If you've been saving for retirement for some time, you might be considering where you should retire. It would be easier to decide where to retire if there was a single ideal location that met the needs of every retiree. However, there are no destinations that have everything to meet your every need, but there are opportunities to find the information you need to find a place that at least comes close to your ideal environment.
Where you reside in retirement can have a big impact on your finances and quality of life. Examine your existing living circumstances before assuming that you should move into retirement. The cost of living, taxes, amenities, and the availability of health care are all important variables to consider when making a retirement transfer. It's often a good idea to tour a few different regions before deciding where you want to retire.
Learn from our article about the elements you should be looking at while choosing the best spot to retire.
- Should you retire at home or elsewhere?
- Set a retirement budget
- Taxes after retirement
Should you retire at home or elsewhere?
Pre-retirees should consider whether they want to retire locally or move somewhere else. They should also consider whether a move is necessary at all. If your family and friends are nearby, or your current location is affordable, or maybe you already have a home in your current location, you may not need to move anywhere else to retire. Moving elsewhere may isolate you from the people and activities you enjoy.
Retiring elsewhere can also be beneficial if the living standards improve, if you wish to travel more, or if you think relocating will reduce your cost of living. Whatever destination you choose, you need to weigh both the pros and cons.
Retiring locally
Most retirees choose to remain in their current residences or relocate within the same state. The vast majority of elderly people want to remain at home in their final years of life. Only a small percentage of elderly people leave their home country. There are several reasons why people want to retire close to home, but the most prevalent one is that they want to be with their family. The following are the benefits of retiring locally:
- Existing connections: This could mean your professional, family, or social connections within the country. You could still use those connections after you retire. This could be working part-time while still meeting your friends and spending time with your family after retirement.
- Familiar support and services: Over time, you may find that you require more services, particularly medical care. If you're familiar with the services in your area, you can receive assistance on your own. And because you already know how the service works, you'll be confident in your approach to it.
- Stability and convenience: If you own a home, you've already taken the first step toward financial stability. In the event that you decide to relocate, you can count on its rental income.
The disadvantages of retiring locally could be that it is expensive in your country. You could relocate to a country with a lower cost of living. You may want to travel and see more countries, which could be part of your life experience. Even if the relocation costs and the cost of living in another country could be higher, it may be better for your retirement in the long run as the new country may have better services that are not available locally, such as medical care.
Relocating after retirement
Leaving your country is an experience that can be challenging depending on where you end up. Modern amenities, accessibility, the environment, activities, food, healthcare, cultural and customary practises all factor into your choice of location. The following are some of the benefits of retiring abroad:
- New experience: Healthy ageing is linked to bodily, mental, and social benefits. Retiring abroad may provide you with all the excitement and a fresh start you are looking for. You may like the weather and the environment, whether that be a summer beach, mountainous or urban.
- Lower cost of living: A comfortable retirement in a foreign country can be had for a third of the expense in your own. Healthcare and other services may be a major factor in your decision to retire abroad. It's possible that rent and other expenses will be lower than in your home country.
The disadvantages of retiring abroad could be the cost of relocation itself, especially if you are leaving the country. It could be expensive for the flights, accommodation for the first few months, the significant amount of cash you would need to put down deposits on the new place, and the time it takes to access services such as banks. You may need to think about accessing your funds from another location without incurring higher costs, such as transfer or conversion costs. You have to check up on taxes and the possibility of double taxation. Lastly, you will need to know about the country's political stability, language and cultural differences, and the daily challenges you may need to face.
Take a trip to find your retirement location
Taking a trip to the country of your choosing would be beneficial in order to evaluate the standard of living for retirees, including the cost of living and the value of real estate, as well as the elderly population.
