Retiring abroad is more popular than ever. But it's not all about warm climates and beach getaways. As it's becoming increasingly expensive to retire in the United States (and several other high-income countries), a lot of people are seeking other location options for a more relaxing and low-cost time off.
What is the retirement crisis in the USA
Retiring in the United States is becoming more costly than ever. Because of the rising cost of living, a significant portion of the population has less than $50,000 saved, which is far below what is needed for a comfortable retirement.
In addition to the rising cost of living, there are several other reasons for insufficient retirement savings:
- Traditional pensions have been mostly replaced by defined contribution plans like 401(k)s. This has put a lot of responsibility for savings and investment on individuals who may lack the necessary financial knowledge or the discipline to manage money properly.
- Social security is an important source of income for retirees. However, trust fund exhaustion is projected for as early as 2037, which may substantially reduce future benefits for some retirees. Moreover, more than half of the private sector workers do not have access to employer-sponsored retirement.
- People are now living longer – which should be good news. But it also means that they need to stretch their savings over a longer period of time. And the catch here is that many Americans are outliving their savings.
- Additionally, the Great Recession and the COVID-19 pandemic have also disrupted savings and investments for millions of Americans.
More people are retiring abroad
Over the past 30 years, the number of Americans seeking to retire abroad has tripled. But this is not a purely American phenomenon. The trend of citizens from developed countries looking to retire elsewhere is global. For instance, the number of British citizens residing in Spain is 284,00 (as of 2023, according to Statista). As of 2023, the number of British citizens residing in Spain was approximately 284,000. Similarly, over 1.5 million German citizens have chosen to live abroad, with countries like Austria and Spain being among their top destination choices.
More French retirees are also choosing to spend their retirement years abroad. Spain, Portugal, and Morocco emerge as top destinations. In fact, according to a study by the Caisse Nationale d'Assurance Vieillesse (CNAV), nearly 60% of French retirees who relocate abroad opt for European countries, primarily Spain, Portugal, and Italy.
Australian retirees are relocating to countries like Thailand and Malaysia. In 2022, an estimated 27,000 Australians resided in Thailand, drawn by affordable healthcare and a low cost of living.
Canadian retirees are also part of the trend. Currently, Mexico is one of their preferred destinations. As of 2023, nearly 12,000 Canadians were registered as residents in Mexico's Yucatan Peninsula alone. The number of Japanese citizens retiring abroad has also been on the rise, with many retirees relocating to Southeast Asia, especially the Philippines and Malaysia.
Dealing with retirement bureaucracy abroad
But retiring abroad is often not as simple as packing up your beachwear and reading up on local cuisine. Moving to a foreign country, especially for the long term, requires quite a bit of paperwork, often in a foreign language and often in a very different legal environment.
First, you will need to look into the residency and visa requirements of the country you are relocating to. A lot of countries (especially the ones that are popular retirement locations) do have specialized visas and residency options for foreign retirees. Here are a few examples:
- Thailand – Retirement Visa (Non-Immigrant O-A or O-X Visa);
- Spain – Non-Lucrative Visa;
- Portugal – D7 Visa (Passive Income Visa);
- Mexico – Temporary or Permanent Resident Visa for Retirees;
- Malaysia – Malaysia My Second Home (MM2H) Program;
- Panama – Pensionado Program.
Relocating to one of the countries with a specific roadmap for retirees may make things simpler. With a specific residency program and rules to follow, navigating the paperwork and settling in will (most likely) be easier – as you will have a clear legal path to follow to build your life in the country.
With that said, even here, you should still be prepared for unexpected changes and adjustments in residency rules.
Julia moved to Türkiye with her husband to retire and explore the country. They were planning to buy a house and even started a small YouTube channel documenting their travels. However, in 2023, the country changed its real estate-based residency rules overnight. "We woke up one day and realized we can no longer stay in the country with the new rules. We were devastated and lost. We've had this plan for so long and were sure we were well prepared. But we had to re-plan everything on the go. We are now living in Spain, but our first retirement move has made us very anxious about the future."
Another important thing to look into when planning retirement is healthcare access. You may need to buy local health insurance, which can be costly and involve additional and extensive paperwork. For instance, in Thailand, retirees on the O-A or O- retirement visas are required to have health insurance with coverage of at least 400,000 THB (USD 12,000) for inpatient care.
In some countries, access to public healthcare may be restricted to foreign nationals or tied to specific forms of residency. For example, in Spain, retirees on a non-lucrative visa are required to purchase private health insurance until they qualify for the public system after they have become permanent residents in the country.
Keep in mind that moving abroad means dealing with a lot of papers, often in a language you don't understand. Essential documents such as marriage certificates, birth certificates, or pension statements often need to be apostilled or legalized. This is something to take into account, as these processes take time and can be costly.
Opening a bank account in your new destination can also sometimes be problematic. Some countries will only allow you to open a bank account if you hold a specific type of residency. Some may impose restrictions on transferring large amounts of foreign currency – which can disrupt retirement plans. For example, non-residents can open a bank account in Portugal, but it typically requires a Portuguese tax number (NIF) and proof of address, which can be challenging for newly arrived retirees. In Mexico, transferring large sums to a local account may trigger additional tax reporting requirements or close scrutiny from financial institutions.
Another key consideration is taxation. Relocated retirees will need to navigate new tax arrangements and clearly understand the new tax obligations following their move. The first step here would be finding out if your country of citizenship has a double taxation treaty with your new destination. This can help you avoid paying taxes in both places. For example, in Thailand, there is no tax on foreign income unless it is remitted to Thailand within the same calendar year. This rule allows many retirees to keep their foreign pensions tax-free as long as they manage their transfers carefully.
If you are relocating abroad for the long term, you may also be considering purchasing property. However, some countries do have restrictions on property ownership by foreigners. You may be needing additional permits or partnerships with local citizens. Let's take Thailand as our example again. Here, foreigners cannot directly own land. However, they can purchase condominiums as long as foreign ownership in the building does not exceed 49%. Alternatively, you could lease land for up to 30 years or set up a partnership with a Thai citizen to own property. In Mexico, on the other hand, foreigners can buy property outright, except in the Restricted Zone (within 50 kilometers of the coast or 100 kilometers of the border).
Moving to a new destination may also result in reduced benefits. For instance, some countries reserve the right to freeze pensions. It may also lead to changes in your social security status. For example, Australia may reduce pension benefits for retirees who leave the country for extended periods of time. Plus, the Age Pension is subject to the Work Life Residency Rule, which adjusts the payment based on the years lived in Australia between the ages of 16 and 67. In France, retirees moving abroad can generally receive their pensions without issues, but regular proof-of-life certificates (certificat de vie) are required to maintain payments. Tax payments mostly depend on bilateral agreements – such as favorable regimes in Morocco or standard taxation in Spain.
Some retirees may seek to supplement their income by running a small business. This may also prove to be more complicated once you move abroad. For example, if you have relocated to Spain on a non-lucrative visa, you won't be able to engage in any economic activity—which includes running a business. To start a business, you will need to change your residency status. Similar restrictions may apply in other countries.
When Ben first moved to Phuket on a retirement visa, he was planning to open a small bar in his favorite area on the island.
"As I was a foreigner, I had to apply for a special business license to run my bar without a Thai partner. This proved to be quite difficult and costly, and I wasted a lot of time doing the wrong paperwork. I did open my bar, but I decided to partner up with a local friend to help manage the day-to-day.".
To recap, while retiring abroad does come with its share of complications and extensive paperwork, many people still find the journey worth it. Escaping high living costs and cold climates requires research and planning – but numbers don't lie: more and more people are committing to spending their golden years abroad.
