The Yanquis Are Coming!
By Coley Hudgins
Published 08/18/2005

In the run-up to last month’s passage of the Central America Free Trade Agreement (CAFTA), the anti-globalization doomsayers were out in force with bold predictions about the “final blow” the deal would mean to the economies of Central American countries. Pro free-traders argued just as vehemently that CAFTA was a major step in building the foundations for a democratic community of nations in our hemisphere.

What’s largely been overlooked from both sides however may have little to do with CAFTA at all. Instead, one of the biggest economic forces reshaping Central America in the coming years may be a demographic shift occurring right here in the Unites States spurred by the massive retirement of the baby boomer generation.

According to a recent New York Times story, starting in January of next year baby boomers — defined as those born between 1946 and 1964 — will start turning 60 at a rate of more than four million a year. The leading edge of the baby boomers is beginning to turn 59 now — the age when Americans can start collecting certain retirement benefits without penalty. The number of Americans 55 and older is expected to skyrocket from 67 million this year to 97 million by 2020.

In many ways boomers are a different breed altogether than the generations that preceded them. They are healthier, live longer, and are more active, mobile and adventurous than prior generations. Trends suggest many will continue working beyond the traditional retirement age of 65, launching second careers, becoming entrepreneurs or focusing more on charitable and volunteer projects.

But in one fundamental way, baby boomers may not be so different than their parents and grandparents. Consider what I call the “Del Boca Vista” migration.

Del Boca Vista is the mythical Florida retirement community Jerry Seinfeld’s parents, Helen & Morty called home. Like Helen & Morty, the enduring cliché about older Americans is that once retired they pack up their belongings, bid adieu to colder climes, and move to Florida to enjoy rounds of golf and blue plate specials in Del Boca Vista-like retirement communities.

Like many stereotypes, this one contains a kernel of truth. According to a 2001 American Demographics study based on 2000 census data, Florida registered the highest share of seniors of any state in the country in the 90s, but other sun-belt centers like Phoenix, Sacramento, Raleigh-Durham and Las Vegas were also highly attractive “elderly magnets”

William Serow, professor of economics at Florida State University in Tallahassee has been studying migration patterns of the elderly for years, and believes that since the end of World War II younger, more well-off “roving retirees” in their 60s still instinctively seek out warmer climates in “fun” places like Arizona, North and South Carolina, and Florida.

According to Serow, the other key goal of this more affluent group of retirees is reducing living expenses by moving to sun-belt communities with cheap housing and lower taxes. And therein lies the big conundrum for today’s boomer retirees: Just as millions of retiring baby boomers are getting ready to migrate to warmer sun-belt states, these attractive retiree destinations are experiencing skyrocketing real estate prices and property tax assessments that may put these locations out of reach for all but the most wealthy boomers.

So, what’s the significance of all of this for Central America? Tomorrow’s Del Boca Vista migration won’t necessarily be to the sun-belt states in the U.S. It’s just as likely that a large subset of boomer retirees — call them “boomer gringos” — will bypass southern sun-belt states altogether for more affordable Central American alternatives like Nicaragua, Costa Rica, Mexico, Panama, Belize and Honduras. Most Central American countries are still only a two or three hour flight back to the states and have adequate infrastructures allowing retirees to stay in touch with friends and loved ones back home — good cell phone coverage, broadband Internet connections, even satellite television.

Having recently returned from vacation in Nicaragua and Costa Rica, the anecdotal evidence suggests it’s already happening. Costa Rica is experiencing a housing boom that rivals anything here in the U.S. and is driven in part by new boomer retirees. Two or three bedroom homes that were selling for $270,000 in December of last year are now selling for $350,000 and $400,000 in some parts of the country. While coastal areas may be experiencing their own version of a housing bubble, there are still very reasonable prices for many boomer retirees.

The story to the north in Nicaragua — the second poorest country in the Western Hemisphere, and a country that still conjures up images of right wing dictators and left-wing revolutionaries — is even more interesting. Small coastal communities like San Juan del Sur and cities like Granada are swarming with retired ex-pat boomers who are buying land and building dream retirement beach-front homes for a fraction of what it would cost in the U.S.

Costa Rica: Imposes no tax on income earned outside the country, and allows retirees to buy into the national health care system offering care at public hospitals by participating doctors, many of whom are U.S. educated.

