The Compass Report

8 Tips for an Affordable Retirement Abroad

Living on $18,000 to $25,000 a year? It's possible

Most Americans don’t have a big enough nest egg to permanently become expatriates in Paris or kick back with a daily glass of Chianti in Tuscany. But surprisingly, your current 401(k) balance could be more than enough to retire in a lost-cost country with a favorable exchange rate.

Many foreign cities boast consistently beautiful weather and allow you to stretch your dollars further than would ever be possible in the United States. “In Nicaragua or Ecuador, you can live on somewhere between $18,000 and $25,000 a year,” says Barry Golson, author of Retirement Without Borders: How to Retire Abroad—in Mexico, France, Italy, Spain, Costa Rica, Panama, and Other Sunny, Foreign Places (And the Secret to Making It Happen Without Stress). But lifestyle is a key factor, he says: “That’s probably [on] tacos, not steak.” On the other hand, some countries that seem affordable require at least a little more than Social Security payments to get by. “If you’re going to go to Costa Rica or Panama, you’re not going to be happy with much less than $30,000 a year,” says Golson. Still, it's essential to look beyond cost when it comes to choosing a retirement

destination. Here’s how to decide if retirement in a low-cost country is right for you:

Take a test drive. Spending a week or two at a resort and driving through town is a much different experience than taking up permanent residence in a low-cost locale. Before making any major purchases, rent and spend a few months in the country. Rosanne Knorr, author of The Grown-up's Guide to Running Away From Home: Making a New Life Abroad, worked as a dog sitter for a month at a 5,500 square-foot house filled with antiques in Ajijic, Mexico, in exchange for living accommodations

. “Go to the local markets and shop and get involved with the local people,” she says. “You can imagine yourself living there, and I think it increases you comfort level if you actually move.” An extended stay also allows you to get the inside scoop on housing options, medical care, and social atmosphere. Before you buy property, make sure you get all documents translated to English and have a lawyer look them over.

Practice your foreign accent. It's no surprise that some retirees gravitate to foreign countries with large English-speaking communities. “I recommend that anyone who wants to go to a foreign county makes sure they go to place where there's a big English-speaking enclave, so [there is] a support group,” says John Howells, author of Choose Costa Rica for Retirement and other retirement books. “You will be so lonely if you go to a place with only natives around with a different world view.” Still, your experience will likely be more enriching if you at least attempt to speak the same language as the locals. Clyde Dietz, 59, of Ocean Shores, Wash., purchased land in Panama and plans to retire there in 2010 with his wife, Dana. “I think this challenge of moving to Panama and learning a new language and a new culture will keep us young," he says.

Streamline your standard of living. Some Americans will find that they can afford luxuries in other countries that they couldn't in the United States. Says Howells, who lives in California and has a vacation home in Costa Rica: “People who couldn’t afford housekeepers or gardeners here can do it there,” she says. "We have a gardener and a housekeeper in Costa Rica and we pay them about $2 an hour apiece. Here in California, we have someone who works on the house and she charges $15 to $25 dollars an hour.” But if your objective is to make your nest egg last longer, don’t go overboard with luxuries. Billy and Akaisha Kaderli, authors of The Adventurer's Guide to Early Retirement: A Common Sense Approach, have retired 19 years ago and spend 70 percent of their time outside the United States traveling through low-cost paradises like Mexico, Thailand, and Vietnam. “We’ve spent under $30,000 a year the whole time we have been retired,” says Billy, 56. “When we go to Asia or Mexico, we can easily eat for $1 a meal and when we splurge, it's $5 a person.”

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Living Abroad: Expat Tax Rules

U.S. citizens and resident aliens are generally subject to the same tax rules whether they live abroad or in the United States: their worldwide income is subject to U.S. taxes. Those who work and live abroad may qualify for some special tax breaks. However, before you decide to move to another country, you’ll want to investigate whether you are likely to qualify for those benefits.

Citizens who have a “foreign tax home” can exclude some income and housing benefits from their U.S. taxable income. Generally, for purposes of the foreign earned income exclusion, your tax home is located at your regular place of business. If you regularly do business in more than one place and neither one is your “principal” place of business, your tax home is at your primary residence.

