A growing number of Americans are retiring outside of the United States. This is partly due to retirees increasingly having a challenging time financially. Also, more retired people are choosing to relocate abroad because they realize the U.S. will be just too expensive to live up to the lifestyle desired.
Similar to immigrants moving to America in search of the American dream, seniors are leaving the United States to retire comfortably. The American dream of retirement for a growing number of U.S citizens is becoming a nightmare financially. The rising popularity to retire outside of the United States should not be a surprise considering the alarming retirement saving statistics in America.
With an estimated 1 in 5 Americans having no retirement savings at all according to a 2018 Planning and Progress study by Northwestern Mutual, finding a less expensive place to retire compared to America is becoming a popular choice. Not having enough income in retirement is a serious issue and more people are solving this problem moving abroad. Although some retirees are moving abroad for a sense of adventure and change of life, the primary motivation is often a financial one.
Why are Americans having such a difficult time saving for retirement?
Retirement Plans in America are Changing
More people in the U.S. are making the decision to retire outside of America simply because saving up an adequate nest egg in the United States to live comfortably in retirement has become increasingly difficult. With only 33% of the generation currently closest to retirement having between $0 and $25,000 saved to retire, there are numerous retirees looking for an alternative to the high living costs in America.
The ongoing elimination of defined benefit pensions in favor of less expensive 401k retirement plans has also created a challenge. A Bureau of Labor Statistics report showed that only 18% of private-sector employers offered a Defined Benefit Pension Plan as of 2017. With these retirement pensions now almost extinct, more responsibility is put on individual workers to properly fund their own retirement savings.
People do need to be responsible for funding their retirement years. However, not everyone has the education or discipline to consistently put money away for the future. This is creating a real issue with many Americans falling short financially in retirement.
Frequent employer-provided retirement funding in the form of something like a 401k matching contribution is also often being reduced or cut to increase the bottom line at many businesses. The reduction in employer-provided retirement benefits is making it extremely challenging for an increasing number of Americans to save for retirement.
People are Earning Less
Although the story prior to the pandemic in 2020 had been record levels of low unemployment and an increase in wages, this was never the entire story. The truth is many Americans are earning less each year and a large number barely earn enough to live. A study by Brookings.edu found 44% of all American workers age 18-64 earn what would qualify as “low-wage.” This would equal the median hourly earnings of just $10.22.
With the American economy moving to be more service-oriented resulting in an almost non-existent manufacturing workforce, it should not come as a surprise that it isn’t just young adults starting to work that are earning low wages. Most of these workers are older adults in their prime earning years or nearing retirement. Studies have shown dollar for dollar manufacturing roles earn more compared to many of the service jobs available.
The promise at one time on Capitol Hill by government representatives for America prospering as mostly a service-oriented economy in the future has not turned out well. Many service job employers in the U.S. do not pay good sustainable wages with adequate retirement funding options. You only need to look at one of the biggest employers in the U.S. to see the issues. This mega discount retailer employs a lot of people but doesn’t provide a wage that can adequately provide for both a good cost of living and adequate retirement.
Low wages in combination with little to no employer retirement funding makes it difficult for many Americans to save money. For this reason, more people are finding that living abroad once reaching retirement age might be the only possibility for survival.
Cost of Living is Rising
Just like the story of low unemployment and higher wages for most Americans has not been the complete story when it comes to America prospering financially, the same can be said once the cost of living is figured into the narrative. Low wages for many people in America are certainly making it challenging to save for retirement years. But the increasing higher cost of living is adding to the problem.
The higher wage report for much of America often comes out to be a net gain or more common a negative decline once the cost of living adjustment is added. Just look at the expenses for healthcare, higher education, and housing. These costs are almost always rising much faster than most people are earning.
The rising cost of health care is having a major impact on workers in America. This comes as more employers are selecting higher deductible employer-provided health plans in favor of lower costs. More of the responsibility of paying for medical care is going to Americans in the form of higher deductibles and co-pays.
