What To Do If Sandinistas Ruin Your Retirement Plan
Over the years I've written a lot of articles about retiring to a foreign country. In the last couple of years or so my thought on how to best pull this off for people who want to do this or need to do this is to go while you're young and healthy and plan on coming back. Countries in places like Latin America, Asia and even some places in Europe are interesting and many of these countries offer incentives related to taxes and discounts to woo expats.
One country that comes up in this context is Nicaragua. It is inexpensive, there are a lot of beaches, there are several tax breaks, on paper it appears to have a lot going for it and it is only a three and half hour flight to Houston from Managua. One of my wife's high school friends moved there a while back, he was nowhere near retirement age when he went, and generally liked living there.
I believe the first time I mentioned Nicaragua in this context was in January. I gave a brief update in June as there was some trouble starting to bubble up. Things have gotten worse it seems. The trouble started over proposed pension reforms, leading to protests which have turned violent. The Washington Post reports that 300 people have been killed and WaPo creates the impression that the government is on shaky ground.
The scenario I've framed for this sort of expat retirement has been for people who are undersaved (not no savings). A healthy couple aged 60-65 with maybe a $200,000-$300,000 investment portfolio and a mortgage-free home could move to one of these countries, rent their paid for home out, live on the cash flow from their US home while allowing both their portfolio and Social Security benefit to keep growing untouched. They then come back in 5-10 years to hopefully a larger portfolio to draw from and definitely a larger Social Security payout. Keeping the house is key for another reason which is the possibility that once you sell out of a housing market you might not be able to afford to get back in.Even if you don't plan on coming back, it would be nice to make that option as easy as possible.
The changing situation in Nicaragua brings up a third reason to keep your house which is an easy plan b or fallback. It might not be preferable to stick around and see whether it sorts itself out favorably as opposed to packing up and heading elsewhere, be it the US or another country.
Zooming out a little, I would want this kind of flexibility in all aspects of my life, I think it is a prudent objective no matter what your plans for retirement are. Nicaragua's problems appear to stem from pension issues...kind of like Social Security? We know Social Security faces some obstacles and for now appears to be headed toward some sort of reduced benefit (maybe a 23% cut) starting in the mid 2030's (exactly when is still a moving target). I don't want to speculate on social unrest but right here right now, how much does your plan for retirement rely on Social Security? What would you do if your Social Security turned out to be a whole lot less than you thought? While I hope and almost sort of, kind of, maybe think congress might figure something out, I want to be prepared if they don't. Even if this post is the first your hearing of this you have 16-18 years to think about it and figure something out.
Living below your means and having a high savings rate is a good place to start. Figuring out how to generate a modest income from something you enjoy doing would also be helpful. That may not be possible but you have an awful lot of time to sort that one out. I've written a lot of blog posts about the ongoing work from Fidelity about how much money people who are 65 today should plan on spending on health care in retirement. The latest number is $280,000. This includes Medicare costs. What if Medicare were your only medical costs? There's no way to guarantee this outcome but changes in behaviors related to diet and exercise will increase your odds of this outcome. There are chronic health problems that can be reversed by changing behaviors. This is worth researching if you have not already done so. Again, no guarantees but a better quality of life and less money spent; why wouldn't you try to learn about this?
Our fallbacks for now include my preference not to retire, having lived below our means for almost 20 years (primarily minimized lifestyle creep), having hobbies that could potentially be monetized and having an Airbnb that will be paid off in my mid-60's. I include details from my life because I think it is important to walk the walk in relation to my posts.