Endless Summer–The Financial And Lifestyle Benefits Of Retiring Abroad
The past few years have not been kind to retirees who faced drawdowns in balanced portfolios of equities and bonds. The positive correlation between the two asset classes was uncommon and especially unfortunate for those in the “harvesting” phase of life who count on their fixed-income holdings to provide stable returns. The “endless summer” of the past decade, when benign inflation and quantitative easing by central banks boosted asset prices, is giving way to the “winter of our discontent”.
And, speaking of winter, some Canadians in or near retirement may be seriously considering trading in their snow boots for sandals. They’re wondering if their nest eggs—and lifespans— wouldn’t benefit from living in a different country, one of endless summers and lower lifestyle costs. Two popular retirement destinations for cold (and inflation) weary Canadians are Costa Rica and Portugal. Here’s a basic primer on some things to expect if you pull up stakes:
"Hit The Road, Jack!"
Before you pack your sunscreen and snorkel, make sure you understand the tax implications of a major move. If you sell your residential property to live permanently outside Canada, you are considered an emigrant or non-resident for income tax purposes. You must notify Canada Revenue Agency (CRA) if you have any bank accounts or amounts being paid to you from Canada. When you leave Canada, CRA considers you have sold property at its fair market value, called a deemed disposition, which counts as a capital gain (or departure tax). Property could include equity shares of personal belongings such as jewellery, art, and collectibles.
Regarding government pensions, Canada Pension Plan (CPP)/Québec Pension Plan(QPP) is a member-contributed plan, meaning you have earned the pension benefit if you contributed to it. You are entitled to receive it wherever you choose to live. Old Age Security (OAS) is based on years of residency in Canada. If you have lived in Canada for at least 20 years after the age of 18 and decide to live abroad, you are still entitled to receive OAS. However, if you have lived in Canada for less than 20 years and then moved, OAS payments will be terminated after six months of foreign residency. Both benefits are subject to a 25% non-resident tax unless Canada has a tax treaty with the country where you currently reside, in which case you may be exempt or have the tax rate reduced by filling out an exemption form. Costa Rica does not have a tax treaty with Canada, and residents may be subject to double taxation. On the other hand, Portugal does have a tax treaty with Canada, whereby you are exempt from tax on the first $12,000 (CAN) of the total of Canadian pension (form NR5) and 15% withholding tax instead of 25%. Always consult with your accountant to get the full story and advice on how to make the move in the most tax-efficient way.
Pura Vida In Costa Rica
Known as the “Switzerland of Central America”, Costa Rica is politically stable and environmentally oriented; it uses 99% renewable energy and aims to decarbonize by 2050.
The country boasts over a dozen climate zones and hundreds of microclimates, from hot and beachy to lush jungles to temperate mountain elevations of the Nicoya Peninsula. The latter is a Blue Zone—one of five places on Earth where people have some of the longest and healthiest lifespans. The region’s water is high in calcium and magnesium, and there are low rates of osteoporosis and heart disease. Inhabitants over 60 are seven times more likely to live to 100 than the global average. So, if you’re keen on extending your lifespan, it sure beats hanging out in a hyperbaric chamber.
Style Of Living
Compared to Canada, living in Costa Rica is mostly done outdoors, where it’s warm and sunny most of the year. Breakfast and lunch are the main meals, and there is a good selection of healthy, low-calorie foods such as rice and beans (gallo pinto with eggs, a breakfast staple), tortillas, plantains, and fresh fruit and vegetables from local farmers’ markets. It’s a pretty chill place to live with an emphasis on healthy living, enjoying the moment, and conviviality.
Cost Of Living
Retirees benefit from a relatively low cost of living compared to Canada. Expect to spend a minimum of $US2,500-$3,000 to cover housing, health insurance, utilities, and food. You can see a typical cost breakdown here, https://internationalliving.com/countries/costa-rica/cost-of-living-in-costa-rica/. Low-cost and highly efficient public transport, plentiful farmers’ markets, and well-priced personal services make Costa Rica an affordable choice for budget-conscious retirees.
The country also has an excellent medical system. Permanent residents have 100% coverage for all medical procedures and prescription drugs. Enrolment is compulsory for residents at a rate of 7-11% of their monthly income which could be a lot if you have significant worldwide income. (There are ways around this, such as leaving the country every 90 days.) Costa Rica has 30 state hospitals and 250 clinics enrolled in the program called La Caja. Many residents use a mix of public and private medical services as many physicians who work in the public system also run fee-based private practices which offer discount bundles for blood tests, x-rays, and other common tests. Expect to pay between US$3,000-$6,000 annually for an international medical insurance policy.