Higher education is also an issue. With America now having over $1.5 trillion dollars in student loan debt, saving for retirement is challenging. It is not uncommon for college graduates to have $40,000 or more in student loan debt. This has created decades of student loan repayments with many college students never reaching the earning potential a college degree should provide. The odds of success with a college degree are not what they were just a few decades ago. This is having an impact on the money many Americans can save for retirement.
The Future of Social Security
Americans are having a difficult time saving for retirement, but the unknown future of Social Security is also an issue. When it comes to financially supplement a retirement income with Social Security, there are questions of if that money will be available for future retirees.
Although Social Security was never intended to replace someone’s entire income, there are people that will retire and that income will be extremely important. According to a Fact Sheet provided by SSA.gov, Social Security benefits generally represent about 33% of the income for the elderly. The average monthly benefit in January 2020 was $1,503.
Social Security benefits combined with little to no retirement savings for a lot of Americans are having them consider all their options for a comfortable retirement. This is increasingly including the option to retire outside of the United States. For workers entering retirement that will depend on much more than 33% of their income from Social Security, finding a cheap place to live is particularly important.
The future of Social Security is an issue with retirement funding. A 2020 annual report of Social Security claims the benefits will be depleted by 2035. This raises real concerns with people planning for a future that includes retirement. Personally, I think Social Security will be around in the future. However, the government will likely continue to raise the age to receive full benefits.
Americans Are Retiring Outside the United States for a Better Life
People will often say money doesn’t buy happiness. This may be true, yet there is a certain amount of financial security that will provide a better quality of life. For someone that retires this includes having good healthcare and a place to live. A bonus would be having expendable financial resources to enjoy certain hobbies or activities. These could be things that a retiree might not have had time for in their working years.
The cost of living and healthcare expenses can be substantially lower in some places around the world. The website internationalliving.com released their list of the best places to retire in 2020. Among the top contenders are places such as Vietnam, Spain, and Ecuador. The list provided states that a couple can live comfortably in many parts of Spain for around $2,500 per month. Healthcare is also said to be just 1/3 the cost it is in America.
One of the big concerns with moving outside the U.S. for retirement is the subject of healthcare. Costs are not only lower in some places around the world, but the quality of care is even sometimes comparable to or better than it might be in some areas in America. The list of best places to retire outside the U.S. provided by International Living claims The World Health Organization even ranks Spain as having one of the best healthcare systems in the world. Private healthcare is excellent and even affordable.
Many financial experts claim it can take as much as 80% of a person’s income before retirement to live the same quality of life. For a person earning $50,000 at retirement, this would require a yearly income of $40,000. The problem is most people do not have the retirement savings to generate this type of money even when including Social Security income. Being able to live on almost half of that in another country for one person might just be more attainable. Therefore, more Americans are choosing to retire outside of the United States.
Americans Retiring Outside the U.S. Is Only Likely to Grow
Unless there are some real changes in America the growing trend of retiring outside the United States is only likely to increase. The elimination and reduction in employer-provided benefits in combination with stagnant wages for most Americans are making it challenging for the average person to financially fund an adequate retirement. In addition, the repeated increases in the cost for healthcare, higher education, and housing are making it even more difficult to ensure retirement years are not spent in poverty.
The recent COVID-19 pandemic is only adding to the lower standards of living for many Americans and this is likely to cause even further issues with retirement funding now and in the future. As economies are suffering financially and many people are out of work, valuable time to save for retirement is not able to be used. The future of retirement in America does not look too good for a growing number of people in the U.S. Moving abroad for retirees is only going to get more popular as the costs continue to rise in America above what an average retiree can afford.
People want to spend their time in retirement without having to worry about money. They want to enjoy the rest of their life with access to affordable healthcare and housing without the need to continually be financially concerned. American employers are no longer providing the benefits and wages in many cases for most people in America to save enough money to retire.
People are always going to do what they need to in order to survive. This even includes moving to another country in retirement. If things remain the way they are, more people will have no choice but to look at all their options to ensure a safe and comfortable retirement. This is only certain to include the option of moving outside the United States.
