Raising Idea of 'Outsourcing' Boomers' Golden Years

By JOEL MILLMAN
Staff Reporter of THE WALL STREET JOURNAL
November 14, 2005; Page A2

SAN JOSÉ, Costa Rica -- The aisles are packed on a Sunday afternoon at the Escazú branch of the PriceSmart warehouse-store chain, one of four mammoth outlets the San Diego retailer has opened in this Central American capital. Most of the shoppers filling their carts with Prego spaghetti sauce, Gorton's fish sticks and Pringles potato chips aren't upwardly mobile Latinos, though -- they are retired Americans, part of a large cadre of foreign-born pensionados, who have settled here in the past 20 years.

Costa Ricans like to say theirs is the only country in Latin American, and perhaps the world, boasting a greater number of Americans -- as many as 20,000 retirees are here from the U.S. and Canada -- than the number of its own émigrés abroad. That may be a stretch, since it requires counting some of the 1.4 million tourists who come here each year, an average of 30,000 Americans on any given week. Yet it gets at an important economic phenomenon.

Thanks to a decades-old policy of offering tax incentives and other perks to attract English-speaking retirees, Costa Rica has pioneered what is fast becoming a popular economic-development tool for the small, largely impoverished nations of the Caribbean basin: importing a high-spending consumer class unencumbered by school-age children, with the expectation that their dollars will quickly follow.

In Costa Rica's case, retirees contribute significantly to the $1.4 billion a year in direct spending by Americans here, the government says. (It doesn't differentiate between retirees and long-term visitors.) The multiplier effects -- salaries in health care, construction, retail and other services -- could bring the total benefit to $4 billion, nearly 25% of Costa Rica's gross domestic product. Moreover, the retirement wave is synergistic: early pensionados invested in second careers -- running bed-and-breakfast hotels near the beach, or operating travel agencies -- which attracted more tourists and more retirees.

With the prospect of more than 30 million Americans starting to retire next year, many developing countries expect a windfall. Which raises the question: Should the U.S. "outsource" baby boomers' golden years?

Consider one cost of retirement: labor. The U.S. depends heavily on immigrants to serve retirees, in the many kinds of services they need. According to the 2000 Census, more than one million U.S. hospital, nursing-home and other health-care workers were born abroad; nearly 350,000 of them are immigrants from Mexico, Central America and the Caribbean. Sending U.S. retirees abroad represents one step toward closing that intractable labor gap.

Foreign retirement is becoming quite the norm elsewhere. In Europe, more than a million German, Scandinavian, Dutch and British citizens live most of the year far from home -- mainly near the Mediterranean coasts of Italy, Spain and Greece. Those retirees and their hosts enjoy the benefits of a "superstate" joining their nations under the European Union; retirees don't require visas to resettle, and their insurance, pensions and bank accounts are portable across borders. Last year in Southeast Asia, Malaysia launched its "My Second Home" program aimed at attracting rich retirees from Hong Kong. Applicants are allowed to bring one maid.

None of those benefits are available yet in this hemisphere, but demand for foreign retirement havens is rising. Today, Costa Rica allows U.S. citizens registered under its pensionado system to pay into the country's social-security system, for as little as $37 a month, qualifying for full hospitalization and pharmacy coverage. Most expatriate retirees here use the local public-health administration as a backup for emergency care and rely on private clinics for most care.

In fact, the retirees' market is so good for Costa Rica that the country has dropped some of the incentives it first used to lure retirees in the 1970s and 1980s -- such as allowing them to import a car duty-free -- and is considering raising the minimum income a foreigner must have in order to live here to $1,000 a month from $600. The country also is encouraging retirees to seek residency as "investors," a requirement satisfied by the purchase of a vacation home or small business with a value of at least $150,000. It is a lure that resonates with U.S. retirees priced out of the vacation market at home.

"We're seeing only the tip of the iceberg," says Alberto Kader, a real-estate developer who specializes in high-end second homes for American buyers. "The market for $1 million-plus homes is already pretty big. The market for $100,000-plus homes is going to be humongous."

Panama, Honduras, Belize and Nicaragua also are actively courting American retirees, mainly by offering tax-free status to anyone willing to buy or build a house there. It hasn't always gone smoothly in the region. In Mexico's Baja peninsula a few years ago, scores of U.S. retirees learned that deeds on their beachfront property didn't meet certain provisions of a national-security statute that, technically, permits only citizens to own land on Mexico's two coasts. In Costa Rica, the amount of seacoast real estate now in foreign hands -- by some estimates 83% of all developed property -- has become a political issue. So has crime, with growing concern that rich expatriates from North America are attracting poor expatriates from Nicaragua who prey on elderly homeowners, as well as their Costa Rican neighbors.

Beyond those issues, there is a more elemental question: Is courting retirees something poor countries can afford to do?

"It takes a lot more than real estate," warns Tómas Engler, a Panamanian with the Inter-American Development Bank in Washington who specializes in the hemisphere's aging issues. The biggest obstacle countries of the Caribbean will face will be providing health services, he says, and few may have the means to compete.

"It took between 10 and 15 years for Costa Rica to strengthen its private health-care network after the retirees started coming," Dr. Engler says, despite the excellent public-health system Costa Rica already had in place. Some parts of Panama now may be able to serve U.S. retirees, he adds, but places such as Honduras or Nicaragua are going to require huge investments.

In the 1980s, Dr. Engler tried to persuade U.S.-based providers of long-term care to establish nursing homes in Caribbean and Latin American countries for retired Americans, as a way to facilitate the return of health-care workers who have emigrated to the U.S. The idea still has merit, he says, but would require U.S. insurance plans to be accessible abroad. In 2001, the U.S. Congress took a step toward facilitating retirement overseas when it authorized Tricare, the health-maintenance organization for retired members of the military, to process claims of veterans retiring abroad. Medicare, the health insurance carried by most seniors, doesn't recognize claims for U.S. citizens retiring overseas.

Write to Joel Millman at This e-mail address is being protected from spambots. You need JavaScript enabled to view it