The number of Americans wishing to retire abroad has tripled in the last three decades, with over 760,000 pensioners living abroad receiving Social Security payments in 2022. Many retirees prefer greener pastures and lower living costs during their golden years.
Families and seniors alike are drawn to the European lifestyle, which boasts cheaper living costs, a noticeably more relaxed way of life, and a safe environment, owing primarily to the absence of gun violence there. As the cost of living in the United States climbs rapidly, prospective retirees are increasingly considering migrating abroad to maximize their savings and 401(k) balances.
This trend has not gone unnoticed by the financial industry. Many banks and investment firms are now offering specialized services for retirees looking to move abroad. These services often include guidance on international banking, currency exchange strategies, and navigating foreign property markets. Some companies have even established partnerships with real estate agencies in popular retirement destinations to provide a more comprehensive relocation package for their clients.
Portugal has historically been the most popular retirement destination for Americans due to the simplicity with which visas can be obtained. However, Spain, Italy, Greece, and France have grown in popularity as Portugal has become an extremely competitive retirement destination.
Most nations in the UK and EU have Social Security and tax agreements with the United States, allowing American retirees to continue receiving Social Security payments while living abroad.
TheStreet spoke with Alex Ingrim, a Financial Advisor at Chase Buchannan who assists Americans looking to relocate to Europe with the financial aspects of their move.
How to determine the best country to retire in based on tax policies, Social Security, and cost of living
According to Ingrim, the high cost of living is the driving force for Americans' decision to retire abroad.
"It's, without a doubt, easier to live on a fixed income in Europe," he told me. "It depends on which tax regime you have— tax holidays in Portugal, Italy, or Greece and double taxation agreements like in France — can be very advantageous."
While the financial benefits are clear, it's important to note that retiring abroad isn't just about economics. Many retirees report significant improvements in their quality of life and overall happiness. The slower pace of life, rich cultural experiences, and opportunities for personal growth are often cited as major benefits. Some retirees even find themselves embarking on new careers or hobbies, inspired by their new surroundings and the fresh perspective that comes with living in a different country.
"Europe is still dealing with inflation and rising costs in the EU, but prices are starting from a lower base, so it's less noticeable," Ingrid said. "We routinely work with retirees, and many of them have a lot of money left over at the end of each month. They may enjoy the glamorous European beach lifestyle on a reasonable price."
Despite the increased taxation, Ingrim observes that American pensioners do not face the same concerns about health insurance or ensuring that their Social Security payouts match the rising cost of living. Most European countries provide a considerably stronger safety net for elderly retirees than the United States does.
Portugal has always been the most appealing option for American retirees because to its inexpensive cost of living, nice climate, and simple visa process.
"The most popular countries to move to have come in different waves," she said.
"Portugal received the most inquiries because it offers a variety of visa choices, including the Golden Visa, which was heavily marketed. It became well-known as a low-cost retirement destination in terms of housing, groceries, and overall living expenses."
However, the influx of retirees and digital nomads to popular destinations like Portugal has led to some unintended consequences. Local communities in cities like Lisbon and Porto have experienced rapid gentrification, leading to rising housing costs for residents. This has prompted some countries to reevaluate their visa and tax incentive programs for foreign retirees. Prospective retirees are now encouraged to consider the impact of their move on local communities and to explore less saturated areas that might offer a more authentic experience while contributing positively to the local economy.
"They had this tax holiday scheme called the Non-Habitual Residency (NHR) scheme, which was very enticing for retirees," she said. "You paid a 10% tax on Social Security and IRA distributions, which was repealed at the end of 2023. Portugal has simply become too popular and too expensive, so we're seeing more interest in Spain and France as well."
"Italy has always been many Americans' dream — if all factors were equal and Italy was just as easy to move to in terms of visa requirements and cost, most people would be interested in moving to Italy."
Developing a plan for retiring abroad:
Though it is easy to become caught up in the grand scheme of an overseas relocation, Ingirm emphasizes the necessity of consulting professionals and knowing the logistics.
There are a few persons you should speak with and crucial elements to consider while going abroad. First, consult with an immigration lawyer to see whether you meet the eligibility requirements to live in the nation of your choice, as each country has its own set of standards. Ingrim points out that housing is an equally essential concern.
