Squeezing Colossal Returns from Your Retirement Kitty in Costa Rica

Update: It has been almost a year since we opened our Costa Rica CDs. After nearly perfect stability in the U$D exchange rate for a couple of years, the Costa Rica Colon depreciated this year about 3%. Given that our CDs average approx. 11% return, we are still 8% ahead this year and expect to renew the shorter term certificates. 

Our confidence has also been increased in CoopeNae after a recent meeting for investors that we attended (or maybe it was the delicious shrimp, shishkebab and Argentinian wine served afterwards? :) ). For example, they have the highest growth rate among credit unions here and better liquidity than the national banks!

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I've been aware of the enormous interest rates on savings in Costa Rica since we moved here, but until recently was unable to take full advantage of them because spare cash was tied up in other things and, I must admit, the big returns made me gun shy. I mean, there has to be a catch right? Yes, there is a catch, but looking back over our 7 years residing here, with the absolute clarity that 20-20 hindsight provides, I wish we'd taken the plunge sooner.

Typical CD Rates in Costa Rica for Colones Deposits

As you can see from the chart at the right, phenomenal rates can be had on Certificates of Deposit denominated in Colones. Rates for U$D deposits are dramatically less, but much higher than in the U.S., up to 3.5%.

For deposit amounts in five figures or higher, you can actually negotiate slightly higher rates as well. We were able to get 12% with a quarterly payout of interest on one CD.

The highest rates are not universal. These quoted at the right are from a local credit union. Bank CDs yield 2 or 3 points lower and National Banks even lower. The latter provide something like the FDIC insurance coverage enjoyed in the States however.

Which brings us to why you might not want to invest in such CDs:

Which Lifestyle Would Cost Our Family Less - Oregon or Costa Rica? - Part 1: Taxes

Gringo expats decide to retire in Costa Rica for a wide variety of reasons. Topping many expats' lists of desirable advantages would be maintaining their living standard at a lower cost or enjoying a higher standard of living for the same cost. That goes for adventurous, frugal younger expats as well as older expats such as myself stretching their retirement dollars.

Costa Rica can certainly offer terrific savings, especially in the areas of health care and housing. Many other daily expenses, however - automobiles being the most egregious example - are higher than what most norteamericanos are accustomed to. Depending on your financial status, lifestyle choices, goals and ability to adjust, the comparative financial equations we all go through at some point before moving here will each have their highs and lows.

Taking Stock of Expat Living Expenses

One Constant Is That Things Change

As we approach a new phase in which our own income will shift to primarily U.S. Social Security, our calculations are changing. In fact, just in terms of cost of living, we find that it may actually be cheaper for us to reside in our previous home state of Oregon. I'm not going into all the gory details of that calculation, but this two-part article does hit the high points. Hopefully, it provides additional food for thought to those considering moving to Costa Rica

Which Lifestyle Would Cost Our Family Less - Oregon or Costa Rica? - Part 2: Non-Tax Expenses

Comparing Non-Tax Expenses

In this part, I include estimates of monthly costs for food, medical, vehicles, utilities and housing. Part 1, about tax costs, is here.

Food Prices

Comparing food prices between Costa Rica and the U.S. is a complex business. Most expats experience sticker shock in part due to the included 13% sales tax and the fact that so much food in Costa Rica is imported. Want a box of Apple Cinnamon Cheerios? That’ll be about six bucks please. Can you get by with 1-minute oatmeal? Good, because that’s only about 75 cents for a 200g bag. If you look at food here in a 1-for-1 comparison to U.S. products, Costa Rica loses.

 

Costa Rica Farmer's Cheese, available everywhere

Dairy products are about the same or higher than in the U.S. because producers are protected by steep tariffs on imported milk, etc. from, say, Nicaragua. About the best you can do by weight is local farmer cheese at $2.15/lb. but it’s only aged 30 days. We found one store with what we consider a smoking deal on run-of-the-mill sharp cheddar at $6/lb. Many other cheeses are 50-100% more, especially artisan cheese.

Judging by a flyer from our once-local Fred Meyer store in Oregon, I’d say meat prices are on a par in each country, but canned tuna here is out of sight. You have never seen more ways to can tuna than in Costa Rica. They mix it with almost anything to reduce the actual fish content and lower the price.

Is It Really Worth the Trouble and Expense to Obtain Costa Rican Residency?

Knowing what I know now, having been through the residency process (as it was five years ago) and one renewal last year, I am not at all sure that I would do it again. Solely from an economic standpoint, I no longer think it's worth it for most people. Obtaining Costa Rican residency costs more in hard cash than in almost any other Latin American country.

It also does not come with many fringe benefits. For example, Panamá last year did an upgrade to their residency requirements that makes moving there very tempting form a financial viewpoint. You can get permanent (not temporary like in Costa Rica) the first time and with very little money in the bank. They also have huge discounts for retirees on just about everything. You bring in your household goods duty-free and the list goes on. You pay full freight in terms of duty and taxes when you move your stuff to Costa Rica. Sure, you'll get some big discounts at the  Costa Rica national parks and passing through Customs seems to be easier when you are a resident, but those advantages are very minor in the bigger picture.

Weighing Costs versus Legal Requirements

From a freedom of lifestyle perspective, residency might even be thought of as a detriment since once you are invested in it, you want to keep it going and thus, its presence may hinder you from trying another place. That is especially true during the first couple of years when you are still seeing if you can adjust. I will try to leave aside such subjective measures in the following calculations though. Which is why I also won't belabor all the physical and mental hassles of obtaining residency. Some people, crazy people, might actually enjoy those!

Bear with me as I walk through the calculations. Who knows, by the time I am through I may have even convinced myself that it is the right way to go. In all these calculations, I am figuring the costs for a couple who are applying for a Pensionado visa. The overall costs for rentista would be higher (see discussion of Caja below).

Top 10 List of What I Like Best About Living in Costa Rica

I was driving my son Sean into Pedregoso today so he could play video games with some of his friends. On the way he asked me what I missed the most from our former life in Oregon. I recalled having thought of something just a few days ago along those lines but couldn't bring it up at that moment (his was Dr Pepper). Maybe it's because there is so much to enjoy here in Costa Rica that I don't fret over comparisons to the "old life" that much. Be here now, right? 

So, I thought I'd make up a quick list of those things I enjoy about retiring here in Costa Rica. The order is not important. It's tough to say which features are better than others. It's not so much their presence individually, but the synergy of them taken together that makes me smile, relax, and want to share the goodness that we've found living here.