with more respect. At least they’re a unique property!
A MATTER OF DOLLARS AND SENSE
What exactly inspires most Americans to leave their country for a foreign land? The reasons aren’t much different than those that sent some of our ancestors from the Old Country in search of a better life. Most often, it’s the cost of living. There’s a perception that the cost of living in some foreign countries is less than remaining at home, but life on the cheap carries a hefty price tag. Issues that stateside practitioners seldom think about very much - immigration, government benefits, taxes, work permits, and negotiating the shoals of foreign bureaucracy - take on new hues of importance. It’s an opportunity for American lawyers to face the very challenges confronted by earlier waves of immigrants.
A number of retirees do live abroad as perpetual tourists, renewing tourist visas and stepping out of the country for as much as five minutes when those visas expire, but most seek some kind of more secure immigration status. Certain countries do offer retirees substantial incentives. Belize, for instance, offers any American citizen over the age of 45 years who can demonstrate a monthly pension of more than $1,000 residency and tax-free importation of the retiree’s household goods, car, boat, and airplane. Mexico offers retirees a similar deal, without regard to age, halving the monthly income requirement for those who own their own homes.
SOCIAL SECURITY ABROAD
Social Security retirement benefits remain payable to expatriates who live any place except Cuba, Cambodia, North Korea, Vietnam, and certain parts of the former Soviet Union. (By the time this article goes to press, it’s not unreasonable to assume that additional countries may be added to the prohibited list.) Almost 400,000 Social Security checks are mailed to beneficiaries living outside of the United States each month, and many more are directly deposited to expatriate recipients’ U.S. bank accounts. Recipients living in Argentina, Australia, Canada, France, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, and the United Kingdom and a generous handful of other countries can receive Social Security benefits from an international direct deposit service. More details about receipt of Social Security benefits abroad can be found at www.ssa.gov/international/your_ss.html.
The sun may never set on the community of Social Security retirement beneficiaries around the planet, but Medicare respects national boundaries that render it useless outside of the United States. And that means that retirees abroad aren’t covered unless they return to American shores. 42 U.S.C. §1395y((a)(4). Retirees face three options: buying private insurance individually or through a group, paying into a government-sponsored system in their country of residence, or simply doing without.
Those who opt out of the automatic Medicare enrollment to save that monthly premium deducted from their retirement benefits can only re-enter Medicare during an annual window. 42 U.S.C. §1395p. On the other hand, health care options can vary widely overseas. Prescription drugs are frequently available over-the-counter and less expensive.
State-run health plans can mirror HMOs or provide choice of care providers. Medical expenses in some countries can be within the reach of retirees without the need for third-party reimbursement. And in some areas, physicians even make house calls. There are a number of private health insurance plans such as AllNation Insurance Company (which used to be a part of Blue Cross Blue Shield of Delaware: see www.allnation.com) that provide coverage anywhere in the world, and there are private health insurance plans that limit coverage to a single country. Finding the right solution depends on an expatriate’s country, state of health, risk level, and flexibility.
MASTERING MONEY, MAIL AND MATTERS OF EVERYDAY LIFE
Transferring greenbacks to a foreign country presents new challenges for many. The ubiquity of ATMs makes funds accessible, but sooner or later every expatriate faces the need to open a bank account in a foreign country.
Some banks have correspondent institutions abroad, which can simplify the process. The finer points of wire transfers, letters of credit, and currency exchange rates become topics of everyday conversation. Banking exercises that were within the ability of the average seventh-grader in the states can tax even the most seasoned lawyers abroad at first. Simply waiting for a dollar deposit to be credited to foreign bank account can take weeks.
Even old reliable standbys like the postal service take on new meanings, where foreign mail service is no longer as dependable as the friendly mailman decked out in the familiar red, white, and blue. Mail from the States may arrive irregularly, late, or sometimes not at all. Expatriates learn to use mail forwarding services, couriers, and patience.
The Internet solves many of the problems and prevents delays faced by earlier generations of anxious Americans living abroad. Email, online banking, and Internet news becomes even more of a lifeline, cutting drastically expensive long distance charges and bringing America to its citizens abroad at lightning speed - provided online connections are available.
Retirees abroad retain their right to vote in national elections, and those maintaining residency in one of the 50 states are also eligible to vote in local elections. Most absentee ballots are delivered by the postal service, but online registration is available in some places. Internet voting can’t be far behind.
Taxes can become a major challenge to the unwary. Moving away won’t eliminate that obligation to the Internal Revenue Service, which demands reporting on worldwide income. Money earned in a foreign country is excluded to the tune of $80,000 per year, beginning in 2002, and a foreign tax credit gives taxpayers a break for foreign income tax, but income earned from U.S. sources remains within the grasp of the taxman. One consoling factor is an automatic extension of two months for foreign residents to file those returns. Compounding the complexities of the U.S. tax system are the vagaries of a foreign tax system that also may extract its due.
Picking up some extra cash by working abroad isn’t always an option. The terms of nearly every immigration status, at least at the early stages, prohibit engaging in remunerative activity without authorization to work. And that means qualifying for that permit and getting the go-ahead from immigration.
The retired lawyer abroad may have fewer job skills to legitimately offer than the Filipino doctor or Indian engineer seeking a job in the U.S. Even if permission to work is granted, the retiree may well find that the pay scale is substantially lower. It’s far more realistic to contemplate living on money from home, at least for the first few years, than to expect to supplement retirement income by working abroad.
Deciding where to land can be a no-brainer, or it can require a great deal of research, including weighing the pros and cons of a venue change. There are those who make a decision in a split second and remain satisfied ever after, and there are those who spend far more time deciding on a retirement country than they ever did in selecting a spouse.
