Why “Cheap” Isn’t Enough: The Real Risk Factors in Retirement Planning Abroad

Why “Cheap” Isn’t Enough: The Real Risk Factors in Retirement Planning Abroad
Low cost alone doesn’t equal a better life overseas.|©iStock/DisobeyArt

Understandably, many Americans considering retirement abroad are motivated by a potentially lower cost of living. But this is more than a simple calculation. Other factors also determine whether a country’s low cost of living makes it a good destination. Some of these factors are static, like foreign tax rates. Others are dynamic, in the sense that the things that attract you to a country might change as your own priorities and situation change over time.

In this context, it’s essential to think carefully about the whole picture, not just the cost of living. You can’t predict the future, of course, but it’s important to make contextualized decisions, so you don’t get stuck in a bad situation. In other words: Go into a potential move with your eyes wide open. That’s something we at International Living specialize in helping you do.

Let’s start with a real-world example.

Malaysia’s My Second Home Malaysia (MM2H) program, established around the turn of the century, allowed foreigners to live in the country on a renewable 10-year visa if they could prove a monthly income of about $2,400, and savings of between $36,000 and $72,000, depending on their age. Thousands of foreigners settled in the country’s desirable towns, like Penang.

In 2021, however, the government unexpectedly raised the income requirement to $9,600. The fixed deposit was set at $240,000, and a new requirement of minimum liquid net worth of $360,000 was introduced. Thousands of existing foreign retirees living in Malaysia were suddenly ineligible to renew.

In that case the government relented and allowed existing visa holders under MM2H to continue living under the old rules. But that doesn’t always happen.

For example, in 2019 the Thai government suddenly stopped accepting pension confirmation letters from foreign embassies. Instead of using these to prove their eligibility for retirement visas, retirees had to show Thai bank deposits equivalent to the required foreign income. The rationale behind this was related to a Thai tax policy. Traditionally, foreigners living in the country are only taxed on income remitted to Thailand itself, not on their foreign income. That allowed That allowed foreigners to minimize their funds transfers into their Thai bank accounts, reducing their local tax obligations. The government realized this and changed its rules, catching thousands of foreigners off guard.

You can’t control what a foreign government does, of course, but it behooves you to stay plugged in to what’s happening in the country you’re targeting for residency—pay attention to local politics. Have a source of information that tracks these matters. That way, you won’t be taken by surprise.

Consider the range of factors that contribute to cost of living, and how they can change.

Let’s start with healthcare, one of the key potential savings of a life abroad.

Many foreign countries operate universal national healthcare systems that provide different types of care at low or no cost. In the European Union, these systems are long-established and very difficult to change, so you’re likely to enjoy their current benefits throughout your retirement.

But sometimes countries change their policies. Under budget pressure, some countries raise the copayment or other personal contributions required to access the system. And in some cases, a change of government could lead to a limitation on healthcare services provided to resident foreigners.

For example, before 2012, foreigners living in Spain were allowed to access the Spanish health care system without restriction. But after the global financial crisis of the early 2010s, Spain restricted access to Spanish citizens and legal residents working in Spain and paying taxes. Thousands of foreign retirees living in Spain suddenly lost free access to health care and had to buy private insurance, which was often not available to people, based on their age.

That raises a more general issue, governance. Again, European countries have traditionally operated stable policy frameworks, but in recent years, they’ve come under pressure from populist political movements. For example, in 2025, Portugal and Italy significantly changed their citizenship by naturalization policies, leaving many aspiring immigrant citizens high and dry.

Here at International Living, we spotted that trend early and wrote numerous articles about shifts in European politics and policy. With that real-time intelligence, people could make better-informed decisions about their future plans.

In other parts of the world, governance can vary significantly depending on who’s in charge. A change in majority political party in parliament or the executive could cause some expected benefits to vanish. The bottom line here is just as in the United States, countries change their minds every so often… and that can change the calculation for anyone considering retiring there.

A related issue involves money. People planning a life abroad typically calculate their foreign cost of living based on current exchange rates. But those exchange rates can change.

For example, since the beginning of 2025, the US dollar has lost 15% vis-à-vis the Euro. For people in Europe whose primary income source is US dollars, their purchasing power has declined by 15%. In other words: The dollar price of everything has risen by 15%.

I’m a perfect example of that. I live and work in Cape Town, South Africa, but I’m paid in US dollars. Because I pay careful attention to international finance and exchange rates, I’ve been able to ride out the decline in the dollar by adopting hedging strategies using easily available transaction accounts. International Living’s publications are packed with information about those tips and tricks.

Other elements can change unexpectedly as well.

Most potential retirement destinations have treaties with the US and Canada that prevent double taxation. But those are renegotiated periodically, and if the changes turn against you, there’s not much you can do about it. Although such treaties typically don’t change much, with the current US administration, there’s no telling whether they could use them against foreign governments as a cudgel in trade negotiations.

Then there’s the all-important question of taxation. Countries can and do change their rules on things like taxation of foreign pensions and estate taxes.

For example, at the end of 2023, the Portuguese government ended the Non-Habitual Resident Tax scheme, which had effectively limited income tax on foreigners to 10%. Although people currently on foreign residency visas were allowed to keep the NHR benefit, that’s not a given. There’s nothing stopping a country from changing their tax rules at the drop of a hat, especially if they come under economic or political pressure.

Again, International Living is an essential resource here. A remarkable number of websites continue to claim that the NHR is still available. Imagine relying on that misinformation and making your plans for a life in Portugal, only to find out that it wasn’t true!

Then there’s estate planning. As I’ve emphasized repeatedly in my writings, this is one of the most important things any potential overseas retiree needs to think about.

Foreign countries may have different policies for estate taxes, permissible inheritance, and the treatment of foreign entities like trusts. These are legislative competencies, and aren’t fixed in stone. Like the other factors I’ve mentioned here, there’s no reason an incoming populist government, or a government under financial pressure, can’t change those rules, changing the terms under which you decided to live in that country in the first place.

One way to look at this is to understand the process of planning for a retirement abroad as a dynamic process, not a static one. Instead of making your decisions based on a snapshot of current policy and other conditions, you also need to consider??

That requires specialist knowledge and advice from people who pay close attention to these matters and are in a position to anticipate future changes.

Fortunately, International Living has just those resources ready for you.

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