Retirement can be a time of massive change. Most people work tirelessly for decades to enjoy a relatively comfortable transition into older age. However, saying goodbye to a job, profession, or business that has supported you for a long time isn’t always easy. For most people, it comes with changes in their income stream, investments, benefits, and lifestyles.
Retirees or would-be retirees know how crucial it is to stretch one’s dollar. With the current cost of living crisis affecting many parts of the world, Americans have been interested in relocating abroad.
While retiring in the US does offer some advantages, such as being close to friends and family and living a familiar lifestyle, it is likely to be expensive.
Moreover, healthcare costs continue to rise in America. A healthy 65-year-old couple will need about $300,000 after-tax dollars saved up to cover their healthcare expenses during retirement.
There are hundreds of possibilities for overseas retirement—each country boasting its own culture, benefits, lifestyles, and retirement incentives for US citizens. However, some are better at helping you maximize those hard-earned dollars than others.
Which countries are better for American expats on the financial front? Here, we delve into the most affordable countries in the world, evaluating factors such as cost of living, real estate prices, cost of transport and accommodation, cost and quality of healthcare, weather, and life expectancy.
Many countries have unique golden visa programs for attracting retirees. In this comprehensive guide, you will quickly learn to gauge retirement destinations using essential metrics and discover the unique features that could suit one or several of them.
Why Retire Abroad?
Retirement plans are as distinct as the people creating them. For some, retirement can mean a shift in careers, transitioning to a less stressful workload, or devoting themselves to a new passion or hobby. Some look forward to a change of scenery in retirement—be it in a place close to unspoiled natural features. Some seek to travel by land with an RV, keeping things open-ended and taking in the landscape.
For others, moving to another country is a goal in itself.
It’s well-known that moving abroad—outside the US specifically—can help reduce living costs. It is especially true if the retiree is from a large US city. Those expecting a modest income in retirement would benefit from moving to a more affordable place—this would mean they can live very well in their golden years.
The US is becoming very expensive for retirees. Some US citizens may be surprised to learn about the affordability of certain parts of Europe. Several European countries combine affordability with excellent quality of life. The cost of living in New York City is twice that of Florence, Italy. Porto, a well-known retirement destination in Portugal, is 65 percent cheaper than San Francisco.
As retirement means your funds are finite, you can use the move to another country to alleviate your spending worries. With a lower cost of living and greater dollar spending power in some countries, you can afford to indulge a little instead of only spending on the basics.
As a result, retirement can be a time to thrive and have more experience. In addition, deciding to retire in an affordable country means you can consider retiring earlier than planned.
How To Choose Where To Retire
If you’ve considered a move abroad, the next step is choosing where to retire. You must start this process as soon as possible, as moving to another country isn’t instantaneous. Instead, it’s a longer process that compels you to look into the details that will influence your future life.
You need to know some metrics to help guide and choose which country is best for you in retirement. These are the Cost of Living Index, the Global Peace Index Ranking, and the Global Retirement Index.
Cost of living index
The cost of living is the amount of money needed to cover all the expenses necessary to maintain a specified lifestyle in a particular place and time. Such expenses typically include food, housing, healthcare, taxes, education, clothing, transportation, and entertainment.
Photo by Marc Najera on Unsplash
In recent years, the cost of living has risen drastically. Inflation has hit Americans noticeably, costing the average American an extra $460 every month.
To better understand the cost of living, picture how someone’s salary may provide a different standard of living in a small city in the US Midwest versus large cities like Los Angeles, New York, or Boston. The cost of living impacts many aspects of one’s lifestyle and ability to save, invest, and enjoy life to the fullest.
How does the Cost of Living Index work? Most such indexes establish a base cost of living, typically 100. This base can be the cost of living in a single region or an average of many areas.
You can peg a particular city as a base city and then measure other regions against this base. Afterward, you assign a cost of living number accordingly. For example, if you set Chicago as your base city represented by the number 100, another city like Boston is 20 percent more expensive than Chicago. Boston’s cost of living number is 120.
Cost of living indexes
You can consult several cost of living indexes and related figures to help you decide on your overseas retirement. The following are the most well-known and practical ones:
ACCRA COLI
The ACCRA COLI, or ACCRA Cost of Living Index, compares various living expenses in different country regions. This index measures consumer spending on healthcare, housing, groceries, utilities, and transportation.
In Q3 2022, the report showed that Manhattan and New York had the highest cost of living of all US areas. Honolulu, Hawaii, had the second highest. By comparison, Texas had the lowest. You can use the ACCRA COLI as a benchmark for comparing your US options and deciding whether it is feasible to stay on or if it is time to consider living abroad.