Mexico: Retirees can qualify for “rentista visas” that are renewable annually for five years, and require only that retirees show a minimum income of $1000 per month. Retirees can join the national HMO for about $200 per person per year.

Nicaragua: The government recently passed Law 306 that includes provisions exempting qualified investors from paying income or property taxes for up to 10 years, and providing generous exemptions from import duties for “pensioners” and investors that qualify.

Panama: Positioning itself as the world’s greatest retirement destination. Retirees pay no real estate or property taxes for 20 years.

Honduras: Doctors visits are typically around $15, and pharmaceutical drugs cost 30% to 50% less than in the United States. Honduras offers a one-time exemption from all import duties for retirees, and allows retirees to bring in one car or boat duty free every five years

Remax and Century 21 have opened offices in the country, and affordable housing developments on some of the most coveted and pristine coastlines in the Americas are now dotting Nicaragua’s Pacific coast. New developments like Rancho Santana, Iguana Beach and Guacalito have launched sophisticated marketing campaigns to attract boomer retirees, and publications geared towards retirees like International Living are hosting retirement summits and conferences to sell Nicaragua as a retirement destination.

In Mexico, previously unknown towns like Ajiic, on the shores of Lake Chapala have attracted tens of thousands of boomer gringos as well. NPR reported last year that here retirees can have a furnished home, cheap dining and the part time services of a maid and gardener for less than $2000 a month. According to NPR, more than one million Americans now call Mexico home.

While exact figures are difficult to obtain, the U.S. State Department estimates that about 380,000 Social Security checks are delivered to beneficiaries outside the U.S. each month. Almost four million Americans — not including embassy officials and the military — are now living overseas, although how many of those ex-pats are retirees is unknown.

What is known is that governments in Central America are luring gringos with new laws that include impressive incentive packages for retirees. And despite the inherent volatility and political risks that remain in many of these countries, boomer gringos (and Central American governments themselves) are betting that the economic benefits of a retiree migration to Central America will be a two way street. Retirees get a lower cost of living, warm weather and cheap housing and create a virtuous cycle in return — more retirees equals more local jobs, resulting in more economic stability and less political instability, resulting in more retirees.

But will this new economic model pay dividends? Serow figures that each retiree household in the U.S. is responsible for a little more than one job being attracted to the community. While he cautions that such jobs tend to fall into the low-paying, service category here in the US., for developing economies that are starting at close to zero, service jobs are the best way to get a first foot on the economic ladder.

And it appears that many are already climbing the ladder. The national newspaper in Nicaragua La Prensa published a story earlier this year about how the boom in tourism and the influx of retirees has benefited the economy. The story described workers who no longer had to look for seasonal work six months out of the year as “illegals” in more developed Costa Rica because they were now employed as full-time laborers close to home building housing developments for a new wave of foreign investors.

And while the debate rages here at home about the impact of illegal immigration on our own economy and government services, there’s no question that “low-paying” service jobs here in the U.S. filled largely by illegal immigrants benefits local communities back home. (Remittances from foreign countries like the U.S. to family in Mexico is one of the largest sources of foreign currency in the country)

Wouldn’t it be more beneficial to Central American countries if in the future these service jobs were created locally by an influx of American retirees? It’s possible that the emigration of wealthy boomer gringos to Central America in the years ahead could slow illegal immigration here as workers become part of a home-grown service economy driven by retirees.

Are American retirees a panacea for Central American economies? Not by a long shot. There are still fundamental economic and political issues that will need to be addressed by the governments themselves that neither an influx of retirees or CAFTA will completely mitigate. Stamping out corruption, increasing government transparency, and bolstering education and the rule of law all need to be top priorities at home before the hemisphere can develop strong and sustained economic growth.

But the facts seem to indicate that barring some unexpected political upheaval or economic calamity, the Yanquis are going to keep on coming in larger and larger numbers. Central American governments have already placed their bets. They see our retirees not as a drag on the economy as we here in the U.S. often do, but as a potentially huge source of much needed capital, investment and job creation. The smart money should be betting that they’re right.

Costa Rica Development Land Real Estate
Puerto Azul Resort and Marina

Coley Hudgins is a Washington D.C. based government affairs consultant. He has lived and worked in West Africa, and has traveled extensively throughout Central America and Asia.