Free movement in Europe allows you to move to any other European country easily. According to a survey by Blacktower Group [1], Finland came out on top for its moderate way of life, average house prices, and stunning natural beauty. Every pensioner is entitled to discounts at sports and other recreational clubs. Spain comes in second due to its weather and lively climate. Slovenia was ranked third in the world in terms of city street safety and life expectancy. The Netherlands comes in at number four on the list of countries with the highest living standards. The climate is moderate year-round, and the locals are welcoming to outsiders. If they choose, foreign nationals can get a basic pension. Italy comes in 5th where the elderly population is the fifth-largest in the world. The landscape is stunning, the cuisine is delectable, and the people are warm and welcoming.
Set a retirement budget
Long before you plan to retire, you should develop a retirement budget. You can begin putting it together at any time. A budget will assist you in determining what is best for you and what you can afford while you evaluate the other financial concerns listed below. The enthusiasm of a new experience can lead you to make a wrong decision if you don't have a clear understanding of the end goal.
Evaluate the cost of relocation
Although moving within the states of the EU is not so costly, there are other expenses that need to be taken care of before and after moving. Depending on your circumstances, you may need to sell your existing home or rent it out and downsize elsewhere. You will not have the time to take care of this part as you will be busy looking for a new home and researching your new desired location. So you will most likely hire someone to do it for you. Regardless of whether you are selling or renting your current home, there are still costs to be incurred, such as agent costs for your current home or closing costs on your new home. You will also spend on moving vehicles and help to settle down at your new place. You will need to ensure that you complete this process before you can move.
Evaluate the cost of living for both the young and the elderly
Before making a move, look at the cost of living that you can expect during retirement. Some EU member states are more expensive than others, which is important to understand before relocating. You would want a lower cost of living to stretch your retirement income further while keeping your needs and health in check. Within the 27 EU states, Iceland and Denmark have the highest cost of living[2]. Denmark also comes out on top in terms of consumer goods and services prices, being 40% above the EU average. Bulgaria has the lowest cost of living and the lowest prices for consumer goods and services[3], with prices being 40% below the average.
If you are already someone who is retired or nearing retirement, then you also may want to consider costs that come with ageing, such as health care and age-related disability costs. Average pre-retirees in the European Union usually spend less than average. Granted, you will be spending more than average on certain things, such as health care. Retirees all over the EU spend 42% more than the average on health care. Retirees in the Baltic states and Romania spend 65% more than average on health care. Then there are unexpected costs that come with old age that need to be taken care of, such as age-related disability, the death of your spouse, etc. Almost 40% of the households in the EU with retirees living alone could not meet these unexpected costs [4].
Of course, you may not face these hardships during your old age, but it is necessary to understand from existing data how much you will likely need to spend during retirement in another country.
Amenities for retirees
The location where you would retire should have high livability indices, such as a thriving economy where you can find a job if you wish, good weather, minimal crime, good infrastructure, good hospitals and assisted living facilities, as well as adult day activities and plenty of wellness options. EU countries like Greece, Italy, Spain, and Portugal are more popular for retirees due to their warm weather and easy-going lifestyle amongst the locals. Many prefer France for its culture and Germany and similar Western European countries for their quality of life and strong protection of workers' and tenants' rights. Others look to more low-key countries for lax tax and immigration matters.
Taxes after retirement
Before settling on a retirement destination, you'll want to know how much taxes you'll have to pay there and what kinds of taxes you'll have to pay there. Some states charge you more than others based on your age, income, and net worth.
Evaluate the tax environment after retirement
At first glance, some states may seem to have lower taxes than others, but you should look at your whole fiscal situation to get a good idea of how much you'll have to pay in retirement. Some countries with high income taxes don't tax pensions when people retire, so your tax status could change when you do. If you live outside of your home country, you may still need to file a tax return back home. What you owe will depend on things like where you live, where you invest your money, and how much money you get from other sources.
The kinds of taxes you need to pay attention to are income taxes, capital gains taxes, property and wealth taxes, with more explanations in the following:
Income tax
Most EU states have a progressive tax rate, meaning the more you earn, the more taxes you pay. In 2021, the highest top statutory personal income tax rates[4] were found in Denmark (55.9%), France (55.4%), and Austria (55%), among European OECD nations. The lowest personal income top rates were found in Hungary (15%), Estonia (20%), and the Czech Republic (23%).