Economic Policy Institute
The EPI, or Economic Policy Institute, provides a free budget calculator that updates you with cost of living data for cities and towns across the United States. You can use the calculator to determine the cost of living in US cities based on your family size or number of family members.
You can then compare your income with this figure and review whether retiring in that place is feasible. In the case of overseas retirement, the computed cost of living in various US states could be used to compare to other cities abroad.
The Social Security Administration’s COLA
The COLA, or Cost of Living Adjustment, is provided annually for retirees receiving Social Security benefits. This adjustment is based on the current inflation rate. The rate of inflation represents the pace at which prices are rising.
In 2023, Social Security benefits were increased by 8.7 percent based on the COLA. To illustrate how crucial it is to monitor inflation rates and apply the COLA, consider a $20,000 annual Social Security benefit. Suppose this benefit was affected by a three percent yearly rise in inflation with a consistent increase within five to ten years. In that case, you can understand how these annual percentages lead to a considerable drop in income in real terms.
The COLA is needed to help adjust the annual benefits so that income can keep up with inflation as measured by the CPI, or Consumer Price Index. The CPI is defined as the average price of a basket of select basic goods and services specifically chosen to represent and measure rising prices in an economy. The CPI typically includes the prices for basic needs like food, housing, education, clothing, beverages, and transportation.
[Related: The Best Places to Retire in 2024]
Global Retirement Index (GRI)
The Global Retirement Index, or GRI, is a ten-year-old index developed by Natixis Investment Managers and CoreData Research. It analyzes 44 developing and developed countries using various factors that drive retirement security and influence retiree well-being per country. The goal is to provide a tool for comparison as a basis for creating best practices in retirement policy.
Researchers combine indicators of retirement security under four major groups: health, quality of life, retiree finances, and the material well-being of older residents. The GRI incorporates and analyzes data from the International Monetary Fund (IMF) advanced economies, members of the Organization for Economic Cooperation and Development (OECD), and the BRICS countries, which include Brazil, Russia, India, China, and South Africa.
It’s important to note that in 2023, the BRICS bloc decided to add more countries. These include Ethiopia, Egypt, Argentina, Iran, Saudi Arabia, and the UAE or United Arab Emirates—all of which will be included in the alliance by 2024.
In 2021, the US saw a drop in its GRI ranking for health from within the top 10 in previous years to 17th. It also held the 17th spot in 2022. In terms of quality of life, the US ranked 21st in 2022. Under the finances in retirement sub-index, the US ranked 11th in 2022. The finances in retirement score is calculated based on several factors, including government debt, bank non-performing loans, and tax pressure.
The US ranked 30th in 2022 under the material well-being sub-index, which is calculated using performance across three indicators: unemployment, income per capita, and income inequality.
Comparatively, Nordic countries and Switzerland ranked the highest under the 2022 GRI. Norway, Switzerland, and Iceland occupy the top three spots. It’s worth noting that Nordic countries have rated highly overall beyond the top three. Denmark is in 9th place, Finland is in 12th, and Sweden is in 13th. Under the health sub-index, Norway ranks the highest among all countries.
Other considerations
Apart from cost-of-living indexes, those planning retirement may also consider the Global Peace Index ranking. The Global Peace Index (GPI) ranks 163 independent territories and states based on their level of peacefulness. It is released by the Institute for Economics and Peace (IEP), an international think tank.
As the world’s leading measure of global peacefulness, it provides a data-driven analysis of peace trends and their economic value and makes recommendations for developing peaceful societies.
Key results in 2023 include increased deaths from global conflict—up by 96 percent to 238,000. A total of 79 countries had increased levels of conflict, including Ukraine, Israel, Myanmar, Ethiopia, and South Africa.
Under the GPI, Iceland remains the most peaceful country, a rank it has held since 2008. Other highly-ranking countries are Denmark, Ireland, New Zealand, and Austria. Afghanistan remains the least peaceful country for the sixth consecutive year. Yemen, South Sudan, Syria, and the Democratic Republic of Congo follow it.
The Executive Chairman and Founder of the IEP, Steve Killelea, noted that the 2023 GPI highlights “the contrasting dynamics of militarization and conflict” worldwide. Retirees would do well to study the report and include it in their decision-making. Assessing global peacefulness trends is crucial to long-term planning.
How Currency Dynamics Impacts Retirement
Currency exchange rates are paramount for retirees earning their income in US dollars. A Wall Street Journal report found that more US citizens are choosing to retire overseas partly because the dollar’s strength makes living abroad more affordable. However, this variable can shift with time and location.
