Cost of retiring in Portugal

If 3,300 hours of sunshine a year, beautiful blue flag beaches and a slower pace of life sound like your kind of thing, you may want to consider retiring in Portugal.

Portugal’s Algarve is often ranked the best place in the world to retire, and with good reason. It’s peaceful, safe and has lots of opportunities to just kick back and relax.

What’s more, the cost of living is quite low, meaning you can live a far more comfortable lifestyle than would be possible in another country, or even at home.

Ready to buy your one way ticket? Read on to find out all there's to know about retiring in Portugal.

How much money will I need?

Life in Portugal is surprisingly cheap. Broadly speaking, the cost of living is about 36% lower than it's in the UK and about 40% lower than the US. Renting costs alone are more than 50% cheaper than the UK and US, making housing very affordable.

Let’s have a look at what a comfortable (but not overly luxurious) lifestyle in the Algarve would cost:

Average monthly expenses	Cost in €
Rent - 3 bedroom apartment in city centre	550
Utilities (water, electricity, heating, refuse)	78
Internet	27
Groceries	50
Dining out for 2 people (mid-range restaurant)	30
Healthcare (basic health insurance + additional expenses)	70
Fitness / social club Membership	44
Other expenses	150
Monthly total:	999

Details from Numbeo and *Portugal Buying Guide as at April 2017

While this is a conservative estimate, the cost of living in general won’t vary much from region to region.

However, rent is significantly more expensive in Lisbon, Portugal’s capital city. A three-bedroom apartment in the city centre will set you back about €1,100 - almost double what it costs in the Algarve.

A couple can live comfortably on as little as €24,000 a year, or €2,000 a month. That said, you’ll need to consider the rising cost of goods and services due to inflation.

Getting a retirement visa

Unless you’re an EU citizen, you’ll need a visa to settle in Portugal. EU citizens can settle down permanently in any EU country by exercising their right to freedom of movement. Third country nationals (citizens of a non-EU country) have to apply for a Schengen visa. Portugal does not have special visa rules for third country retirees.   

EU citizens

Portugal is an EU country and a member of the Schengen Area. EU, EEA and Swiss nationals and their families can enter freely and settle permanently.

However, you’ll need to apply for a residence card (autorização de residência) if you plan to stay in Portugal for longer than three months. This card proves your status as a permanent resident.

You can apply for a residence card at your nearest immigration service office (Serviço de Estrangeiros e Fronteiras), by presenting the following documents:

1. the completed application form, which you can download here
2. your valid passport and one photocopy
3. two recent passport photos
4. proof of income
5. proof of residence

You should receive your residence card within a few weeks. You’ll need to return the residence card to your local immigration service office or police station if you plan to leave Portugal permanently.

Third country nationals

As a member of the Schengen Area, Portugal abides by the Uniform Schengen Visa rules for third country nationals wishing to enter the EU.

In order to settle permanently in Portugal, you’ll need to apply for a Category D Schengen visa. This will allow you to enter and stay in Portugal for an initial period of four months, after which you’ll need to apply for permanent residency.

You’ll need to apply for your Category D visa at your local Portuguese embassy by presenting the following documents:

1. the complete application form, which you can download here
2. two recent passport photos
3. your valid passport
4. a letter explaining your reason for entering Portugal
5. a recent criminal record certificate
6. signed authorisation for the Portuguese authorities to run a criminal background check
7. medical expenses cover up to a minimum of €30,000
8. proof of accommodation
9. proof of civil status
10. pension statements for the previous six months

You’ll also be required to pay a non-refundable visa fee of €99, as well as any additional fees levied by the embassy.

Once you arrive in Portugal, you'll also need to obtain a temporary residence permit. You can apply for this permit by making an appointment and visiting your local immigration service office with the following documentation:

1. the application form, which you can download here
2. two recent passport photos
3. your valid, unexpired passport
4. your valid category D Schengen visa
5. proof of income
6. proof of accommodation
7. signed authorisation for the Portuguese authorities to run a criminal background check

You’ll also be obliged to pay a fee of €64.50.

A temporary residence permit is valid for one year, after which you can renew it for successive periods of two years. You can apply for a permanent residence permit once you’ve been in Portugal for five years.

How will I be taxed?

Like many other countries, Portugal taxes people differently, based on whether they’re residents or non-residents. As a general rule, residents pay Portuguese tax on all their worldwide income, while non-residents only pay tax on their Portuguese income.

Taxation as a resident

As a Portuguese resident, you have to pay Portuguese tax on all your income, even if it’s made outside of Portugal.

