Retiring abroad is a dream for many and a reality for those who have taken the plunge. However, the health and economic crises have significantly impacted plans to move abroad. Amid a rising cost of living, inflation, tax benefits for retirees, and new legislation, how do you consider your international retirement plans?
Countries with the lowest inflation attract foreign retirees
According to the Global Retirement Index (GRI) published by Natixis Investment Managers in 2023, Costa Rica (1st), Portugal, Mexico, Panama, Spain, Ecuador, Greece, Malaysia, France, and Colombia (10th) are the top 10 countries for retiring overseas. Beyond beautiful landscapes and favorable climates, the main advantage of these countries is their generally lower cost of living than others.
Plans to move abroad have to reconcile with rising inflation. However, GRI countries manage to contain inflation (compared to other expatriation lands). In Costa Rica, the top-ranked country, it is only 0.6% in 2023 (according to OECD forecasts). Rates range between 3.5% (Spain, Panama, Ecuador) and 5.7% (France) for most other countries. Only Colombia shows a rate above 10%, at 11.7%, showing a slight increase compared to 2022 (10.2%), while inflation significantly decreased in other countries. According to observers, this is proof of the effectiveness of policies implemented in countries with low inflation rates.
The situation has also improved in other favorite expat destinations. In the United States, inflation dropped to 4.17% in 2023 after nearing 8% in 2022. A significant drop was recorded in Canada, too, where the rate went from 6.80% to 3.96%. However, contrary to expectations, the US Federal Reserve (the Fed) did not lower its key rate. To curb inflation, it has already raised it 11 times between March 2022 and July 2023. Despite Wall Street and investors' grumbling, there is a resumption of growth and a decrease in inflation.
Considering taxation and cost of living when retiring abroad
The United States remains an expensive destination for many prospective international retirees who prefer Portugal or Spain instead. But will the recent end of tax benefits in Portugal start another trend? In Portugal, foreign retirees (non-habitual residents) who settle no longer benefit from tax exemption. The tax benefit, long criticized by locals, resurfaced in early 2020. To attract wealthy foreigners, Portugal introduced a 10-year tax exemption on pensions in 2009, which changed to 10% in 2020. However, the exemption ends this year to ensure “social equity”, according to Prime Minister António Costa. In 2021, expatriates living at least 6 months in Portugal were already losing their tax benefits. With the revision of the Golden Visa and tax measures, Portugal intends to address the housing crisis and counter the price boom.
On the other hand, Greece maintains its tax benefits for foreign retirees, with a 7% tax rate for 15 years on all income. In Morocco and Tunisia, foreign retirees receiving a foreign pension can benefit from an 80% tax reduction. Spain is still questioning whether to maintain its Golden Visa program and is fighting to redefine its tourism policy. At stake: an unprecedented water shortage, which is exasperating the locals. Activists refuse to continue promoting mass tourism and tax benefits for wealthy foreigners, whose presence leads to booming prices. Tourist cities like Madrid have become unaffordable, with a monthly living cost of 2000 euros for a single person.
What does the law say about retiring abroad?
Beware of legislation, both in your home country and in your host country. Foreign retirees residing in Thailand have been concerned since January 1, 2024, when the Thai government enacted a reform on foreign income tax. From now on, foreign-source income of both Thais and expatriates will be taxable. The government has not yet provided details on this law, which could severly impact international relocation plans: will retirement pensions be considered foreign-source income? What will the tax rate be?
Retiring abroad requires complying with specific rules of your home country: informing your pension fund of your departure, regularly providing a life certificate, checking the existence of tax treaties between the host country and the home country, consulting with your bank about which accounts to keep and to close, any ongoing loans, income received (pension, rents), etc. Moreover, some benefits may be linked to your resident status. For example, French retirees cannot receive the elderly solidarity allowance (ASPA) if they do not reside in French territory. Residence means staying for a particular duration in the same territory. Also, in France, a retiree will still be considered a tax resident if they spend more than 183 days a year there.
Is it the right time to retire overseas?
What if you had to delay your overseas retirement project? In China, the question no longer arises for many elderly people who are between 60 and 69 years old and are still working. The retirement age ranges between 50 or 60 years, depending on gender and occupation. Beijing is considering extending it to 65 years; the issue was raised at the Chinese People's Political Consultative Conference in Beijing (March 4). The country is considering a pension reform that might be devastating.
Like the locals, many expatriates continue to work after the legal retirement age, occupying precarious positions and facing difficult working conditions that are far from comfortable. They have united with the locals against the reform. On February 8, several thousand retirees from Wuhan demonstrated against the threefold reduction of their health insurance premium. While China has not yet recovered from the consequences of its zero-COVID policy, this policy has worsened the precariousness of older people. In 2024, people aged over 60 account for nearly 30% of the population.
Do you have to be rich to retire abroad? Considering inflation and economic upheavals, only looking at tax benefits and lower living costs in some countries might not be a good idea. Delaying the move abroad seems to be the new trend for 2024. To cope with life's uncertainties (and in a post-COVID context that continues to leave its mark), prospective expat retirees are playing it safe, especially those who have worked in less physically demanding sectors. They may not be wealthy but have long-term savings, which, according to them, is the key to a successful retirement abroad.
