Do you dream of retiring to sunny climates and enjoying a relaxed lifestyle? Have you always considered Panama, Thailand, or Portugal attractive destinations? – Then you are lucky because you can have your German pension transferred abroad.
Relocating as a pensioner can be a great way to make your dream come true. This blog article will look at the essential aspects of emigrating as a retiree, from the most popular destinations to the opportunities available to retirees abroad, to the challenges you may face. Let’s work together to find out if retiring abroad is right for you.
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Why do many retired people in Germany think about resettling?
Are you wondering why so many German retirees are thinking about emigrating? Some of the most common reasons are the need for adventure and change, the search for a more pleasant climate, the opportunity to enjoy a higher standard of living with less money, and the chance to get to know the culture and people of other countries.
The number of retirees transferring their pensions abroad has increased. According to the Pensions Atlas of the German Pension Insurance, there will be around 248,000 pensioners in 2020. This is a new record for emigration – an increase of about 20 percent compared to 2010.
Since the pandemic, rising inflation and recession, the war in Ukraine, and so on, more and more people of all ages are considering emigrating. Want to know the most popular destinations and the most common reasons for German emigrants? We have summarised them in this article: Reasons why people leave Germany.
We have also written a blog post on the topic of “Where to move: The best countries for expats“.
In the following section, I will focus specifically on why pensioners leave Germany to spend their retirement abroad.
Climate and weather
Many people want to move to a country with a milder and more stable climate than Germany. Countries such as Spain, Portugal, or Thailand are popular destinations for retirees who want to enjoy warm weather all year round. A warmer climate can help you feel better and happier and improve your health and age-related symptoms through fresh air activities and more vitamin D. A warm and sunny place offers more opportunities for outdoor activities such as hiking, swimming, golf, and more. Compared to Germany, more opportunities for year-round leisure activities exist in more southern countries.
Cost of living
The cost of living is essential when moving abroad, as many retirees rely on a limited income in old age. A country with a lower cost of living will allow you to maintain a comfortable lifestyle, and you may even be able to afford a bigger house or a better car. The price of food, clothing, entertainment, and healthcare can also be lower, which is why more and more German seniors are choosing to live abroad.
Social and cultural aspects
Some retirees want to move to a country where the culture and way of life suit them better. They are looking for new experiences and adventures in retirement and want to spend their free time exploring a new country. Moving to another country offers the opportunity to learn about a new culture, make new friends and integrate into a different society. Some also want to improve their language skills or learn a new language, which is easier in another country than in Germany. You may be looking for a community of people with similar interests and stages of life, such as a community of retirees or expats who support each other and share activities.
Security and health care abroad
Health is one of the most critical aspects of retirement, as old age brings many illnesses. For example, in countries with a constant and warm climate, flu waves caused by autumn and winter weather are less noticeable. There are also some countries where health care is better than in Germany. Some countries known for their excellent health care are, for example
- USA (although costs are higher than in Germany)
- New Zealand
- South Korea
- The Netherlands
Another essential consideration when emigrating at retirement age is security. It is advisable to find out about the current political and criminal situation in the destination country and to seek expert advice if necessary. Some countries are also more prone to natural disasters such as hurricanes, earthquakes, or floods, and it is crucial to consider these risks in advance. It is also essential to find out about the safety conditions in the area where you want to live and the availability of emergency services and medical care.
What happens to my pension if I leave Germany?
If you’re thinking about spending your retirement abroad, there are a few things you should consider. First, you must decide which country you want to go to. The German pension scheme gives you a free choice in this respect, as it pays pensions worldwide.
Germany has social security agreements with many countries that allow you, as a German pensioner, to continue to receive your money from Germany. If you want to migrate to a country that does not have a social security agreement with Germany, you can still count on your pension. There are simply no general rules on the recognition of pension rights. If you decide to move to such a country, you should find out about the conditions for pension payments in advance.
