On a very thorough article by Vicki Berrong in the December 19th edition of the Wall Street Journal, she mentioned a few key points about retirement planning which prompted her to take the plunge and move to a place near Playa Naranjo on the beautiful Gulf of Nicoya.

Ms. Berrong describes herself as a 60 year old American who at one point laid out a 10-year plan to pay off debt and pick a convenient place to live. She isn’t a retiree yet, at least not in the sense of someone who has contributed to a national pension plan. Ms. Berrong retired early; something that is not easily attainable in developed countries today. Nor is Ms. Berrong wealthy: she mentioned arriving in Costa Rica with a tight budget and looking for health care options she could afford (government-subsidized health care in the United States does not take effect until the age of 65).

The global financial crisis and the economic recession, which have been deeply felt in developed countries, has managed to spike the concern of people looking to retire in a place away from their home country. Retirement in a far-off land isn’t always in the interest of people seeking for adventure or a change of pace. Given the opportunity, many people would opt to spend their golden years at home next to their loved ones. However, this isn’t always a viable option for everyone.

Ms. Berrong’s decision to move to Costa Rica was not made in haste. She set out a list of metrics which anyone who’s involved in retirement planning should keep in mind when they evaluate their choices abroad, and she found out that our country meets all of them. Some of the criteria she mentioned includes:

1 – A politically stable nation, reasonable close to her native country, where the locals are tolerant of -and friendly towards- foreigners.
2 – Warm, balmy weather
3 – Low-cost quality health care
4 – Nice beaches
5 – A relatively low cost of living

The last item seems to be one of the most contentious among retirement planners. The cost of living in the country has risen sharply in the last few years, a steep price that the citizenry must pay as a result of its bid to join the ranks of the developed world. Ms. Berrong does not ignore this fact; she mentions the exorbitant prices of some imports, the price of fuel (currently about $6 per gallon), and real estate prices that could be considered off-limits to many locals. She mentions her utility bills running between $50 to $150 per month, and her relatively affordable private health insurance premium from INS, which runs her about $1,500 per year.

A diverse cost of living

The prices cited above are the reason why some professionals in the retirement planning community insist that Costa Rica is no longer the haven it once was for retirees. Real estate prices in many areas of the country have become prohibitive, particularly in those areas where wealthy foreigners -not necessarily retirees- have settled. The utility bills in those communities can be quite steep, at least when compared to other parts of the country. And the prices of imported groceries at stores such as AutoMercado could be considered highway robbery (and still AutoMercado has plenty of fans).

Detractors of the idea of promoting Costa Rica as an ideal destination for North American retirees also point out that the proposed fiscal reform plan spearheaded by Laura Chinchilla’s administration is nothing more than a spectacular exercise in taxation, and how it’s the final nail in the coffin for Costa Rica as a good place to retire. While our country may not be the only place in the world where retirees can find a peaceful, friendly and affordable lifestyle, it shouldn’t be left off the lists of retirement planners. Here’s why:

Cost of living should be measured by what one must pay to cover the basics, such as food and shelter. As Ms. Berrong pointed out in her article, for the low price of one U.S. dollar you can still find a couple of avocados and a handful of mangoes, if they are in season, at the weekly feria del agricultor (farmer’s market). Those two avocados will cost a lot more at a supermarket or pulpería. As far as real estate prices, they still run the gamut. While the rich and famous like Mel Gibson and Giselle Bundchen are known to have paid handsome sums of money for their abodes on the Pacific coast, there are still pretty good deals to be found, like this large three-bedroom home located just around the corner from the ritzy Multiplaza in Escazú.

Taxation in Costa Rica

The bold tax package proposed by the legislature and the Executive was stopped dead in its tracks by a democratic force which makes Costa Rica truly endearing. Ticos manifested their discontent with the fiscal reform by launching massive demonstrations, and a concerned lawmaker marched to the steps of Constitutional Hall and stopped the passing of the new tax laws with a simple -yet earnest- court filing. The fact that any citizen can question the constitutionality of a governmental decision and be granted due process in three-days’ time is one of the charms of Costa Rica, and another good reason for retirees to consider relocating here.

The upheaval over the proposed taxation scheme was the focus of yet another article on the Wall Street Journal that pondered whether a burgeoning Tea Party was forming in Costa Rica. While the allusion is intriguing, it is important to point out that it was the people, rather than a political movement, that stopped the tax package. In the meantime, the U.S. News & World Report recently listed our country as one of the most tax-friendly places for North Americans looking to retire overseas, based on the following assumptions:

– There is no taxation on foreign income

– The property tax is just 0.25 percent
– There is no taxation on capital gains

– Sales tax, also known as value-added tax is 13 percent

- Income tax is limited to 25 percent, although that mostly applies to the wealthy. Most Ticos pay a percentage that is far below that bracket.

 Some political experts predict that even if the current fiscal reform plan is enacted, there would not be drastic changes to taxation for retirees. Financial planners who are placing Panama and Belize ahead of Costa Rica in terms of what constitutes the perfect retirement destination may have an ulterior interest for doing so, such as a partnership with a local real estate agent. For that reason it is crucial that people who are considering moving to Costa Rica as their retirement goal read the U.S. News and WSJ articles cited above, as well as local reports which accurately describe the situation from a first-person perspective.