My wife and I have been thinking about retiring overseas. We both have traveled to at least 30 or more countries over the years and we are always thrilled when we meet new people and learn from others. Our favorite things to do is immerse ourselves in the local culture and we usually start that process by taking a local cooking class. To get some ideas on where we might retire, we spend time on YouTube looking at expats that have moved overseas and share their experiences.
Local Experienced Resources
Here are a few of the YouTubers we follow or watch to give you an idea.
Traveling with Kristin – A young woman who has lived and worked in many different countries and offers an always interesting perspective of the country she is in.
Our Rich Journey – A couple that made it to financial “freedom” and moved to Portugal.
Retirement Travelers – A retired couple that travel the world usually not staying in any one place for more than a week.
Traveltirement – A YouTuber that finds amazing real estate at amazing prices in Italy and other places.
Amelia & JP – A couple that moved to Ecuador for many years but are now considering a second residency elsewhere.
We watch these and other YouTube personalities to get an idea of the places we might want to move to and get the pros and cons of living in that country.
Many of the channels often focus on how much cheaper (in theory) it is to live in a foreign country (outside the U.S.) and while that may be true for certain things like food, utilities and healthcare, there are usually some key things left out.
Unfortunately, what is really missing from most of these channels is the hard truth on taxation. What drives most people to move overseas is the goal of living a cheaper and simpler lifestyle. The way inflation has been growing in the U.S. it is making daily living extremely difficult here so it’s a great idea if you can reduce those expenses. But what about taxes?
Taxation
We looked at a few countries we would love to live in (Spain, France, Italy) and started doing research on cost of living. We have visited these countries many times over the years. Everything seemed fine, cost of living wise, until we got to the dreaded taxation issue.
Spain – I got this tax table from this link. Note that Spain taxes ALL worldwide income so it doesn’t matter where your money is coming from to the Spanish tax authority. The Spanish policy is to tax everything including dividends, interest, capital gains, social security, rental property income and other income.
If you have income over 60k Euros, you’ll be in the 45% tax bracket! Yikes! Our rental properties alone will probably put us close to this when we retire and we haven’t even added our investment income.
France is worse, based on our research the tax rate from this link, the tax rate there would be 41% to 45% but there is a surcharge too and the rules change if you are a resident or a non-resident.
Italy is about the same but there are some regions that have a special flat tax of 7% but these areas are struggling greatly because the population in these zones is dwindling so it would be like living in a remote rural area in the U.S. and while there may be a great view of the Mediterranean sea, if there is nothing else to do what’s the point?
There are places in Europe where there are better taxation terms such as Albania but there will be huge trade offs. Albania isn’t as economically developed as France or Spain and it certainly doesn’t have things like advanced health care. Is a low 13% tax rate worth it? We’re not so sure.
The main problem however is that the United States also wants its cut of income tax so even if we were willing to pay Spain’s 45% tax rate, we would still be on the hook paying U.S. income taxes as well. Yes, we are aware that there are tax treaties and the U.S. Foreign Earned Income Exclusion of $120k can help but it’s still a great deal of money to pay via taxation for the privilege of living in another country.
Hope
There is still hope. There are many countries around the world and some seem more promising than others. We have friends that have moved to Malaysia as their tax regime is a bit less complicated and friendly. Asia has many countries that seem a far better option so far however the drawback is that it’s on the other side of the world and makes the time zone situation difficult. The language barrier could also be a deal breaker so we’ll need to evaluate the situation.
We may end up just moving from country to country in our retirement for a few years, ensuring we never stay more than 180 days because after 181 days you officially become a ‘tax resident’ in most countries.