Expensive healthcare is driving elderly Americans to expatriate
The United States' Social Security Administration reports that between 2008 and 2022, the number of Americans receiving their Social Security payments from abroad has increased from around USD 300,000 to USD 450,000, or by 48%. This is the Boomer generation, born in the mid-1940s to mid-1960s, who are nearly now all retired, as well as some Gen X Americans who opted for an early retirement.
Newspapers or magazines such as Fortune, CNN, and Business Insider interviewed elderly Americans who had made the big move. Their main motive for choosing the expat life post-retirement is the lower cost of living abroad and far more affordable healthcare. This is followed by the walkability of cities outside of the US, especially for those who feel too tired to drive a lot post-retirement. Finally, others are simply seeking adventure. Now free from work, they are eager to experience life in a new country, especially one with favorable weather, delicious food, and a vibrant cultural scene.
According to the US' National Council on Aging, the poverty rate among Americans aged 65 and older has risen in recent years, outpacing that of most other age groups. A few years ago, in 2021, poverty reached the 10% mark among the population over 65. The average Social Security payout is USD 1,900 a month, which is much lower than the average monthly salary of nearly USD 5,000 for working (pre-retirement) adults. Many retirees have other sources of income, such as company pensions, independent retirement accounts, and annuities.
Despite these diverse sources of income, the cost of living remains high for American retirees. Healthcare expenses inevitably increase with the challenges of aging, and the US is notorious for being one of the most expensive countries for medical care.
The federal health insurance program Medicare is available only to Americans age 65 and older, as well as to a limited number of younger people with severe health problems. This means that most people who chose to retire earlier, usually between 50-64, have to pay an astounding USD 800-2,000 out of pocket every month for their health insurance premium.
Americans already make up a large percentage of medical tourists to Latin American countries, where doctors' fees are much cheaper — it should not be surprising that many have also simply decided to move to these countries permanently. Even without insurance, paying for a doctor or procedure out of pocket can be fairly affordable in some other countries, especially for people whose savings are in dollars, which is more powerful than all currencies except the British pound.
Of course, there are also pull factors to moving abroad later in life. On the Expat.com forum, one American expat in his 50s, who is originally from Washington DC, explains that he wants to retire in southern Europe (Spain or Portugal) within the next decade. His motivation: “Not to live cheaper, but better.” He wants to live in a small town close to the sea, so that he can enjoy a beautiful ocean view every morning. It's important for him that the town is not overcrowded or overly touristy. He predicts that he will have a “moderate retirement income” by the time he retires, so the lower cost of living in a small Spanish or Portuguese town will also be good for his budget.
Favorite expat destinations of American retirees
Where are these American retirees moving, exactly? Data from the Social Security Administration and Business Insider show that the United States' neighbors, Canada and Mexico, are popular choices. There are over 70,000 American retirees in Canada and close to 60,000 in Mexico.
Canada is famous for its excellent public-funded healthcare system, Medicare (different from American Medicare). Prospective American expats to Canada have to remain aware, however, that they have to pay for Canadian healthcare out of pocket unless they have insurance or become permanent residents there. Wait times also tend to be longer in Canada than in the US. For instance, it can take 6 months to get referred to a specialist if your case is not urgent.
As for Mexico, healthcare there is extremely affordable even for Americans who don't have health insurance. A visit to the GP can cost as little as USD 17 to USD 30 out of pocket, while consulting a specialist often costs only USD 30 to USD 60. An overnight stay at the hospital can rack up a bill of around USD 500, which is far lower than in the US, where it is an average of USD 3000 per night.
Even if Canada and Mexico have the highest number of American retirees, they have not been the fastest-growing destinations in the past decade or so. Between 2008-2022, Poland has grown by nearly 325% in popularity among retired American expats, Colombia by 187%, Japan by 176%, the various small islands of Oceania by 136%, and Australia by 128%.
The cost of living in Poland is less than half of that in the US. A retiree can live well with a passive income of only around USD 1,200 there. On the Expat.com forum, one prospective American expat enquired about retiring in Poland. He received the positive information that Americans can stay in Poland for 90 days visa-free, which gives them time to decide if they like the place and initiate any necessary paperwork. They can also get permanent residency there after only 5 years. However, he has been cautioned that there is no specific retirement visa in Poland, that the administration there can be slow, and that he will have to pass a B1 Polish language proficiency if he seeks permanent residency at one point.
Colombia, on the other hand, does offer a retirement visa. It allows retired expats with a stable pension of at least USD 800, which is easily attainable by American standards. Business Insider interviewed a couple of Americans who retired to Colombia in their 50s. This couple explains that it would have been financially impossible to retire this early back in the States. They are constantly amazed by how affordable Colombian healthcare is, and they love living in a warm country with beautiful beaches.
On Expat.com's forum, quite many American expats also express interest in retiring to Colombia and seek advice about it. One American from New Jersey shared that he's grown weary of the US's long working hours and workaholic culture. After visiting Medellín, he has decided to retire there in the future. He views the lower cost of living, relaxed and happier lifestyle, warm climate, and friendly locals as key factors attracting him to spend his retirement years in Colombia.
Tax implications to retiring abroad
Retirees or soon-to-be retirees should remain mindful that it is not an automatic path to a perfect life. As with any relocation, it requires navigating substantial paperwork (which can cost several hundred or even thousands of dollars), assessing practical matters like the possibility of purchasing property overseas, and understanding tax implications.
An advisor of US Bankcorp cautions that these prospective expats should check if their expat destination taxes withdrawals from Roth IRAs (Individual Retirement Accounts), even if the IRS in the US does not tax this account for people over 59.5 who have had it for at least 5 years.
The financial advisory firm Cerity Partners clarifies that these countries will not tax Roth accounts: the UK, France, Belgium, Latvia, Estonia, Lithuania and Canada. However, other countries, including the popular destinations among American retirees that have been mentioned above, may classify funds withdrawn from Roth accounts as regular taxable income. To fully understand the tax implications of your pension, it's recommended to consult a tax specialist before deciding where to retire.
