The world is aging
The number of people retiring is driven by demographics, and those numbers are almost staggering. The U.S. Census Bureau estimates that 8.2 percent of the world population is presently over age 65. That number is expected to more than double in the next 40 years, reaching 17 percent by 2050. By then, there will be 1.5 billion seniors worldwide.
Developed countries are aging the fastest, so to speak. Japan currently holds the top spot (in terms of the highest percentage of seniors) followed by Europeans. In 2010 over 15 percent of Europe’s population was over age 65, but that figure is expected to reach 25 percent by 2040. In the U.S., the Baby Boomers are entering their senior years, representing 13 percent of the population as of the 2010 census.
In terms of sheer numbers (instead of percentages), China already has the most seniors. But their ranks are expected to swell even further within 40 years, when 500 million citizens will be over 65, accounting for 35 percent of the population. For China, the one child rule has resulted in a disproportionally smaller younger generation.
Why retire abroad?
Climate and lifestyle have always been major factors in selecting a retirement destination. To many, it’s the reward at the end of a long career and a lifetime of saving.
But the world economy has also made an impact. A growing segment of workers are delaying retirement or cannot afford to retire where they currently live. In many countries, workers’ confidence in their ability to maintain their present standard of living throughout retirement is low.
According to a 2013 Employee Benefit Research Institute survey, 49 percent of American workers doubt their ability to afford a comfortable retirement. In the U.K. that number is 70 percent, according to a 2012 survey from the National Association of Retirement Professionals. Many are asking, can I live better and cheaper elsewhere?
On the other hand, there are nations in which the middle class has emerged from the recession comparatively better off than some neighboring countries. By moving abroad, their seniors can raise their standard of living. For instance, Canadians’ buying power in the U.S. has improved greatly in the last ten years. Likewise, Scandinavians have become more active buyers in southern Europe. They are the fastest growing group of investors in Spain and are snapping up properties in France, Italy and Portugal, as well as Florida, Brazil and Thailand.
A growth industry
The need for highly affordable retirement housing with Western amenities has not gone unnoticed by international developers and nations with a warm climate and low cost of living. With the help of the Internet, an industry has grown around the marketing of foreign, low-cost destinations as an antidote to the expense of retiring at home. Supporting factors:
- Retiree visa programs are offered by countries trying to attract foreign retirees, including special visas, tax breaks and discounts.
- International developers are building resorts and gated communities in coastal areas and in temperate zones further inland targeting retirees and buyers of second homes, offering activities like golf and ocean sports, security, on-site shopping and health clinics.
- Marketers are targeting a growing segment of budget minded retirees. Most use the Internet to reach Boomers through websites and newsletters, or invitations to on-site “conferences.”
Where are people moving?
Retirees will often base their destination decisions on their lifestyle needs. Some prefer the convenience of a planned resort community, where the amenities and activities are onsite, hassle-free, and familiar. Then there are more adventurous seniors who will move to untried locations, usually for the culture or the lure of getting a great deal and an ultra-low cost of living. These buyers may prefer to purchase or rent standalone property over a planned development.
TRIED AND TRUE DESTINATIONS
Mexico is the most popular foreign retirement destination for Americans and Canadians. It also draws affluent retirees from other countries in Central America. Expatriate English-speaking communities arose in the 1940s in San Miguel de Allende and the Lake Chapala region as inexpensive havens for writers and artists. When federal property ownership laws were relaxed in the 1990s, investors rapidly developed Puerto Vallarta, Cancun and Los Cabos into premier resort and second-home areas.
The Caribbean has drawn affluent retirees from the U.S., Canada and Europe for many years because of its ideal island-paradise style of life. Europeans are familiar with the islands that were or are still territories of France, the U.K. and the Netherlands, and where English, French and Dutch are official languages. Favorite retirement spots include the U.S. and British Virgin Islands, St. Maarten, Martinique and Aruba.
Costa Rica decided to start courting international retirees in the 1970s, establishing a pensionada visa program with easy-to-meet requirements, tax breaks and generous discounts on travel, dining and entertainment. Costa Rica is a nation with multiple microclimates, so retirees could find tropical areas for beach life and cool mountain rain forests for moderate year-round temperatures. Property remained inexpensive for many years, but as communities of American and Canadian retirees grew larger, prices also increased. More recently, the visa program has been modified, eliminating many of the senior discounts and raising income requirements.
