Cambodia is the cheapest place in the world to retire. You can rent an apartment for approximately €230 a month, while dining out for less than €5 a day. In comparison, the €233 a week State pension is not enough for many people to get by on in Ireland.
In the past people tended to work until a retirement age set by their employer or the State. But you can now usually work for as long as you want and you don’t have to retire all in one go.
According to the CSO, 68% of workers expect to retire aged between 60 and 69 years, while one in twelve (8%) have no intention of ever retiring. So, while you may hope to retire at 60 or 65, a potentially significant part of your retirement income may not be paid until you reach 68.
The question one needs to ask is, if you hope to retire at 60, how are you going to provide for yourself in those intervening eight years?
Today’s pension, today
Irelands State pension is worth approximately €1,000 a month, and that’s the State pension paid to people retiring today. In the future, as Ireland’s population ages, the provision of a State pension will come under even greater pressure as it is primarily funded by taxes paid by working people.
By 2050, it is predicted that there will be less than two people working for every one retired person, putting even greater strain on the funding of the State pension. Nobody can be sure how the future will unfold, but what is known is that there will be a greater need for all of us to take ownership of our own future.
Many Irish people who choose to retire overseas select countries closer to home, such as Portugal, Spain, France and Italy. Portugal has the cheapest cost of living of the Mediterranean countries, followed by Malta, Spain, Italy and France. Portugal is also the cheapest Mediterranean country to buy or rent property. What’s more, you can still claim and get paid the Irish State contributory pension if you retire overseas, as long as you qualify for it.
However, when retiring abroad it must be taken into consideration what taxes you will pay abroad, this will depend on place of residency, irrespective of where you have accumulated your pension. If you have an interest in a property abroad, and live there for the vast majority of the year, then you are likely to be resident in that country. This means that you will then be liable to pay tax in that country, and some offer particularly advantageous terms for retirees. Portugal, for example, offers the prospect of a tax-free retirement.
Residents of countries which have double tax agreements with Portugal are eligible to apply for the regime, however, they must move to the country and have an interest in a property, either via renting or buying. This means that you can effectively live tax-free off the proceeds of your pension, saving yourself a considerable amount in the process.
When living in a foreign country, pensions can be paid into your bank account in Ireland or an account you have in the country you choose to live in, though it will depend on the country. However, you cannot get your State pension paid into a foreign account in certain countries such as China, India, Malaysia, Mexico, South America, and Vietnam.
There are two sides to every coin; while certain countries are looking to encourage people to spend their Irish pensions in the countries listed above by offering tax advantages, the Revenue in Ireland has its own rules as to what’s allowed.
If you’re in a traditional defined benefit (DB) scheme, and your retirement income is in the form of an annuity, the tax treatment is much clearer. You will be able to request a PAYE exclusion order from Revenue, which means that the recipient would only be liable for income tax in the country in which they reside. If, however, you’re in a defined contribution (DC) scheme, or have your money in an approved retirement fund, which will increasingly apply to most of private sector workers, restrictions will apply.