Property and wealth taxes
Property taxes[5] contribute to less than 5% of overall tax revenue in the EU. If you want to buy real estate to retire in another EU country, you will want to check out the International Tax Competitiveness Index (ITCI). Property taxes are measured and compared in the ITCI's property tax component, which compares the base and amount of real property taxes as well as whether a country imposes other types of property taxes like wealth taxes, inheritance taxes, or property transfer taxes. Among the OECD countries, Estonia ranks the highest in having the most efficient property tax system. Estonia's real property tax exclusively applies to the value of land, and they do not levy any other sort of property tax.
Italy, on the other hand, ranks last. They collect high property taxes and levy a wealth tax on some selected assets, like financial assets and properties kept abroad, as well as taxes on inheritances, real estate transfers, stock issuance, and financial transactions.
Recurrent taxes on an individual's wealth, net of debt, are known as net wealth taxes. A net wealth tax is comparable to a real estate tax in principle. Instead of only taxing real estate, it now applies to all of a person's assets. Only three European countries, Norway, Spain, and Switzerland apply a net wealth tax[6]. In France and Italy, wealth taxes are imposed on certain assets but not on an individual's net worth.
Capital gains tax
If you are retiring, chances are you have investments. Apart from the income, there are also considerations to be accounted for if you want to sell them. The profit from the sale of an asset or investment is taxed as capital gains[7]. Some EU countries charge them, while others do not. European countries levy 19.3% of taxable capital gains from the sale of listed shares on average. With a top rate of 42%, Denmark has the highest top capital gains tax. Finland and France came in second and third, with 34% each. The sale of long-held shares is exempt from capital gains taxes in a number of European countries. Belgium, the Czech Republic, Luxembourg, Slovakia, Slovenia, Switzerland, and Turkey are among these countries. Greece and Hungary, among the countries that do pay a capital gains tax, have the lowest rates, at 15%.
Of course, your overall living quality should be a higher priority than tax planning. Low taxes are not necessarily going to make you happy if you do not like the destination. Also, lower taxes do not necessarily mean a lower cost of living. You may pay lower taxes, but the cost of living may still be high.
Summary
The location of your retirement can affect your budget and standard of living. Before assuming that you should retire, take a look at your current living situation and ask yourself "where do I want to retire?". Before deciding where to retire, determine whether you need to relocate at all or if you can retire where you are. If you do not wish to retire locally and instead relocate, ask yourself, "Where are retirees moving?". To answer where to live in retirement, you must consider the expense of relocation, the cost of living in your selected region, and the cost of living and facilities if you are a senior, as you will require significantly more. Check your taxes in the chosen place; will you be required to pay income taxes if you continue to work? Do you have to pay property taxes if you buy a house in a retirement community? Do you have to pay any additional taxes, such as those on your overall wealth or capital gains, if you sell your assets? These are crucial things to consider while assessing your quality of life after retirement.
The retirement location is important considering the costs that come with relocation and further settlement in the new destination. As a retiree, whether you are young or elderly, you need to account for the cost and quality of life in your chosen destination. Your chosen destination may not have everything you need, but if it checks out for most of the list, you may decide to give it a chance. Before making any decision, take advantage of the tools available and find answers to all the questions you have about the said location. Only then will you be able to get a big picture of your retirement location.
List of References
- Source: https://www.blacktowerfm.com/best-eu-countries-for-retirement/
- Source: https://www.worlddata.info/cost-of-living.php
- Source: https://ec.europa.eu/eurostat/statistics-explained/index.php
- Source: https://taxfoundation.org/data/all/global/top-personal-income-tax-rates-europe-2022/
- Source: https://taxfoundation.org/data/all/global/comparing-property-tax-systems-europe-2021/
- Source: https://taxfoundation.org/data/all/global/wealth-taxes-in-europe-2020/
- Source: https://taxfoundation.org/data/all/global/capital-gains-tax-rates-in-europe-2021/