Countries with a low cost of living can stretch your retirement dollars further. Still, it’s imperative to consider currency exchange rate fluctuations and inflation over an extended period to get the whole picture. When you track the value of the US dollar versus the currency of the new country you’re moving to, you better understand your potential future. As currency values are not static and tend to swing in value throughout your retirement, you must diligently monitor them and include them in your decision-making.
Best Countries To Retire Affordably
Many factors make a country an ideal retirement destination. Each element may weigh differently for retirees depending on their financial and lifestyle goals. One golden rule is that a desirable vacation spot does not necessarily equate to a suitable retirement destination.
Variables such as cost and quality of healthcare, security, real estate prices, cost of living, tax policies, visa privileges, residency requirements, retirement benefits, and currency stability all affect your decision.
In 2023, the following countries ranked highly among retirement surveys and indexes:
Portugal
Portugal generally ranks well among retirement destinations, regardless of the publication or survey. International Living published its own Global Retirement Index in 2023 with more qualitative criteria than the GRI posted by Natixis Investment Managers. It named Portugal the top retirement destination because of the convergence of many factors.
Portugal ranks sixth in the recent Global Peace Index among the safest countries in the world. The WHO ranks Portugal’s healthcare as the 12th best in the world, with a good mix of quality and affordability. Infrastructure is said to be on par with that of the US and Canada.
Porto, Portugal’s second-largest city, is known for its vineyards and wine. While the natural beauty is evident, it also boasts an international airport, which ranks it favorably for ease of travel and connections.
If you prefer stunning beaches, you can go to the Algarve. South of the bustling city of Lisbon, you’ll find the Alentejo region, which includes the cities of Evora and Beja. Those who prefer to retire in a more rural area will find the place ideal, surrounded by nature, rustic charm, friendly locals, and historic villages.
Retirement in Portugal is relatively affordable. You can live on $2500 to $3000 a month. However, your comfort will depend on your lifestyle choices and whether you rent or own a property. The Portuguese are described as kind, warm, and genuine. English is also widely spoken in the country, especially among the younger generations.
Retiring in Portugal is straightforward if you are an EU citizen or from a European Free Trade Association (EFTA) nation. Nationals from the EU or EFTA can apply for a residence permit from the Servicio Estrangeiros e Fronteiras (SEF), also known as the Portuguese Immigration Service. You only need to go to the regional SEF office covering your area. Once approved, applicants can enjoy the same benefits as the locals.
If you are a non-EU citizen or from a non-EFTA member country, then your process can get more tedious. You need to approach the Portuguese consulate in your country to apply for a residence permit. Typical requirements include your valid passport, proof of health insurance, and proof of savings or sufficient income.
The rules vary per country, though. Non-EU citizens can get a five-year temporary residence permit and may apply for permanent residence after the initial period.
Golden visa in Portugal
The golden visa scheme in Portugal is a faster option for non-EU citizens to obtain residence rights. It is designed primarily to attract foreign investors to Portugal, and it is not as simple to get as it used to be.
To get a golden visa, you must fulfill investment-related requirements such as purchasing real estate valued at €500,000 at minimum. However, real estate in Porto and Lisbon no longer qualifies. Instead, you must invest in inland Portugal, Madeira, and the Azores islands. You can also purchase real estate in the interior or islands for at least €350,000 if the purchase is for refurbishment purposes.
Investing €500,000 in research activities to advance the country’s scientific and technology industries is another pathway towards the golden visa. Another way to get a golden visa is to make a €1.5 million or more transfer to Portugal.
The D7 retirement visa in Portugal
Retirees can consider the Portugal Retirement Visa, or D7, another option. It was designed based on passive income, which can come from real estate, intellectual property, pensions, royalties, and general investments.
Moreover, the income doesn’t need to be substantial to qualify. It can be as little as the minimum wage in Portugal, about €760 as of September 2023. The key is to prove that you have enough financial resources to support your stay in the country.
Panama
The cost of living in Panama is less than that of America, but it is rising fast due to the Central American country’s popularity among expats. The housing costs can vary from affordable to expensive, so you must choose where you live carefully.
However, the Panama Pensionado plan is a great way to offset the cost of living as a retiree. The Pensionado plan offers the most considerable benefits for those who wish to retire in the country. Moreover, the program has no minimum age requirement, so even early retirees are eligible.
