WHETHER THEY'RE SEEKING

a better climate, a lower cost of living or simply adventure, many folks dream of retiring abroad.

Turning that dream into reality can be a challenge. Before you buy, you should live in your would-be destination for an extended period of time, says Ken Budd, a travel editor at AARP, The Magazine. "See what it's like becoming a local. Make sure this idealistic locale is ideal for you."

How do you choose where to relocate? This is where the folks at International Living magazine come in. Each year, the company produces a list of the best places to retire abroad. Starting with 195 countries, International Living factors in safety, infrastructure, climate, culture, real estate and special benefits, like discounts for retirees. With the countries that score the highest, they add in first-hand reports from correspondents and contributors who live in these countries.

Its 2006 Global Retirement Index names 28 of the best countries to retire abroad. We recently spoke with them about the top five.

1. Panama City, Panama

Wish for a retirement haven that combines big-city feel with sandy beaches and warm winters but Miami Beach is too expensive?

Consider Panama. This transcontinental nation it connects North and South America combines affordable city and beachfront living and has topped International Living magazine's Global Retirement Index for six years in a row.

"Panama City was built by Americans while they were running the Panama Canal, so it has [good] infrastructure," says Kathleen Peddicord, the publisher and editor of International Living. "Its most developed parts look like Miami, with high rises, malls, a shopping center."

The best part? Panama's pensionado program offers a slew of retiree perks if you can document a monthly income of at least $500 ($600 for a couple), according to International Living. (You can qualify as long as you're 18 years old and you can document receiving some form of government pension Social Security, for example or a private pension from a well-known international company. If you have a private pension from a smaller company that isn't verifiable, you need to be at least 50.)

For a table with Panama's scores from International Living, click here

Pros: Cosmopolitan, yet affordable; close to the U.S.; great health-care system and a plethora of retiree discounts.

Cons: Panama City gets hot in the summer, so you may consider retreating to the surrounding mountains. International Living recommends the Chiriqui region. While many people in Panama City speak English, that's not the case in the rest of the country: If you don't speak Spanish (and aren't willing to learn), the language barrier could be a problem.

2. Malta

If history and cultural heritage attract you, you may want to head to Malta, ranked second on International Living's index. Malta is decidedly "old world," says Peddicord. Its centuries-old history and rich culture are noteworthy: Between October and May you can catch a theater, opera or ballet production at the Manoel Theater in the capital of Malta, the second-oldest theater in Europe.

But keep in mind that this tiny European Union country - a little more than 404,000 people lived there in 2005 - is truly an island nation. (It spans the islands of Malta and Gozo in the heart of the Mediterranean.) "It's island living," Peddicord says. "The saying 'If you don't bring it with you, it may not be there' is very true." (For a table with Malta's scores from International Living, click here

Pros: Mild climate all year round, rich culture and history, a low 15% tax rate for permanent foreign residents, no property taxes, English is commonly spoken.

Cons: Might not have all the conveniences and product choices you're used to in the U.S.

3. New Zealand

It's impossible to see the Academy Award-winning "Lord of the Rings" trilogy and not fall in love with New Zealand's picturesque mountains. But this country isn't just about raw natural beauty. Head to Auckland, a city of 1.3 million, if you need to dab into big-city life, shopping and entertainment. In addition to that, New Zealand offers some of the best real estate bargains around, according to International Living: The average house price in June 2006 was $190,000. Better yet, the country doesn't impose capital gains tax.

For a table with New Zealand's scores from International Living, click here

Pros: Beautiful nature, low cost of living.

Cons: It's difficult to qualify for full-year residency; the trip is quite long: a 12-hour flight from Los Angeles.

4. Uruguay

Just where is Uruguay? Don't feel bad if you don't know. This tiny country - about the size of Missouri is one of South America's best-kept secrets, according to International Living. Its capital, Montevideo, has a European feel with its architecture, entertainment and culture, and has been undergoing a recent rebirth, Peddicord says. "It's a place where there's a lot of energy in the air. You have all the distractions of city life: galleries, restaurants, theater," she says. But all that is incredibly affordable. "Think Paris on a budget." (You can still buy a small apartment in Montevideo for less than $30,000, according to International Living.) And should you crave sun and sand, head to Uruguay's seaside resorts where your dollar will go farther than in most resorts in the world. (For a table with Uruguay's scores from International Living, click

here

Pros: Very low cost of living; culture and big-city life combined with beautiful resorts; cheap real estate.

Cons: Few speak English; it's far from the U.S. (If you live in New York, plan for at least a 13-hour trip with one or more layover.)

5. Mexico

You knew we'd get to it. Time-tested Mexico ranks fifth in International Living's retirement index. It's close, it's accessible and it's still one of the most popular retiree destinations, Peddicord says. But compared with what it used to be six or 10 years ago, it's getting a little bit expensive, she says. "Ten years ago, Mexico was dirt cheap. Six years ago, it was still very affordable. Today, it's not expensive but it's certainly more expensive than Panama or Uruguay," she says. "In certain parts your cost of living could be comparable to the U.S., but also with a comparable standard of living."

For a table with Mexico's scores from International Living, click here

Pros: Close to the U.S. and accessible; a big country with diversity, from Pacific living through small towns and big cities; an established haven for U.S. retirees.

Cons: Not as affordable as it used to be.

International Living's Global Retirement Index 2006

Country Real Estate Special Benefits Cost of Living Culture Health Infrastructure Safety/ Stability Climate Total PANAMA 91 100 95 63 43 21 100 28 75 MALTA 71 65 78 66 89 8 100 100 74 NEW ZEALAND 91 36 62 95 86 79 100 80 73 URUGUAY 100 30 100 71 54 60 100 93 71 MEXICO 93 62 72 63 54 58 100 96 71

Source: International Living. All ranking numbers are on a scale of 1 to 100, with 100 being the highest.

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