LOS ANGELES —Like many Gen-Xers, my present outlook on retirement falls somewhere between doom and gloom.
I fear a stock market collapse could decimate my investments as I near retirement — a fate that befell many retirees after the 2008 financial crisis. I’m highly skeptical that Social Security will be much help, if any, and I fret that I won’t have enough money set aside to keep up with rising costs for everything from food and gas to housing.
Recently, however, I’ve started to consider whether retiring overseas might be a good strategy.
Moving to such countries as Mexico, Ecuador and Thailand, where the cost of living can be far lower than in the U.S., can turn a modest nest egg into something more substantial.
“It’s really not for everybody, but there are many places where your dollar can go a lot further abroad than it can here,” says Gabrielle Redford, editorial projects manager for AARP The Magazine.
Someone with a modest retirement budget, even those living on Social Security alone, can do it, says Kathleen Peddicord, publisher of , which caters primarily to American retirees living abroad. This group can benefit most significantly, Peddicord says.
Here are six steps to take before making a decision to retire overseas:
1. Size up your retirement income
How much you will earn from investments, a pension, Social Security or other sources will determine where you can afford to live comfortably. Experts suggest calculating monthly income, so you can compare that to likely monthly expenses, including housing, utilities, transportation, health care and food.
If your monthly income is $3,000 or more, you can probably retire just about anywhere, says Peddicord. Try , an online calculator designed to work out monthly retirement income.
2. Research and visit a few times
You can get plenty of information online about a country’s history, politics, crime rate, economy, rental and real estate listings, and quality of life. Also tap into online forums of expat retirees living in the country. They can best relay how prices are faring at the grocery store, gasoline pump and elsewhere.
Buy also plan on making a few trips to the country before you commit to moving there.
“Stay there for a month or so, try to see what day-to-day life would be like, not the life of a tourist,” Redford says.
3. Focus on cost of living, not exchange rates
The price of real estate, meals or a taxi are better indicators of how affordable a country is than how its currency is faring versus the dollar. That’s because exchange rates fluctuate.
Also, a nation’s cost of living can increase sharply. Take Argentina, which used to be a bargain. It has seen inflation balloon 98 percent the past five years. Even with U.S. dollars being well ahead of the Argentinean peso, you end up paying more.
Peddicord suggests keying on the monthly price of housing, or rent. That will be the single biggest monthly expense and help you determine what you can afford.
To take full advantage of the affordability of some countries, retirees should also resist shopping as if they were still in the U.S. and emphasize local products rather than pricey imports.
4. Assess health care needs and options
Health care access and affordability are keys to retiring overseas because they would no longer be covered by Medicare.
That leaves a few options: Buying private insurance or going without insurance and paying as you go. Another option is to become a legal resident of the country, which typically grants access to any state-sponsored health care coverage.
One tip: Keep paying your monthly premiums for Medicare, in case you return to the U.S. and need it. Bupa () is among the companies that provide coverage internationally.
5. Review tax rules
As an American, you’re still required to pay U.S. taxes while living abroad. Retirees must still file a return annually with the Internal Revenue Service. If you retain property in the U.S., like a home, you can expect to pay state taxes on that. Also expect that income from your 401(k) will be taxed. The IRS also taxes Social Security payouts, but it depends on your total income. It’s important to meet with a tax adviser.
6. Find out immigration rules
Countries have different rules for how long a visitor can stay under a tourist visa, for example, so it’s important to understand the country’s policies. Most countries will allow foreigners to stay under a visitor visa between three to six months.
You may also want to find out the steps to become a legal resident, which can open doors to health care and other services. Countries like Panama and Belize are trying to attract more American retirees, so they offer more options for residency visas.
