Most of us live for the day where we can say goodbye to the working world and retire for good. For some of us, this means picking up and moving elsewhere. If you're considering a big move, there are a few places you should have on your radar including Puerto Rico. Sure, retiring to the island may not necessarily be considered going abroad since it is an American territory. But that should be the least of your concerns. There are plenty of reasons why the sun-kissed Caribbean island should be among the top retirement destinations on your list.

Key Takeaways

  • Puerto Rico exempts residents entirely from taxes on dividends, interest, and capital gains.
  • Because Puerto Rico is an American territory, residents don't face the double taxation penalty they may by retiring to another nation.
  • The cost of living in Puerto Rico is lower than the U.S. when you average out all the costs including housing, food, utilities, transportation, and entertainment.
  • The island nation offers an easy adjustment with little culture shock, a warm climate, and easy access back to the United States.

Tax Breaks

Puerto Rico will help you make the most of any money you've invested in your lifetime. The island has several tax-related incentives to draw in non-Puerto Ricans and those who've moved to the United States from the island.

The government’s Act 22, or Individual Investors Act, exempts residents entirely from taxes on dividends, interest, and capital gains. For U.S. citizens to qualify for the exemptions, Puerto Rico must be their real home. This means they must reside in Puerto Rico for at least 183 days of the year. The government recently extended this program to Puerto Rican-born people now living in the States, in the hopes of luring successful Puerto Ricans back home. 

There’s another tax-related benefit for Americans living in Puerto Rico. Under current law, American citizens must file U.S. taxes no matter where they live. In fact, many people have to file in both the U.S. and where they live. Most governments have an agreement with the United States where they deduct U.S. taxes paid from any taxes owed by expats. Since Puerto Rico is technically part of the United States, the double taxation penalty for American citizens living abroad doesn't apply to those who live on the island.

The Easy Adjustment

You won't have to deal with much of a culture shock if you decide to retire in P.R. Although Spanish remains the island's primary language, English is widely spoken. You don’t need a residency permit to live there. The U.S. dollar is the currency. The electric plugs are the same. And as a U.S. territory, your Medicare card is as good in Puerto Rico is it is on the U.S. mainland. You'll find many familiar brand names on display there, too. In fact, Puerto Rico has more Walmart and Walgreens locations per square mile than anywhere else on Earth. A Google Maps search plots almost 20 Starbucks cafés in the San Juan area.

Lower Cost of Living

Puerto Rico’s economy is struggling under the burden of more than $70 billion of debt. A financial rescue bill signed by President Obama on June 29, 2016, put the island's finances under a federal oversight board, allowing some debt to be restructured. A long, hard recession and inflation have been among its many problems, with many professionals leaving the island for better-paying jobs elsewhere. Despite all of this, Puerto Ricans still enjoy a lower cost of living than mainland Americans.

The cost of living is nearly 3% lower than the aggregate for the U.S., according to recent figures compiled by Numbeo. A breakdown of everyday costs shows big price differences within those bottom-line numbers. For instance, grocery prices are high since most food has to be shipped to the island. But a gym membership in the business district in San Juan costs $35 a month, according to Expatisan

Real estate prices are relatively high—beachfront property particularly so. But property taxes are comparatively low. You can get a rental at a great price since rents are almost 53% lower than they are in the U.S. A furnished, 900-square-foot rental in an expensive neighborhood of San Juan averages $1,514, according to Expatisan. In a normal neighborhood, the average price for the same size furnished apartment is $946 as of August 2020.

While the overall cost of living in Puerto Rico may be lower than the continental United States, the island's sales tax is a whopping 11.5%.

The Climate

Did we mention that Puerto Rico is a tropical paradise? Although this could have been the top item on the list, it is a bit obvious. Warm weather is a constant year-round, with little seasonal variation. Temperatures in San Juan and other coastal areas average in the mid-80s to 90 or so in the daytime, cooling down to the mid-50s to about 70 degrees overnight. If that’s too hot for you, the island’s hilly center provides a cooler climate, along with a more rural atmosphere. Temperatures can even plunge into the 40s during the mid-winter nights.

It’s Closer Than You Think

Wherever you are in the U.S., Puerto Rico is quicker and easier to get to than most other places that may compete as retirement destinations. If you still have family in the United States, you're not that far off if you want to go for a quick visit or if they want to come to see you. A non-stop flight from Miami to San Juan takes under three hours. The flight from New York is about four hours.

The Bottom Line

Despite all its economic challenges, Puerto Rico has many of the advantages of its Latin American and Caribbean neighbors. Puerto Rico's unique status as an American territory also makes it particularly attractive to Americans looking for an affordable place to retire. It also makes the transition to a new home easy.