We recently reviewed a brand new Forbes listing of the Top Foreign Retirement Havens.
We went through each trying to decide what the editors of Forbes saw in each country and where retirees relocating to these locals might find savings.
If you recall, the top destinations on their list were really more expensive except for the cost of rent. However, two popular retirement locations, Panama and Thailand, were lower across the board from food to meals and entertainment and rent.
So in this post, I would like to walk you through why it might make sense for a U.S. retiree to consider retirement in a place like Panama.
Why Panama?
If you recall Forbes states Panama “welcomes retirees with its pensionado program — discounts on everything from utility bills and transportation, to restaurants and movies. Plus, you don’t need to worry about currency risks, since they use the U.S. dollar. If you hate humidity, don’t settle in Panama City (this is Costa Viejo, the historic part of the city), but visit when you need low-cost, quality medical care; Punta Pacifica hospital there is affiliated with Johns Hopkins.”
Likewise Numbeo.com lists CPI at just 40.99 vs. a 100 score for the U.S. It also notes a rent index of just 25.87 and a grocery index of 63.33. Finally, a restaurant index of 36.79.
We also noted that Lonely Planet’s forum, stated that Panama had a very liberal retirement visa program which was specifically laid out on their embassy site.
The Retirees
So let’s assume we have a husband and wife, Gus and Dorthy Stratton. They are both already newly retired and living in the U.S.
Both are drawing the average social security payout of $1,200 per month.
The couple has already sold their home and is living off the dividends and interest from that portfolio ($500,000), which is roughly 2.5% per annum.
The couple hope to preserve principle for emergencies and to leave a legacy to their children.
The Income Equation
So as we stated above, both Gus and Dorthy are receiving a social security pension from the U.S. government of about $14,400 per year. This will not change whether they live in the U.S. or not. They also receive dividends and interest of about $12,500 per year. Since Panama uses the U.S. dollar as its functional currency, there are no currency or exchange gains or losses. The Strattons would thus have the following income.
The Expense Side – The Reason For Considering This Move
Now here is where the rubber meets the road. The expenses below are actual expenses (rounded) from one of my retired clients.
What I want you to notice is that this couple is underwater annually living here in the U.S. with their current cost structure. This means they are drawing this annual overage from savings and therefore jeopardizing their future income stream.
In many cases couples go back to work (see Retirement: A Sad Story of Common Pitfalls) to make up this difference.
So let’s take a look at these expenses adjusted for the Numbeo.com price indexes above for rent, food, and groceries.
Obviously, the first thing you can note is the deficit in income vs. spending disappears. We move from a $11,000 annual deficit to a $5,000 annual surplus. Note also I included an extra $2,000 in travel costs on the Panama side of the ledger for travel to the U.S. to visit family.
The costs of rent, food and meals and entertainment are just so much lower in Panama that the retiree can effectively make up for being under prepared for retirement.
So what are your thoughts? Have you ever considered such a move? Tell us your stories.