The Pensionado plan requires you to have a minimum pension income of $1000 per month. The program has extensive benefits that are sure to lower living costs, including
- An import tax exemption for a new car every two years
- 15 percent discount on loans applied for in your name
- 20 percent discount on medical bills
- 10 percent discount on prescription medications
- 25 percent discount on utility bills
- 15 percent discount on hospital bills that are not covered by insurance
- 20 percent discount on professional and technical services
- 50 percent discount on hotels from Monday to Thursday with a 30 percent discount on weekend rates
- 1 percent reduction on a mortgage taken out for a personal residence
- 50 percent discount on entrance tickets to cultural events, sporting events, and movies
- A one-time duty tax exemption for household goods with a limit of $10,000
Where you live in Panama is crucial. Real estate costs in this Central American country can vary widely from one place to another. For example, housing costs can be as little as $400 in a smaller city or town. If you prefer a luxury apartment in Panama City, that could set you back over $5000 a month.
Choosing the correct address is about more than just the cost. According to the US State Department, some areas like the Darien Region and the Mosquito Gulf are prone to crime. It issues further warnings about traveling within ten miles of the coastline spanning from Boca de Rio, Chiriqui, to Cocle del Norte due to drug trafficking and other illicit activities. Those planning retirement should check the US State Department’s website for further information.
Despite such warnings, Panama remains a favorite among retirees due to its other qualities, including a welcoming atmosphere, retiree-friendly programs, and a relatively stable economy.
The main currency is the Panamanian Balboa. However, Panama’s broad acceptance of the US dollar makes it attractive as a retirement destination. The country’s broad use of the US dollar for regular transactions greatly simplifies the adjustment for American expats.
Ecuador
Ecuador’s notably low cost of living makes it an ideal retirement destination in South America. It offers retirees a diverse yet affordable lifestyle. The country has a visa program known as the Pensioner Visa. The visa requires proof of a stable income, making it ideal for US retirees with a sufficient nest egg and investments looking for a cheap place to retire.
Ecuador is not the cheapest country in South America, but you can live comfortably there for a fraction of what you spend for a similar lifestyle in the US. The government also uses the US dollar as its official currency, benefiting American expats, who won’t need to change their dollars to another local currency. Using the dollar also helps Ecuador’s economy, giving it greater stability.
The country boasts bargain rental prices. You could pay as little as $500 for a lovely apartment. Add the low cost of produce in the area, and you have a mix of comfortable quarters and healthy living.
Ecuador has many climates, geographies, and attractions for retirees, including the Andes mountains and the Amazon rainforest.
Malaysia
Malaysia can be an ideal retirement haven for those who wish to retire in Asia. The country has a lot to offer retirees. On average, it’s 47.54 percent cheaper to live in Malaysia than in the United States.
The island of Penang is a popular choice for Western expats, including American retirees. Renting a home in Penang is, on average, 76.9 percent more affordable than in the US. For $2,500, retirees can expect to live reasonably well. By comparison, a one-bedroom apartment in Kuala Lumpur will cost approximately $447 monthly. Your expenses will depend on your chosen location.
Malaysia’s healthcare is both affordable and high quality. One advantage of the Malaysian system is that you can visit a doctor’s office without an appointment. You can walk in, register, and they will see you. This setup contrasts the US, where you typically need to book a doctor’s appointment well in advance. Prescriptions in Malaysia cost approximately 30 percent of the prices in the US.
The cost of excellent healthcare in Malaysia is relatively lower than in the US. First-time doctor’s visits range between $15 and $20, while follow-up visits cost $11 to $20. Malaysia’s two-tier healthcare system has two components: private and government-run.
Expats or American retirees without insurance can go to any hospital they prefer and pay out of pocket. Private hospitals are government-subsidized, so people usually opt for private care because of its affordability. Private insurance in Malaysia is also relatively low-cost. Deductibles range from $70 to $100 monthly—less than in the United States.
The local currency, the Malaysian Ringgit, has favorable exchange rates versus the US. Malaysia’s MM2H Program, which means Malaysia My Second Home, lets international retirees reside in the country for an extended period.
Thailand
Thailand’s combination of low cost of living, warm climate, culture, and cheap real estate is hard to beat. For many years, it has been highly preferred by retirees. Americans make up the largest expat community in Thailand, followed by Europeans such as the British, Swiss, and French, as well as Canadians.
Real estate deals are highly appealing, with some two-bedroom condos priced under $30,000 and small rentals costing as low as $180 monthly. Some expats estimate living well at $2,500 monthly, although many believe one can be comfortable with even less. Thailand’s healthcare system has made medical care affordable and of satisfactory quality.
The overall cost of living in Thailand is estimated to be 35 to 75 percent cheaper than in the US. Rents are remarkably lower at 70 percent less on average than in the US. To retire in the country, you will need to obtain a retirement visa known as a Non-Immigrant Long Stay Visa.