The following pictures show all the countries with a social security agreement with Germany. These are the European Economic Area and some other countries, such as Australia and the USA. (see Figure 2)
The contracting states you see at the bottom of the chart are all the countries that are not part of the European Economic Area but have a social security agreement with Germany. You can also have your pension contributions paid out in these countries:
Pension refund Germany: Who is eligible?
The German statutory pension system is not known for readily refunding contributions. To be eligible for a refund, certain requirements must be met.
The pension system wants to discourage people from prematurely ending their insurance relationship, as this means that all pension entitlements are lost. The refund process is also known to be lengthy, complicated, and confusing.
Generally, only three groups of people can qualify for a pension refund:
- civil servants and those similar to them,
- those who have reached the standard retirement age but do not meet the general waiting period, and
- foreigners who have worked in Germany and have since emigrated. However, even within these groups, specific requirements must be met in order to be eligible for a refund.
The German pension system allows for early payment of contributions if the following three basic requirements are met:
- You are no longer required to pay contributions in Germany
- Your last contribution payment was made at least 24 months ago
- You do not have the option of paying into the German pension insurance scheme voluntarily.
Whether or not you have the option of voluntarily paying into the pension insurance scheme depends on your nationality and current residence. The German Pension Insurance divides potential eligible individuals into four groups: German citizens, citizens of EEA countries, Switzerland and the UK, contracting states and non-contracting states.
Retiring abroad: All you need to know!
Even if the German pension scheme gives you a free hand, your choice of retirement country will affect the amount of your state pension. If you live outside the eurozone, you will have to pay conversion fees and exchange rate losses. You may also have to pay fees for transferring money abroad. Consider carefully whether transferring your pension to a German account that you can use abroad makes more sense. However, if you want to open an account in Germany, banks usually require you to be a German resident. Therefore, opening an account in Germany is advisable before you move.
It would help if you informed your pension and health insurance companies at least three months before you move, giving them your new address, contact details, and bank details. It is also a good idea to find out about account options in the country of your choice, especially the costs and fees involved.
It is also essential to know that most expatriate pensions are paid in European Union countries such as Spain, France, and Switzerland. These countries all have a double taxation agreement with Germany, which will affect the amount of tax you pay on your pension. It is crucial to find out about the tax implications in your destination country before you move and make sure you can meet your tax obligations.
What is a double taxation treatment for pensions?
A double taxation agreement (DTA) is an agreement between two countries that regulates the taxation of income and assets to ensure that a person is not taxed on the same income or assets in both their home country and abroad.
Whether Germany can tax your pension depends on your current country of residence. If there is a treaty between your country of residence and Germany to avoid double taxation (a so-called double taxation treaty), Germany may be prevented from taxing your pension. In this case, the tax rate of your new country of residence will apply.
If both countries are allowed to tax, the double taxation treaty also regulates how your country of residence can avoid double taxation. Depending on which double taxation treaty applies, there are two ways to avoid double taxation: Your German pension is exempt from tax in your country of residence, or your country of residence must credit the German tax against the tax payable abroad.
Which countries do retired people prefer to relocate to?
Germans of all ages often have financial motives for emigrating. Many retirees choose to move abroad in their old age because of lower living costs and the desire to spend their “free years” where others go on holiday. An essential factor is that average pensions in Germany are often insufficient to cover the rising cost of living. According to the Stuttgarter Zeitung, the average retirement in the old federal states is €1,620.90 gross and €1,598.40 gross in the new federal states (as of July 2022), leaving a net amount of just over €1,400 per month after taxes and social security contributions. Many see this as an incentive to move abroad to stretch their pension further and simultaneously improve their quality of life.
This is a challenging question, as each emigrant leaves Germany for different reasons.
These are some of the most popular countries for German retirees:
- Panama: Panama is the best country to retire to, according to International Living’s ranking. The Central American country is best known for its famous canal linking the Atlantic and Pacific oceans. But it also has many other attractions, including a warm climate, varied landscapes, a well-developed healthcare system, and a low cost of living. The people’s well-developed infrastructure, hospitality, and friendliness are also praised. Last year, Panama came second to Costa Rica.