Simply maintaining a residence in the United States doesn’t make it your primary residence — this depends on where you live most of the time. However, there is an additional test: To have a foreign tax home, you must be either a U.S. citizen who has resided abroad for an uninterrupted period that includes a full tax year, or a citizen or resident alien who spends at least 330 days abroad in any 12 consecutive months.

If you have a foreign tax home and have spent at least 330 full days abroad — not necessarily consecutive — in any given 12-month period, you can exclude some of your foreign earned income and housing benefits from your U.S. taxable income for that period. The limit for 2009 is $91,400, and for 2008 it was $87,600.

Determining whether your income was “earned” or instead is considered investment income can be tricky, and particularly if the business is organized as a partnership or similar form recognized in the foreign country. If you invest and live abroad, and actively manage the investment full-time, a portion of your share of the business’s profits – up to 30 percent – may qualify for the foreign earned income exclusion. For example, if you own a house in Costa Rica, operate it as a bed and breakfast, and actively manage it, up to 30 percent of your business profits probably will qualify for the earned income exclusion. If instead you are a writer and live in the house alone or with your family, a portion of your earnings from writing may be excluded from your U.S. taxable income.

Rules for figuring the tax rate on the remaining portion of an expatriate’s income, after the exclusion is accounted for, changed in 2006. Under the current law, the tax on your non-excluded income is figured at the rate that income would be taxed if you don’t claim the exclusion. In effect, even though you don’t pay tax on up to $91,400 of your foreign earned income and housing benefits, the tax on the rest of your income will be charged at the marginal rate. (Note: If you live abroad and are still filling out your tax return as you did three years ago, you may want to consult a tax professional to help you straighten it out.)

If you receive some of your compensation as housing benefits, you have another good reason to consult a tax professional. The rules for the foreign housing exclusion are very complicated, whether you work for a company or own your business. Complicating the matter further, if you live in a high-cost country or city, you may qualify for a higher foreign housing exclusion.

You may qualify, but should you claim the exclusion?

Even if you qualify for the foreign earned income exclusion, claiming it may not be to your advantage, and that may affect your decision about whether to move abroad. For example, according to CPA Max A. Koss, director of international tax services for Frost, PLLC, in Raleigh, N.C., “If you are earning income in another country, in many cases that country wants to tax that income. If the tax rate is almost the same as you would pay in the United States, you want to consider what meets your goals. The foreign earned income exclusion may not be as valuable as it sounds.”

Koss also noted that if you work for yourself, you will be liable for self-employment taxes even on amounts claimed for the foreign earned income exclusion. In addition, he said, “some countries’ rules say if you lived there for more than 183 days, you have to pay them taxes on your self-employment. You still have to report that income in the United States, and if there isn’t an employment tax treaty with that country, you could have to pay self-employment taxes in both places.” If the United States does have such a treaty with your country of residence, you may be able to choose which country to pay Social Security taxes to, he added.

Other considerations

Another factor to consider is that you may receive your income and benefits in a foreign currency, but you must report them in U.S. dollars when it comes time to file your U.S. tax return. “You are subject to potential swings in exchange rates, and you have to convert back to U.S. dollars,” Koss said. In addition, “for self-employment income, you’re going to use the average exchange rate for the year, and if you got most of your income when the rate was considerably higher or lower than the average for the year, this might change the picture for you.”

On the state level, Koss said, if you leave and have an intent to come back, you remain a resident during the time you are gone, and you may still be subject to that state’s income taxes. For expatriates without an intent to return to their state of previous residence, he advised, “If you keep your driver’s license and voting registration, or bank accounts, the state may conclude that you have an intent to come back. At the least, get a P.O. box in another state.”

Nick Hodges, president of NCH Wealth Advisors, tells of two clients who returned to Mississippi from a three-year tour in Spain. They filed their federal returns and claimed the foreign earned income exclusion, but “since they were not living in Mississippi, they figured there was no need to file Mississippi state tax returns. What they did not know was that not all states conform with the federal income tax law, and Mississippi is one of the few states that does not have a foreign income exclusion. When the State of Mississippi finally figured it out, not only did they owe back taxes, but the interest and penalties made the total amount more than twice the original amount.”