The application should be coursed through a consulate in your home country or Thailand. The visa has financial requirements, such as a bank balance in a Thai bank account of $24,500, a minimum monthly pension of about $2,000, or a combined total fund that meets their target.
Mexico
Retiring in Mexico is ideal for stretching your dollar while splurging on some luxuries and enjoying excellent healthcare. A couple can retire in Mexico with a monthly income of $2,000 to $2,500. A single person can live in Mexico for about $1,500 to $2,000 monthly.
The country’s fantastic weather and natural beauty rivals any Mediterranean vacation spot, yet Mexico’s tourist spots are far more budget-friendly. Mexico’s beach destinations are popular with expats moving from cold countries.
Obtaining a Mexican Resident Visa is relatively easy compared to other retirement destinations. However, income requirements for a resident visa may vary, so it’s essential to consult the Mexican consulate in your home country.
Colombia
Colombia’s image has recently undergone a transformation. It is now rebranding into an attractive retirement destination that blends rich culture with affordability. The Global Retirement Index considers it among the ten best places to retire in 2023. The country’s low cost of living is considered attractive by more retirees.
Colombia’s Cost of Living Index is measured at 30.85, which is far lower than the United States’ Cost of Living Index at 76.61, according to Numbeo. Consumer prices in Colombia, excluding rent, are 59.7 percent lower than those in the US. With rent, consumer prices are 67.4 percent cheaper than in the US. Rent in Colombia is meager—overall, Numbeo reports rent prices are 81.3 percent lower than in the US.
The local currency and its purchasing power is 75.7 percent lower than in the United States—a boon for those earning and spending in dollars.
Colombia has a visa program tailored to expat retirees. The Migrant (M) visa allows its holder to live in Colombia for three years. The Colombia Retirement (M) visa—previously called the TP-7 visa—is targeted towards older foreigners who wish to retire in the country and have sufficient finances to support their retirement years. Colombian retirement visas grant you Colombian legal residency and may be continuously renewed.
After five years of holding an M-11 Visa, you can apply for permanent residency. After another five years, you are eligible to apply for Colombian citizenship.
The country’s territorial tax system means that if you generate your income abroad, such as in the US, you may not be subject to Colombian income tax on your foreign income.
However, suppose you reside in the country for over 185 days in 365 days. In that case, you may be considered a taxpayer and thus be required to pay taxes on your international income the following year, depending on the details of double taxation treaties between the countries concerned. Colombia does offer tax incentives and deductions like reductions in property tax and exemptions on certain income types tailored for retirees.
Costa Rica
The cost of living in Costa Rica is 38 percent lower than in the United States. Costa Rica’s housing cost is notably low—78 percent lower than the US on average.
Costa Rica has its version of the retirement visa called the Pensionado Visa, which requires a minimum of $1000 to be transferred to a Costa Rican bank monthly to cover expenses. On the other hand, the Rentista Program is geared towards those who do not have a monthly pension but derive their income from other sources. It requires a $60,000 minimum investment or a minimum monthly income of $2,500 from a reliable source covering at least two years.
San Jose, the centrally located capital, boasts a 55 percent lower cost of living than New York. The rents in San Jose are 82 percent lower. Retirees can also choose to live outside the main cities. Mountainous suburbs provide an even more affordable retirement environment with access to satisfactory amenities.
Apart from the low cost of living, retirees enjoy Costa Rica for its warm climate, laid-back lifestyle, and ideal placement in Latin America. However, expats may need to learn to speak fluent Spanish to adapt well to the country and blend with the locals.
Plan for a Cost-Effective Retirement Abroad
An affordable and rewarding retirement doesn’t just materialize. It takes careful research and preparation. For the best possible retirement plan, which includes the ultimate retirement destination, those eyeing retirement need to take their time and go through a veritable checklist of factors before settling on their country of choice.
The choice of an international retirement destination is as unique as the retirees’ personalities. It depends on several variables, including ideal lifestyle, tax benefits, retiree and visa programs, currency exchange rates, quality of private and public healthcare services, cultural factors, and cost of living. Cost of living is a top consideration.
To make the most of your retirement funds, consider stretching your US dollar in a country that offers the best possible combination of your ideal lifestyle and residence visa benefits while ensuring those dollars go a long way and last for many years. Allow yourself enough time to arrive at a decision and even consider exploring your chosen foreign country on a trial basis.
Remember to consult financial advisors and legal professionals before deciding on a retirement move and relocating your life to help you navigate the tax implications, understand the legal requirements, and uncover any hidden costs.
Featured Image Credit: Gretta Hoffman; Pexels