- Costa Rica: Costa Rica was ranked by International Living as the second-best country in the world for retirement. The country scored high on environmental protection, low cost of living, and good medical care. It is perfect for outdoor activities and has a good climate. According to International Living, a couple can live comfortably on around US$2,000-2,500 a month.
- Mexico: Mexico will be the most expat-friendly country in the world in 2022, according to Internations, and expats are delighted by the friendliness of its people. In addition, the cost of living is lower than in many Western countries, and there are many places where you can rent an apartment or buy a house for little money. According to statistics from the website WorldData.info, the cost of living in Mexico is 40% lower than in Germany.
- Thailand: Thailand is also one of the countries where you can enjoy your retirement the most! In Thailand, you can live very well on a small pension. Even €500 – €1000 per person is enough to live comfortably. Of course, it depends on the region and your lifestyle, but the average cost of living is much lower than in Germany.
- Canada: More and more retirees are also moving to Canada. The proximity to the USA, the excellent quality of life, and the security are reasons Canada is highly recommended for emigration.
Several countries within Europe are ideal for a relaxed retirement:
- Portugal has become increasingly popular in recent years, offering a high quality of life at an affordable price. Rents and property prices are comparatively low, and there are good deals on food and services.
- Spain, especially the southern and inland regions, offers an excellent opportunity to enjoy retirement as the cost of living is lower than in many other parts of Europe.
- Austria is another favored country for German retirees. The proximity to Germany, the similar culture, and the excellent quality of life are some of the reasons.
Here is an article from Focus Online on pension taxation abroad: Tax havens put to the test: These are the cheapest places to retire abroad.
Where can you live on €500 a month?
There are some countries where you can live on a monthly budget of €500. However, it depends on what standard of living you are aiming for and what kind of lifestyle you want to lead. You can tell which countries are particularly cheap to live in by the fact that the average monthly salary of the locals is also meager. For example, the average wage in Bulgaria is around €400-500 per month. The same applies to Thailand, where the average salary is just as high or low.
So you can live on a meager income or a small pension in the following countries:
- Countries like Mexico, Thailand, India, Vietnam, the Philippines, and other Asian countries generally have a meager cost of living.
- In European countries such as Bulgaria, Romania, the Czech Republic, Poland, and other Eastern European countries, you can also live on a meager budget.
- This is also possible in some South American countries such as Ecuador, Peru, or Bolivia.
How is my German pension taxed when I live abroad?
How your pension is taxed depends on how long you stay abroad. If you do not spend more than six months a year abroad, your stay is temporary, and your pension will continue to be paid to you as usual. From a tax point of view, nothing will change for you in this case; you will continue to be subject to unlimited tax liability in Germany on all your income, including your statutory pension.
However, if you spend more than six months a year abroad, this is considered a permanent residence. In this case, you are subject to limited tax liability in Germany, there is no basic tax-free allowance, and your taxable income is taxed from the first euro. Many benefits, such as spousal splitting and extraordinary burdens, are no longer considered in this case. Tax allowances for children and single parents will also be abolished. These tax benefits are necessary for the tax burden on taxable income in Germany to be high. Learning about the effects of a permanent stay abroad on pension taxation is crucial before deciding to move overseas.
Conclusion: Advantages of retirement emigration
Retirement emigration offers many advantages for people who wish to retire in a different environment. Some of the most significant benefits are the opportunity to start a new adventure, the cost savings from a lower cost of living abroad, the chance to enjoy a pleasant climate all year round, and the chance to experience a new culture. Many countries also offer excellent medical care, allowing retirees to stay healthy and happy in retirement. Avoiding double taxation on pensions through double taxation agreements can also be a big plus. Retirement emigration is a great way to enrich your life in retirement and explore the world. So take control of your life and listen to your gut!
We are happy to assist you with any questions about relocating and deregistering in Germany! ☀️
Your Deregistration.de team.