You’re considered a Portuguese resident if you’re physically present in Portugal for more than 183 days a year.

Current tax rates for residents are:

Income (€)	Rate (%)
up to 7,000	14
7,001 to 20,000	28.5
20,001 to 40,000	37
40,001 to 80,000	45
80,001+	48

Details from aaptaxlaw.com as at April 2017

Taxation as a non-resident

Non-residents are taxed only on their Portuguese income at a flat rate, depending on the type of income:

Type of Income	Rate (%)
Employment / Business / Pension	25
Interest and Dividends	28
Capital Gains	28
Rental Income	28

Details from aaptaxlaw.com as at April 2017

Non-habitual resident scheme

In an effort to attract wealthy foreigners, Portugal has developed a non-habitual resident tax regime. The scheme allows you to receive all your foreign income tax free for up to ten years, even though you’re a resident. This system makes Portugal one of the most tax-efficient countries in the world, especially for retirees.

However, you’ll still need to pay tax on your Portuguese income (except your Portuguese pension, if you have one) at the following rates:

Type of Income	Rate (%)
Employment / Business	20
Interest and Dividends	28
Capital Gains	28
Rental Income	28

Details from aaptaxlaw.com as at April 2017

Becoming a non-habitual resident is easy. You’re automatically eligible as soon as you gain residency, provided you’ve spent the previous five years outside of Portugal.

Healthcare in Portugal

Portugal has a comprehensive free public healthcare system that covers general and specialist care. Certain medicines are also available under the national health service at a discounted rate.

As an expat, you may or may not be eligible for free healthcare, depending on your nationality and individual circumstances.

EU nationals

If you’re an EU national and in receipt of a state pension from another EU country, you’re eligible for the same level of free healthcare as as Portuguese citizens. However, you’ll need to have a residence card and a healthcare ‘user card’ (Número Utente), which you obtain by registering with your local health centre.

According to EU rules, the country that pays your pension must pay your healthcare costs. Because of this, you’ll need to obtain Form S1 from the country that pays your pension and hand it over to the social security office (Posto de Atendimento da Segurança Social) nearest to you.  

If you don’t receive an EU pension, you’re not eligible for free healthcare, even as an EU national. However, you may be able to obtain an exemption if you can prove you can’t afford to pay for private health insurance.

Expats from third countries

The Portuguese healthcare system is generally not free for non-EU nationals.

Unless you make social security contributions in Portugal (or have made some in the past), you may need to pay at least some of your healthcare costs. This can get expensive, so you should invest in a private health insurance plan. You'll need to prove you have cover for medical expenses when you apply for your visa.

Private health insurance

Three major private health insurance providers in Portugal are:

1. Allianz
2. AXA PPP International
3. Multicare

All three providers offer a comprehensive level of cover, including specialist consultations, inpatient and outpatient care, the cost of hospital stays, diagnostic tests and even the cost of treatment (including medicines). However, while some providers may offer certain benefits as standard, others may only make them available as optional extras.

You’ll also have to choose the maximum annual benefit the policy can pay out. The higher this is, the more costly your health insurance plan will be.

You should read through the fine print carefully before you commit to a policy. Make sure you’re fully aware of all your policy’s terms and conditions, so you’ll avoid nasty (and potentially very expensive) surprises.  

The cost of a private health insurance policy can vary depending on the individual provider, your general state of health and the extent of cover you purchase. Basic insurance cover (the lowest level of cover possible) for a healthy 65-year old male starts from around €180 a year.

If you live in an area where there are a lot of expats, you may be able to find English-speaking brokers that will help you shop around and get the best deal.

How will the exchange rate affect my pension?

Portugal’s currency is the Euro. As the official currency of the Eurozone, it’s used by 19 EU member states.

A number of other countries also use the Euro or have pegged their currency to it. These include Bulgaria, the Czech Republic, Denmark and various former French colonies in central Africa, such as Cameroon, Mali and Chad.

If you receive your pension from a Eurozone country, you don't have any exchange rate to deal with. And if you receive your pension from a country whose currency is pegged to the Euro, you’ll always get the same exchange rate.

If you receive a pension from another country, the exchange rate will depend on current market circumstances. The Euro is a floating currency, so it’s value may go up or down.

Always make sure you’re paying the mid-market rate when you exchange currency, as this is the fairest exchange rate you could possibly receive. You should also shop around for the best deal. Claims that transfers are ‘commission free’ are rarely true. More often than not, the profit will be hidden in an unfavourable exchange rate.