By Jane Adler
Special to the Tribune
Published June 15, 2003

Dee Vaughan doesn't have too many bad things to say about retiring in Costa Rica, a small Central American country favored by older Americans. But the one thing that bugs her are the huge potholes in the roads.

The traffic congestion is bad, too, says Dee Vaughan, 58.

Otherwise, Dee and her husband, George, 57, are pretty much content with their decision five years ago to leave their home in Fayetteville, N.C., and live out their golden years in a foreign country. "We always wanted to learn a foreign language," said Dee Vaughan. "And we were drawn to Latin America."

The couple checked out other countries, but they settled in Costa Rica, where they own a house on 6 acres. They say the country, which allows foreign ownership of property, is relatively safe and that good medical care is readily available should one of them become ill. They also like the weather where they live in the country's capital of San Jose, a consistent 72 degrees year-round. "It's like spring all year round," Dee Vaughan said.

The Vaughans aren't the only people who move abroad when they retire. The most popular spots for American retirees are close-by countries such as Mexico (which allows foreign ownership of property with significant restrictions) and a handful of countries in Central America, including Panama and Honduras, experts say. European countries, such as Ireland, draw American retirees too.

Seniors move overseas for a variety of reasons: to connect with family roots, for warm climate and a lower cost of living than the U.S. About 50,000 Americans and Canadians live in Costa Rica and most of those are retirees, according to Christopher Howard, a native Californian who has lived in Costa Rica for 20 years. Howard is the author of a book, "The New Golden Door to Retirement and Living in Costa Rica" (Costa Rica Books, 12th Edition, June 2002). Howard also has written books about retiring in Nicaragua and Panama.

But, he thinks Costa Rica is best primarily because of its stable democratic government and consistently nice weather in the Central Valley area where many Americans live. "Costa Rica really appeals to people who come from cold climates," Howard said.

However, Howard has noticed a dropoff in Americans' interest in Costa Rica since the terrorist attacks of Sept. 11, 2001. "I'm really surprised more people have not come here," said Howard, who describes the country as the Switzerland of Latin America because it abolished its army in 1949. "I think a lot of people just aren't aware of it."

Ryan Piercy runs the Association of Residents of Costa Rica, a group that helps expatriates get settled. The organization has about 1,500 members, mostly American retirees. The group's membership has doubled in the last three years, a possible indication that more Americans are moving there. But Piercy says people are leaving, too, because prices, including the cost of housing, is on the rise. "Prices have become less attractive," Piercy said. "Property values have escalated."

It costs $400 to $5,000 a month to rent a house, Piercy said. Home prices range from $60,000 to more than $1 million. "If you're from Idaho, Costa Rica is expensive," Piercy said. "If you're from New York, it is not expensive."

A common misconception among retirees is that expatriates pay no taxes. But that's not so, according to David Lifson, partner at the Hays & Co. accounting firm in New York City. "The United States is the only country that taxes citizenship rather than residency," he said. Lifson explains that Americans can exclude up to $80,000 of their income that is earned overseas and foreign housing expenses that exceed $10,000. (To receive this exclusion, though, a tax return must be filed every year with the IRS, or the income will be subject to a tax, Lifson said.) But retirees who receive income from the U.S. -- Social Security payments, interest or investment income -- have to pay taxes on the income just as if they were living in this country.

The taxes that expatriate retirees can sometimes escape are local taxes. Costa Rica, for instance, does not tax income earned there. "Expatriates get confused when they see there are no taxes," said Lifson, explaining that what the promotional brochures really mean is that the country has no local taxes. "These countries are silent on the issue of U.S. taxes."

Expatriate Dee Vaughan advises Americans to learn the local language. She and her husband have learned Spanish. "We know people who live here and have no desire to learn the language, and they hang around only with English-speaking people," she said.

She also thinks seniors who want to retire in a foreign country need to have realistic expectations. "We see people who think Costa Rica will be just like the United States, then they are unhappy when they arrive," she said. "People must remember that they are moving from one imperfect country to another imperfect country."

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Jane Adler is a Chicago-area freelance writer. If you have questions or information to share regarding housing for senior citizens, write to Senior Housing, c/o Chicago Tribune Real Estate Section, 435 N. Michigan Ave., Chicago, IL 60611. Or, e-mail realestate@tribune.com

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