If you’re considering making a new life for yourself in Spain, you’re hardly alone. More than 5.5 million foreign nationals are now living in Spain, accounting for more than 12 percent of its population. Spain’s expat population is dominated by British citizens, but an increasing number of Americans are finding their way there, too.
Many of them are retirees, and overwhelmingly they choose to live along the Costa del Sol, the Mediterranean coast of the province of Málaga known for its near-perfect weather, low-cost living and no-stress lifestyle. It's fitting for a country responsible for one of the largest land deals in history.
Here’s the Twist
So far, so good. But this story has a contemporary twist. The banking crisis of 2008 hit Spain particularly hard. In financial terms, it was one of the “PIIGS,” standing for Portugal, Ireland, Italy, Greece and Spain, the countries with the rockiest economies in the eurozone.
Since that crisis, jobs have disappeared, real estate prices have plunged, and many residents, both native and expat, have bailed out. Many of them departed because they couldn’t find a job, or keep a business going, in the severe economic downturn.
Needless to say, if you’re considering a retirement life in Spain, you shouldn’t be looking for a job. If you’re wondering whether your particular combination of savings, pension and/or Social Security will stretch to a life in Spain, you should consider two recent phenomena: Real estate prices in Spain remain down almost 40 percent from their 2007 high point, and the dollar is stronger against the euro than it has been for a good many years. Both of these factors make Spain considerably more affordable than most of the United States.
AARP estimates that a “frugal” lifestyle in Spain will cost about $20,000 a year, while a “comfortable” retirement would cost about $25,000.
Running the Numbers
First, consider the two biggest financial concerns of most retirees, housing and medical care.
In Marbella, a lively resort town that is far from the cheapest perch in the Costa del Sol, a one-bedroom apartment can be rented for an average of $700 per month outside the city center and $793 a month in the center of the city, according to Numbeo.com. Real estate costs range from about $214 to about $323 per square foot, depending on whether you're outside the city center or in the thick of it all.
As a resident of Spain, you may be eligible for its well-regarded public healthcare program, but most expats opt for private insurance to avoid a long wait for non-emergency treatment. There are many companies that specialize in health insurance plans for expats.
It’s not possible to come by a typical price for that coverage, but AARP says it’s generally cheaper than comparable insurance in the United States One retiree, age 74, pays $230 a month for full coverage, for instance, and prescription drugs cost about a third of the price charged in the United States.
JustLanded.com offers a more detailed breakdown of expenses in Spain, including the costs related to property purchase and ongoing monthly expenses. Numbeo.com tracks prices in Málaga on a range of consumer goods, from bananas to running shoes.
And Then There Are Taxes
An expat living in Spain may have to pay income taxes in Spain, though there are exemptions for those with moderate incomes.
If you reside in Spain for more than six months of the year, and your income is above about $24,000 or you receive rental income of more than about $1,100 or capital gains or savings income of more than $1,700, you may be required to file a Spanish income tax return, even if most or all of that income comes from the United States or anywhere else in the world. As an American citizen, you will also file a U.S. tax return on your worldwide income.
However, because Spain and the United States have signed a tax treaty, you should be able to avoid the problem of double taxation. And of course, it’s always wise to consult a tax expert to assess what your exact tax situation would be if you retire abroad.
For wealthy expats, there’s some comfort in knowing that Spain now as a “golden visa” program that makes it easy to sail through the residency permit bureaucracy for those who spend at least 500,000 Euros or 582,571 USD on a property in Spain.
On a Budget
Costa del Sol is the most popular choice for expats, and that inevitably means it’s a relatively expensive choice. It’s less expensive even a bit north, along the Costa Blanca.
And, if beachfront living is not an absolute necessity in your life, you have a wide choice of fabled Spanish cities that are rich in history and culture: Seville, Granada, and Córdoba are among them. But not Madrid or Barcelona. Both of those cities are notoriously expensive.
The Bottom Line
At least for the present, the financial downturn is good news for retirees considering Spain. If you have estimated your annual retirement income at $20,000 to $25,000, you’ll find that it does stretch to a comfortable life on Costa del Sol.