Hodges said another big mistake people make is believing that they don’t have to file a tax return if they don’t make more than the foreign earned income exclusion. “You can only take the exclusion by filing a return. If you are caught for not filing, you may not be allowed to use the exclusion,” he advised.

It’s a complicated area of tax law with many twists and turns. If you are contemplating moving abroad, you would be well advised to consult with a specialist in international taxation before making too many plans.

by: Hazel Becker

Thinking Of Moving Abroad 63 Make Sure You Do Your Planning Properly

In a recent survey over 45 per cent of the people polled stated that they would like to leave the country and move abroad, that is a pretty shocking figure but it just about sums the state of the country up at present In another study it was reported that over 450,000 people are leaving our shores each year to set up a new life in a different country with their families It used to be the realm of the older generation and the retires that when they finally finished their working life they would move to somewhere with a warmer winter as well as a slower pace of life, but not it is people and families of all ages that are looking to get away as soon as possible to try their hand at starting a new life in a foreign country It sounds wonderful getting away from the dreary miserable winter months, the rain and the snow to spend your life in the sun but as with everything it is not quite a stroll in the park, you have to work at integrating into a new society So what are the pitfalls of moving abroad and what can you do to avoid them?

They say that a change is as good as a rest but when moving to a new country, experiencing a totally new culture and meeting new people who speak a different language it can seem anything but a rest Many people regret making the move in the first six months and a few even throw I the towel and head back to familiar shores Integrating into a foreign culture is something that needs to be worked at and taken slowly; it does not happen over night You need to keep an open mind and understand that people do things differently in other countries, hey, that’s why you moved away from where you were living to experience a different way of life so embrace it

On thing that is hugely important before you move to a foreign country is to have made an attempt to learn the language of the country that you are moving to, this will not only help you be understood but it will also show your new neighbors and townsfolk that you are willing to integrate rather be on the outside looking in People love to see new people to their village or town trying to fit in, people warm to this and in return are more likely to be willing to help you out, should you ever need any assistance of any kind

Because so many people are moving abroad it is pretty easy in this day and age to come across other ex-pats who have been there for a while, these people can be invaluable in helping you settle in and find your feet They can help you with local tips and advise you of anything that might make life that little bit easier for you Countries with the biggest ex-pat communities include France, Spain and certain parts of Italy (Tuscany has now been christened Little Britain by the Tuscan people due to the amount of ex-pats now there)

Moving to Spain has been a firm favorite with people for many years due to the lovely climate, warm people and of course the cheap property prices If you are looking for an easy option then moving to Spain could be the destination for you The benefits of moving to Spain are numerous including cheap flights which are easily accessible as well as the number of ex-pats already there as well as the obvious points such as the relaxed way of life, hospitality of the Spanish and of course the food and wine

Moving to Spain is not just as simple as packing your bags and jetting off, different parts of Spain offer different ways of life You really need to do your homework first on where you would like to live, moving to the coast where you may have been on holiday on numerous occasions may seem like a great idea but many holiday destinations virtually shut down out of season and can take on a totally different complexion, almost like a ghost town Choose your destination well and learn a little of the language and moving to Spain could be the answer to your home town blues

by Harwood E

Retiring Abroad..."Cheap but different."

More than 150 years ago a popular phrase urged Americans with unlimited financial prospects, "Go west, young man, and grow up with the country."

Today it's more like, "Go south, old man and you may outlive your money in Mexico -- or Costa Rica."
Retirement abroad used to be the purview of the well-to-do -- a luxurious reward of exotic locations, expanded horizons, prolonged travels and a life without schedules.

These days it's a matter of survival, or at least a rather drastic financial maneuver to make a dwindling nest egg last longer.

"It used to be divided between having an adventure and being able to go someplace affordable," says Rosanne Knorr, author of "The Grown-Up's Guide to Running Away from Home: Making a New Life Abroad."