"You'll also need to acquire lodging and define how it will fit into your budget," he stated." "Typically, you need to have a lease or mortgage to be eligible for most visa categories, so speaking with a realtor should be a priority, too."
Understanding the tax consequences of 401(k) and IRA distributions can be difficult enough for retirees in the United States. Professional consultation is required when dealing with international tax policy and currency exchange.
"Depending on whether you're retired or working, you'll need to understand the tax implications," he said. "If you don't plan correctly, you could face substantial tax consequences. So we propose speaking with a tax professional and developing a strategy to understand how such tax rules will influence your finances in the long run."
One aspect of retiring abroad that often gets overlooked is healthcare. While many European countries offer high-quality public healthcare systems, navigating them as a foreign retiree can be challenging. Some countries require residents to contribute to the national healthcare system, while others may require private insurance. Additionally, language barriers can complicate medical care, especially for those with chronic conditions. Experts recommend thoroughly researching healthcare options in your chosen destination and considering supplemental international health insurance to ensure comprehensive coverage.
Finally, you must determine how you will need to alter your retirement plan, specifically how to change your investment portfolio in accordance with the rules and regulations in force between the EU and the United States. It's a multi-step procedure.
Understanding how international tax policy and banking regulation may impact your money
Moving overseas involves numerous moving elements. Allowing yourself enough time to work out financial logistics, tax arrangements, and bureaucratic red tape is the most effective method to achieve success.
"We recommend that people interested in moving to Europe start about two tax years before your move," Ingrim told me. "Give yourself two tax years to plan and understand what your tax liability is going to be before you start putting the other wheels in motion."
We get a lot of requests for Spain, and once people learn how much tax they would have to pay in Spain, they quickly stop moving. However, France has an excellent Double Taxation Agreement with the United States. If you are a US citizen, France should be your first choice for retirement.
We typically inform clients that moving to France will not impact their tax liability; it is the finest tax jurisdiction for a retired individual. When you understand your tax liability, you have the flexibility to change your plan accordingly. It's very beneficial.
If you're thinking about migrating to another EU country, understanding your foreign tax liability may be more challenging. Ingrim clarifies the issue of paying taxes as an American citizen residing abroad.
"As a citizen of the United States, you are always subject to US taxes. You don't always have to pay the US, but you must always file your taxes and follow US regulations," he explained. When you become a tax resident in a foreign jurisdiction, such as Spain, and meet the qualifications for being a Spanish tax resident, you have dual duty to both Spain and the United States."
"You need to use the Double Taxation Agreement between Spain and the U.S. to determine who you pay your taxes to, and it doesn't always exhaust your tax liability," said Mr. Garcia. "For Social Security, you must pay Spain. Your tax responsibility is to Spain rather than the United States, which is regrettable given Spain's higher income tax rates."
"If you owe 25% in taxes to Spain and 15% to the United States, you must pay Spain. Because that is the bigger sum, you no longer owe anything to the United States – your liability is discharged," Ingrim added.
You are not taxed twice; the highest rate of the two countries determines your effective tax rate. It usually signifies that you are paying taxes to the European country.
Moving abroad checklist: To ensure you're fully prepared for an international move, complete the steps below.
- Consult an immigration lawyer to determine visa eligibility and requirements.
- Speak with a tax consultant to assess the level of tax liability you are comfortable with, which will help you choose the best country for your needs.
- Find housing and sign a lease or mortgage.
- Apply for and get a visa.
- Consult a financial counselor about changes to your investment portfolio, 401(k) payouts, and Social Security payments.
As the trend of retiring abroad continues to grow, it's clear that thorough planning and expert advice are crucial for a successful transition. While the financial benefits can be significant, retirees should also consider the cultural adjustments, potential language barriers, and impact on family relationships back home. Many successful expat retirees recommend spending extended periods in their chosen destination before making a permanent move, allowing for a more realistic assessment of day-to-day life. Ultimately, retiring abroad can offer an exciting new chapter for those willing to embrace the challenges and opportunities that come with international living.
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