In my consulting practice, I'm often asked about my own "Plan B" ? what I plan to do when the s**t hits the fan (SHTF) in the good ol' US of A. And of course, why I chose that plan.
In my case, it's Panama. I'm now a permanent resident there and will pick up my cedula ? my national ID document ? next month.
In choosing Panama as my personal "bug out" location, I went through a comprehensive evaluation of that country versus several other possible alternatives. Here are the criteria I reviewed:
Panama passed most of these tests with flying colors. A residence visa doesn't require you to live in Panama; you need to spend only one day per year in the country to maintain your resident status. But if there's an SHTF moment in the US, I can spend as much time as I want in Panama.
I received a "citizens of friendly countries" visa. This visa gives me the right to work, invest, or conduct a business in Panama. The easiest way to qualify is to form a Panamanian company and deposit $5,000 or more in a local bank account.
After five years of legal residence, I can acquire Panamanian citizenship and passport. Physical residence for at least part of this time is required, as is proof of some degree of integration within Panama and Spanish language proficiency. One drawback: Panama doesn't allow dual citizenship, although this prohibition isn't stringently enforced.
The financial privacy laws in Panama are very strong, although an increasing number of exceptions apply to investigations by foreign tax authorities, especially the IRS.
Infrastructure wise, Panama isn't quite up to First-World standards. I would probably buy a backup generator, if the dwelling I lived in didn't have one already, to deal with the frequent electricity outages. On the other hand, the transportation, medical, and Internet infrastructures are excellent.
Panama's official language is Spanish. I can get around Panama City, the capital and largest city, without speaking Spanish, but elsewhere in Panama, English isn't widely understood.
As a middle-aged white male, I've never encountered prejudice in Panama. On the contrary, the locals are usually quite solicitous toward me. That may be due to the fact that Panamanians have been dealing with American visitors for more than a century? or because they associate gringos with money? or both.
Panama is one of those rare countries with a "territorial" tax system. Generally speaking, that means you pay tax only on income you earn within Panama. That's not especially helpful for US citizens like me who are taxed on our worldwide income, wherever it's generated. However, in combination with the foreign earned income exclusion (FEIE), a US citizen generating earned income outside the US or Panama can afford a high-quality lifestyle and pay little or no income tax. (Note that the FEIE does not apply to dividend or entrepreneurial income or capital gains.)
If you're a US citizen or green card holder living and working outside the US, the FEIE exempts the first $99,200 of your annual earned income from US income tax. If your spouse accompanies you overseas, you can double this exemption and jointly earn up to $198,400 annually, free of US income tax obligations.The Drawbacks to Living in Panama
Panama does fall short in some areas. Corruption and crime ? including crime aimed at foreigners ? are a problem. Police investigations leave much to be desired, unless you have contacts with political "pull." I've also heard some horror stories from expats about the lack of clear title to property in some parts of the country, especially so-called "rights of possession" properties. But if you're purchasing property in or near a city, you can get clear title.
In addition, while Panama historically hasn't had an especially high "nanny state" quotient, that's starting to change, thanks to newly inaugurated President Juan Carlos Varela. One of his major initiatives has been to impose price controls on basic food items, which have already led to shortages.
I also gave a lot of thought to how Panama will be affected during an SHTF event in the US. Panama uses the US dollar as its official currency, so a sudden devaluation of the US dollar would lead to serious inflation in Panama for anything imported into the country. But Panama could decouple its parallel currency, the balboa, from the dollar if circumstances required it to do so.
Panama's namesake canal is inextricably linked to the US, even though the US relinquished all rights to it in 1999. However, the US retains the right to act against any aggression or threat directed against the canal. For me, it's reassuring to know that the world's most powerful military stands ready to defend the most important source of revenue in my adopted country.Other Options
Of course, Panama wasn't the only country I considered as a second residence. I also looked at Canada, Austria, Mexico, and Costa Rica, among others.
What's your personal bug-out preference? Share your thoughts with me at email@example.com.