"But I'm getting more and more questions about where are the most affordable countries you can go," she says.

In Central and South America, the cost of living is one-third to two-thirds what it is in the U.S., says Barry Golson, editor in chief of ForbesTravel.com, who with his wife, Thia, authored the upcoming "Retirement Without Borders."

"You can have a little house with domestic help and gardening help and you get more for your money," he says. "That's useful for people who are facing tougher times here."

But there are trade-offs. You have to be willing to live in a place that likely has different standards, mindsets and policies. And you also may be quite a distance from family, friends and familiar surroundings.

"If you have family at home and have grandchildren, you really have to think twice," says Golson. On the other hand, he says, if you retire to "an exotic location, it may be easier to have them visit you." Especially if your new home doubles as a cheap vacation destination.

The Money Aspect

There are also two big money factors to consider: the exchange rate in the country you move to and the cost of living in the specific locale you're targeting. For example, with a tough exchange rate in France and Italy, retiring to Provence, France, (which includes such cities as Cannes, Nice and Saint-Tropez) or Tuscany, Italy, (Florence, Sienna and Pisa) is out for many people. But, if you have at least $50,000 a year in income, some areas, like Languedoc (just west of Provence) or Umbria (just east of Tuscany), may still be doable, Golson says.

Keep in mind that exchange rates change, so keep your options open, says Knorr. While the strength of the U.S. dollar made it relatively cheap to live in Europe a decade ago, today it's "exorbitant." One good trick is to check out the price of local rentals and homes, says Knorr. "Look at enough of them and you get an idea" of the costs of housing and standard of living, she says.

To consider this kind of move you need details -- and lots of them. Beyond the exchange rate, other important considerations include the standard of living, the access and cost of health care and health insurance, rental and food prices, culture, infrastructure, taxes on foreign retirees, whether you would be allowed to work part-time, the estate laws, plus the attitude toward foreigners in general and Americans in particular.

You want a good quality of life, access to first-rate medical care, and a country that is economically and politically stable.

You also need to learn as much as you can about the local laws and policies. Some countries make it easy for retirees by not taxing money earned overseas and allowing at least part-time employment for foreign residents. And, just in case, you might also want to learn about estate laws.

You can cover a lot of ground on the topic of moving abroad thanks to book stores, libraries and the Internet.

"The Internet is a fabulous tool," says Knorr, who recommends a good Web search to start gathering information.

Moving Abroad? Check Out

• The CIA World FactBook -- Regularly updated and full of practical information on a wide variety of topics.

• The U.S. Department of State site -- Includes information on special warnings and health issues most countries.

• American Citizens Abroad, ExPatExchange.com, EscapeArtist.com, and ExPatForums.org -- sites where ex-patriots and prospective ex-pats exchange information.

Be an astute consumer when it comes to your research, says Golson, who also suggests the "Retire in ..." series of books. "Beware of (online) outfits that give you good, useful information but the purpose is to sell you real estate," he says. And take the grain-of-salt approach if you communicate with strangers through online sites, too, he says. "You never know what the agenda is for anyone," Golson says. "Judge that the way you would anything else in life."

Nothing Sudden or Permanent

When it comes to real estate, move slow, if you move at all.

"Rent for at least a year," says Knorr. Not only will it give you a chance to "get the lay of the land," she says. But "in most countries outside the U.S., people tend to rent rather than own, anyway."
Golson takes that advice a step further. "Rent, don't buy," he advises. "Not only rent before you buy," he says, "but rent instead of buying. People get off an airplane and have stars in their eyes," he says. "They make a large purchase the way they never would in the U.S." In addition, he says, a good number of the Internet sites that provide relocating information to retirees are focused on selling local real estate.
Local laws may be very different from those at home. Some countries make buying or bequeathing property very easy, while others may decree that at a resident's death, everything reverts to the state, says Barbara Corcoran, author of "Nextville: Amazing Places to Live the Rest of Your Life." So it pays to do your homework. Or you might be able to swap homes with a local, says Corcoran. "It's a very comfortable way to get beyond the tourist image of an area and actually live there," she says.