In the United States, Florida and Arizona have long attracted Canadians, Brits and other Europeans, though most only stay in the U.S. for half the year due to visa restrictions. The collapse in property values in these markets has generally made homes more affordable to foreigners.
Mediterranean countries have long been the stopping point for Europeans, particularly citizens of northern climates, as well as affluent citizens from around the world. Southern France, Italy, Greece and Cyprus offer warm temperate climates with upscale beach resorts. That said, the economic crisis in the European Union has cooled demand, with set-backs particularly noticeable in Greece, due to its economic fragility, and in France, where high taxes have been imposed upon the wealthy.
EMERGING RETIREMENT HOT SPOTS
Panama seems well positioned to be the next Costa Rica. Its pensionada visa program has a relatively low pension income requirement of $1,000 per month. Property there is inexpensive, English is widely spoken and retirees get a 25 to 50 percent discount on transportation, entertainment, hotels, and even discounts on health care. Panama uses the U.S. dollar as its currency, so there is no exchange rate risk for Americans. The village of Boquete is popular for its slow lifestyle, mountain climate and inexpensive living. Several amenity-rich planned communities are under construction in areas outside of Panama City.
Nicaragua is also vying for budget-minded retirees. Their senior visa program has one of the lowest pension requirements in the world ($600 per month resident, $750 per month renter) plus significant tax breaks on bringing possessions and cars into the country. “Nicaragua has recognized tourism and pensioners as the fastest-growing opportunity in its markets,” says Kent Payne, Vice President of Sales at Gran Pacifica in Nicaragua. “The country is an untouched tropical paradise where a couple can live well on around $2,000 a month, including employing a maid and gardener.” Several major seaside communities are in development featuring Western amenities and local health care.
Ecuador is touted as the most affordable spot for retirement in the Western Hemisphere. Cuenca is an inland colonial-era city of about 330,000 that is also a Unesco World Heritage site. Retirees have access to museums, the opera, ballet and other cultural activities. There are four excellent hospitals, and pensioners qualify for Ecuador’s national Social Security health care system with very low monthly premiums. Seniors also receive large discounts on transportation and refunds on sales taxes. Its climate is moderate year-round.
Turkey has a rich culture, beautiful beaches and stunning landscape. Though Russians lead the pack of foreign buyers, in recent years many British pensioners have found a home there due to the low cost of living. Brits and Americans claim that it costs about one-third of what it does to live in their home countries. Foreign pensions are not taxed. The currency is the Turkish lira, which has a favorable exchange rate relative to the dollar and the pound. In Istanbul, retirees can find properties for almost any budget.
Morocco has become a popular retirement destination for Europeans. It’s close to Europe and housing prices have remained steady and affordable. The cost of living is low, and Morocco’s income tax of 10 percent is considerably lower than most European countries. Foreign retirees are primarily English and French, with a very small American expat community. Most major cities in Europe are just a short flight away.
Malaysia makes it much easier to obtain residency than most other Asian countries. Through its Malaysia My Second Home program, foreigners can get a multiple-entry visa which is good for ten years and offers special tax status. MM2H visa holders are exempted from taxes on any foreign sourced income including pensions, dividends and interest. Malaysian property prices are high in Kuala Lumpur but reasonable in other areas. Excellent health care is available in major cities, and the price is so low that there is an active medical tourism industry. Other advantages include a low cost of living for a comfortable lifestyle, a world-class airport and excellent physical and technologicalinfrastructure.
Thailand has become a very popular retirement destination for Americans, Canadians and Europeans because of its low cost of living, excellent inexpensive health care, rich cultural scene and availability of reasonably-priced caregivers for the elderly. A Thai retirement visa is available for people over age 50 and requires a deposit of about $25,000 in a Thai bank, or pension income of around $2,000 per month. It must be renewed annually and visa holders must check in with authorities every 90 days.
The Thai cities of Phuket and Chiang Mai have international airports and large expatriate populations. Foreigners cannot buy land in Thailand but can purchase condos or rent apartments. Property values and rents are very low and the cost of living is approximately 70 percent less than in the United States. English is widely spoken in most major cities.
With more people concerned about their ability to retire comfortably at home and a rapidly aging world population, the overseas retirement market could skyrocket over the next 30 years. Destinations that offer an affordable lifestyle, desirable climate, modern amenities and good health care will be strong magnets for migrating seniors.