Good To Know
Costa Rica offers several residence visa options, including the Pensionado Program, which requires that newcomers receive a minimum of US$1,000 per month from a pension. Other visa options include the Rentista Program (minimum of US$2,500 per month in income for the past two years or US$60,000 deposit into a CR bank.) The Inversionista Program requires an investment of at least $US200,000 in CR property, shares, or a business.
If you plan to hire staff, for example, a personal assistant, a household cleaner, or a gardener, as the employer, you must comply with labour laws, which include contributions to social security and severance payments. Costa Rica is a socialist country with strong labour laws to protect workers’ rights.
The violent crime rate is low (significantly lower than in the U.S., for example), but petty crime is rampant. Somewhat perversely, socialist Costa Rica attracts a significant number of MAGA expats who usually live in gated communities.
Expect a vibrant and diverse plant and animal life, including insects and reptiles, relatively poor infrastructure (very dangerous roads for driving), significant government red tape, and slow service (restaurants, repair assistance, etc.).
“Bom Dia, Portugal!”
This year, Portugal was named the best country to retire by International Living, which publishes the Annual Global Retirement Index. Portugal’s geographic diversity, from beaches to big cities to quiet fishing villages and rural towns, together with a temperate climate and relative affordability, make it an appealing option for many. The number of North Americans moving to Portugal doubled between 2020 and 2021.
Style Of Living
Warm weather most months with lots of outdoor activities, including world-renowned golf courses, luxury spa retreats, great food, wine, and coffee, and friendly people, along with low healthcare costs, are some of the attractions of living in Portugal. There are big expat communities across the country, although in rural areas, not everyone speaks English.
During winter, December through mid-March, cold rain is frequent, and temperatures can drop to two degrees Celsius. Not all homes have central heating, meaning it is often colder and damper inside than outside! Likewise, unless you are close to seaside breezes, apartments can get hot and stuffy in the height of summer, which can be challenging for those with respiratory issues. The pace of life is more leisurely, so expect restaurant meals and other services to take longer than in Canada. Government bureaucracy is significant, so be prepared to practice patience. Crime rates are low.
Cost Of Living
Depending on where you live, costs can vary substantially, with bigger cities like Lisbon and Porto being more costly (US$3,000-$4,500 per month) compared to seaside villages. With a residence permit, Canadians can qualify to receive healthcare services through Serviço Nacional de Saude (SNS). Public transportation and taxi services in the big cities are efficient and low-cost. Parking in big cities is very challenging.
Good To Know
On June 20, 2023, the Portuguese government made significant changes to the Golden Visa Program. Whereas previously, someone could obtain residency status by purchasing real estate with a minimum value of €500,000; today that option is closed. However, the Golden Visa Program is still viable by investing €500,000 or more in a venture capital fund, scientific research, or commercial property, supporting cultural heritage activities with a minimum investment of €250,000, or creating at least ten jobs.
In October, the government further announced the end, in 2024, of special tax breaks for foreigners. Those who spent more than 183 days per year in the country and qualified for the Non-Habitual Resident Portugal Tax Regime (NHR) enjoyed a 20 per cent tax on work income, a flat 10 per cent tax on pensions from a foreign source, and a tax exemption on foreign-source income such as rental income if that income was already taxed in the country of origin. Those who already qualified for these tax breaks may keep them. Canada and Portugal have a tax treaty which addresses the issue of double taxation.
The D7 Visa Is A Two-Step Process:
Obtain a National Identification Number (NIF) with proof of financial sufficiency and health insurance.
If the application is successful, you will be granted a four-month visa and the opportunity to attend an in-person meeting to obtain a two-year temporary resident permit. After it expires, you can apply for a three-year term. After five years, you can apply for permanent residency or citizenship if you have mastered the A2, or basic, level of the language.
Bottom Line:
Vacationing in a place is quite different than living there permanently. The adage “try before you buy” is worth remembering. There will always be trade-offs, and it’s important to know yourself and what you value most. The popularity of remote work means higher property values.. While fluency in Spanish or Portuguese is not necessary in the major cities, learning the language of the respective country will make transactions with service providers and government agencies considerably smoother.
Rita Silvan, CIM is a finance journalist specializing in women and investing. She is the former editor-in-chief of ELLE Canada and Golden Girl Finance. Rita produces content for leading financial institutions and wealth advisors and has appeared on BNN Bloomberg, CBC Newsworld, and other media outlets. She can be reached at rita@ellesworth.ca.