Don't Forget Health Care

No one plans to get sick or have an accident. But what kind of facilities will your host city or town offer?

"There are certain pockets in certain countries that are well-known for good medical care," says Knorr. Mexico, for instance, "has excellent medical care around the big cities," says Golson. "But there is a certain risk if you're going to live up in the hills."

"A lot of countries have medical facilities where people are trained in the U.S.," says Knorr. Others don't. Locals and embassies can be good sources of information on local care, costs and access, she says.

You also want to look at the cost of medical care for a foreigner in the country.

Medicare won't cover medical costs if you're living outside the U.S. So find out if you'll have to pay for care out-of-pocket. Some countries make low-cost insurance available to foreign residents. Especially in Central America, "various countries welcome retirees, because retirees bring in dollars from the U.S.," says Knorr. In other cases, you may have to purchase an individual policy or set aside money to pay out-of-pocket.

But don't drop your U.S. medical coverage, either. "If you think you will ever come back to the U.S., you have to maintain health care coverage (here) or you will be stuck," says Knorr.

- Dana Dratch

Volunteering Overseas: Mapping Your Own World

Imagine yourself actually meeting the people living in these conditions:

1) More than one billion people live on less than $1 a day, and 238 million of them are young people.
2) There are 115 million children who do not attend primary school, and three-fifths of them are girls.
3) 15 million children have lost one or both of their parents to AIDS, and 860,000 children in Sub-Saharan Africa lost teachers who died from AIDS.

Becoming a volunteer overseas allows you to see for yourself. In recent years more young people in Taiwan are volunteering in Malawi, Ghana, Thailand, Nepal, Vietnam, Indonesia, India, Panama, and many other countries around the world. They help teach Chinese, English, public health, and important ideas that empower the poor, women, and children. Some help out in clinics, and some assist in building up case studies of patients via computer systems.

This summer I volunteered in Myanmar for the second time. People know that Myanmar is a place where protesting monks are shot by the military government, and where massive foreign aid after a disastrous cyclone that killed more than 150,000 people was rejected. Pleople warn me that it must be very dangerous, so why take the risk? The Red Cross Society of Taiwan and the Ministry of Foreign Affairs have refused to support the volunteer group that I organized because they believe it is unsafe to visit Myanmar this year.

But why would they consider Myanmar a dangerous country for volunteers? They tell you that after the cyclone an epidemic will break out, and the entire country will be affected with disease. But is it true? My volunteer group has been preparing for three months and we want to know the real reasons for preventing us from visiting the country.

We consulted many experienced non-governmental organization workers as well as locals to ask what the situation was really like. And fortunately, we learned that the cities we planned to visit were far from the cyclone-hit areas.

Yet on a deeper level we don’t want to lose the chance to help the people in Myanmar. Last summer, we visited some very poor monastic schools in the rural areas of Yangon, and I cannot forget how the teachers and students welcomed us. Their willingness to share their stories with us made us feel how close we were, even when we didn't speak the same language.

Finding the human connection, as I call it, is the reason we should volunteer abroad. It’s about giving, and the giving is mutual. Most volunteers believe that it is impossible to change the lives of the poor. But I believe that volunteering is a chance to share, and that interaction is an inspiration that grows as we experience more. We will never know what it will become in the future.

We have also visited many overseas Chinese schools, whose aim was to pass on Chinese culture. We designed activities to tell students about emotion, relationships, basic health, and how to make plans for their careers. These Chinese communities are very much like Taiwan 20 or 30 years ago. We were treated with absolute sincerity and with great affection. I felt as if I was living in the world of Anne of Green Gables, in which Anne became a teacher in a beautiful place like Prince Edward Island!

Volunteering should be about understanding and sharing with the people you meet. It is only through contact that you can know what you can give to each other. Volunteering overseas gives you culture shock to re-examine your own life, and it gives you a chance to make changes. Aside from what the mass media tells us, you can see the world for yourself, and start to map the world in your own perspective.

- by Wendy Lin