Climate can be a convincing factor, but a life on the beach isn’t always a day at the beach. One person’s Paris can be another’s Peoria. Quaint and charming villages can become old and archaic before long. Is easy transportation important? Do you need to get back to the United States within a day’s time to tend to business, visit grandchildren or ailing parents, or to obtain stateside medical care?
How frequently will you need that "U.S.A. fix?" It’s easy to discount an accessible community of English-speakers, but fellow travelers are indispensable, at least in the early years of adjusting to a foreign lifestyle.
Dennis Murphy left a partnership in a major Midwest law firm to pursue his lifelong love of France, buying a stone house in a southwest village of six hundred souls. Now he divides his time between a home in Ft. Collins, Colorado, and teaching international commercial transactions at Ecole Superieure de Commerce Bordeaux in France. Gary Kinser left an estate planning practice that focused on gay clients a year ago for Leon, Mexico, where he teaches English part-time and occasionally does legal work for a local law firm. He and his partner budget about $2,000 per month for their living expenses.
Stephen Thompson practiced international business and immigration law in Atlanta before boat-building and disenchantment with traditional law practice led him to Belize, where he developed a clientele in search of advice for offshore investments.
Each of these lawyers landed abroad with a plan, bought homes in their adopted countries before making that final leap, and are satisfied with their decisions to leave old lifestyles behind in search of new approaches and new adventures. Even though each is more or less "retired" from the old practice of law, all left long before becoming eligible for the AARP card. None of these fellows would regard themselves as "retired"; they have simply transitioned to new lifestyles in foreign countries.
Timing, research, and perseverance led these lawyers to new lives abroad that they regard as good decisions. None of them would return to their prior lives. As Kinser put it, "This has brought my brain back to life."
How were these lawyers able to succeed in foreign territory? In e-mail interviews, each indicated the need to develop interests outside the practice of law. Recommending relentless downscaling - driving an old car, foregoing the trophy home, and living seriously on a budget - Murphy stressed the need to develop confidence "to step away from the comfort zone of clients, partners, and professional self-image." Buying real estate abroad bodes new adventure for even the most seasoned American real estate practitioner.
While the real estate dollar may go farther in some countries, there are added costs in fees and processes that simply don’t arise in the U.S., which may hike up the real cost of that quaint village cottage or palace by the sea. The upside is that property taxes may likely be substantially lower.
Now what about the reduced cost of living? That $64,000 question hinges on location. Living costs are naturally going to be very high in places like Japan and Switzerland, and even Costa Rica has become the most expensive Latin American country for retirees. In other countries, food, medical expenses, and household help are usually less expensive abroad, but savings can be offset by the price of hard goods.
Count on paying much more for a new car, three times as much for an ordinary computer keyboard, and a very hefty sum for a New York Times bestseller in English. But then the cost of season tickets to the local symphony can be a genuine bargain.
MEXICO: NO LONGER A DISTANT NEIGHBOR
More than 600,000 Americans call Mexico home. Some work there, some raise families there, and there are some who no one would ever guess are American citizens.
Most retirees opt for Guadalajara, Lake Chapala some thirty miles south, San Miguel de Allende, or Cuernavaca, but there are small American colonies just about everywhere. 'Gringos' (an informal nonpejorative term applied to those speaking what must sound like Greek to Spanish-speakers) have long been part of Mexican culture.
Immediately after World War II, many rediscovered Mexico as a relaxing and economical place to study on the GI Bill. Mexico’s appeal remains strong through its close ties and easy proximity to its northern neighbor.
Mexico grants Americans annually renewable residency permits upon a showing of monthly income of about $1,500. Half that figure again is required for each dependent, but the total amount is reduced by 50 percent for those who own homes. Along with the residency permit comes a one-time opportunity to import household goods and personal effects duty-free and the right to import a U.S.-plated automobile during the tenure of the permit. Another higher level of residency permit requires a monthly income of almost $2,000, leading to permanent residency status.
Work permits are somewhat harder to obtain than a retiree residency permit, requiring a showing that the work cannot be performed by a Mexican national, that the work is in the interest of Mexico, or that the applicant make a financial investment in a business. Still, even those teaching English for $5 an hour are able to obtain those permits.
The Mexican national health care system, IMSS, www.imss.gob.mx/, is available to any foreigner regardless of immigration status, for an annual fee of about $390. While it’s definitely an HMO arrangement, many opt for IMSS coverage for major medical coverage while paying out-of-pocket for routine expenses. Private medical care remains another option, and there are a number of insurance plans that provide for Mexico-only or full international coverage.
Commerce Bank of California ( www.ccbusa.com) and Banamex ( www.banamex.com) have a cooperative relationship permitting easy transfer of dollars to pesos from one account to another. The Lloyd Group www.lloyd.com.mx/en/ is not a bank, but it does offer financial services in offices located throughout the country and is a favorite of American retirees.
The Mexican Constitution forbids foreign ownership of real property within 100 kilometers of its border and 50 kilometers of its coasts, but establishing a bank trust (fideicomiso) creates an easy workaround. In all areas except those forbidden zones, there is no restriction against foreign ownership.
After permanent residency is established - the Mexican equivalent of a green card - foreigners can enjoy all rights of a Mexican national except the right to hold political office, vote, operate a brothel, and a handful of other rights that seldom interest most retirees anyway. At that point, the right to import an American-plated vehicle ends as well.
Mexico Connect www.mexconnect.com and its web forums are one of the leading gathering points for expatriates and those contemplating lives south of the Rio Grande.
A maid for $5 a day, and a gardener for $10 a day? Where else but Mexico?
A version of this article originally appeared in the Winter 2002 issue of Experience,
a magazine, published by the American Bar Association Senior Lawyers Division.