I’m 62 and plan to retire in Portugal because my dollar will stretch much further there — but are there hidden costs I should be aware of?

At age 62, Mariah is close to retirement, but the Wisconsin native dreams of living out her golden years in Portugal, where she can enjoy a lower cost of living — along with much milder winters.

She wouldn’t be alone. About 5.4 million Americans live abroad, according to the Association of Americans Resident Overseas. And, when it comes to destinations, Portugal is ranked No. 2 on International Living’s 2024 Global Retirement Index, just after Costa Rica. Other top retirement destinations include Mexico, Panama, Spain, Ecuador and Greece.

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Moving abroad has its appeal. Thanks to the strength of the U.S. dollar, many American retirees can stretch their retirement savings further in a foreign country. Plus, the cost of living is often lower.

Those considering a move abroad can compare the cost of living in cities around the world on Numbeo’s cost-of-living database, as well as the Global Passport Index, which factors in metrics such as cost of living, infrastructure and personal and political freedoms.

Despite its appeal, moving to another country comes with legal, taxation and health-care considerations that need to be taken into account.

Essential planning tips

Dreaming about retirement in another country is one thing. Moving there is another. Before committing, consider go on a scouting trip (or two, or three). But rather than staying in a hotel and taking guided tours, rent a home in a residential neighborhood. Buy groceries from the local grocery store, take public transit and visit a medical clinic.

You’ll also need to understand the visa requirements. For example, Portugal offers two types of visas for non-EU retirees: a D7 visa, designed for those with a regular stream of passive income (such as Social Security or a pension — there is a minimum requirement) and the Golden Visa for those who plan to make an investment (minimum €250,000) in the country. Both visas offer a pathway to permanent residence.

You’ll also want to look at the legal and tax implications of buying a home in a foreign country. For some retirees, it may make more financial sense to rent instead of buy. And, if it’s not working out — say our example Mariah decides she misses the U.S. — it’s easier to relocate if you’re renting.

Another consideration is language. In Portugal, there’s a large expat community (and a lot of tourists), so English is widely spoken. That won’t be the case in all countries. But, if Portugal is going to be Mariah’s new home — and if she truly wants to connect with locals — then she may want to invest the time in Portuguese language lessons.

Read more: Why people who work with a financial advisor retire with an extra $1.3 million

The costs of living abroad

Expats can retire to Portugal and live comfortably on about $3,000 a month, according to International Living, but this can depend on whether they rent or own, where they choose to live and what lifestyle they want to lead.

For example, living inland in a rural village is typically more affordable — and possibly more authentic — than living in an urban area or popular region.

“Property near the coast comes with a higher price tag and brings summer tourists, just like anywhere else in the world,” International Living says. And if you buy, rather than rent, then you’ll have to deal with additional expenses, including property taxes and maintenance.

Then there’s income tax, which follows you no matter where you move.

“If you are a U.S. citizen or resident alien, your worldwide income is generally subject to U.S. income tax, regardless of where you are living,” according to the Internal Revenue Service (IRS) tax guide for Americans living abroad.

That means Mariah will still have to file tax returns to the IRS after she moves to Portugal. And, if she qualifies as a Portuguese tax resident, she’ll also have to file a tax return there. There is a tax treaty between the U.S. and Portugal, however, navigating multi-jurisdictional tax and regulatory regimes can be complicated and may require the services of a tax professional familiar with these regimes to minimize potential double taxation.

Also, don’t expect Medicare to cover you while living abroad. Find out if the country has universal health care or if you’ll need private coverage. Portugal, for example, has public and private health care. If you plan to use public care, make sure you qualify as a visa holder.

Perhaps one of the biggest expenses of living abroad is the cost of travel. If Mariah flies back to the U.S. regularly to visit family, or for events such as weddings and funerals, she’ll need to work that into her retirement budget.

She may also want to hire a Portuguese immigration lawyer to help her with the residency process, but that’s an additional cost she’d need to budget for — though it could save her a lot of time (and headaches) in the long run.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.