To attend a family wedding and do some surfing, we flew to Costa Rica last week and landed at the town of Liberia, where the American CIA had built an international-class air facility back in the early 1980s. At that time, the United States needed a substantial airfield in order to secretly supply the Contras with weapons during the civil war in neighboring Nicaragua.
While on this trip, I was told that there are hundreds of CIA-funded airports throughout Latin America, built with our tax dollars to support various insurgencies.
The insurgencies all lost, so today those airstrips are valuable for another reason. They make it increasingly convenient for Americans to retire in these tropical paradise nations. Fawn Hall and Ollie North didn't sacrifice in vain. Easy travel to and from these former banana republics has opened them up to an explosion of American expatriates who are moving beyond just Mexico to Belize and other stable Latin American countries. Even Nicaragua is back in our good graces.
The reasons are tempting. To begin with, there are Century 21 Real Estate signs everywhere. Condominiums and ocean-front villas sell for a fraction of what they would go for here. A health insurance policy offering a gateway into the Costa Rican national health system is $500 a year. Supplementing that opportunity are private hospitals. Most of the doctors received their training in the United States or Europe. In short, it's time to learn some Spanish -- or at least gain a proficiency in Spanglish -- and head south.
A growing number of my friends and acquaintances have purchased properties in Mexico in just the past few years. Anytime I notice something happening around me involving my early-60s contemporaries, I regard it as the beginning of a trend.
Why? Because "my people," born in 1944 or thereabouts, represent the very first members of the post-war baby boom. We determine what's cool and the rest of the baby boomers follow us like lemmings. They have us to thank for rock and roll, rocket science -- and more recently, the Internet. But getting back to Latin America ...
Those who might consider living this retirement era dream could close their eyes and imagine themselves as a typical Bay Area couple. Their plan is modest in scale. These folks, about my age let's say, have decided to retire to Mexico and live in La Paz at the southern tip of Baja. In their case, it amounts to a three-step process:
First, they sell their house in Northern California and clear about $300,000. They have another $200,000 in combined 401(k) and retirement accounts, and they feel that they really should have another $100,000 or more before cutting the cord to salaried jobs.
This means that they plan to work long enough to make three more maximum contributions into their retirement plans -- each. This means an annual maximum of $20,000 for each of them for a total of $120,000. If they start by the end of 2006, make a full contribution again in 2007, and a final shot in early 2008, they will be able to say, "adios, amigos" by mid-year.
About $48,000 of the $120,000 is money that would otherwise have been paid in state and federal income taxes, because the couple's last $40,000 of annual income would have been taxed at a combined rate of almost 40 percent.
Meanwhile, their house being built in a gated community south of the border will be costing about $175,000 and they will own it free and clear. With total income-earning assets of more than $400,000, they can expect to earn 6 percent or about $24,000. Combined with Social Security of about $24,000 they will be in good shape with more income than they will need to spend.
The key to having the puzzle fall into place was the realization that they could contribute so much as tax-deductible contributions to a 401(k). There are no longer any percentage-of-income limitations on a contribution. If someone made only $20,000 at a part-time job, they could contribute the entire amount as a pretax contribution. A couple with a sudden inkling to do something wild and crazy (like retire in Latin America) could shorten the preparation time-frame by doing whatever is necessary (like taking an extra job) to make these large contributions that add a cash cushion to their nest egg.
Meanwhile, waiting for them in Latin America is an airstrip with their name on it -- not far from a beach, golf course, good restaurants and fellow Americans.