Can relocation solve retirees’ post-divorce financial crisis?

‘Silver splitting’ is spiking around the world. And while divorce or separation might solve an unhappy situation, cutting a retirement pot in half is never good for financial security. Could relocating to a less expensive country be the answer? Alistair McKechnie reports on a growing trend.

Retirement has always been a trigger for separation, but lately, divorce rates among retirees have increased dramatically. In the USA, the over-65 divorce rate tripled between 1990 and 2019. In England and Wales, there are now a million more divorced over-65s than there were in 2002.

There are a number of reasons: Women are earning better salaries, making them less dependent on their husbands. Better late-life health expectancy is allowing individuals to reimagine what a post-retirement lifestyle can offer. Political and social divisions have crept into many marriages, leading to long-simmering resentments (think Brexit and MAGA, for example). In addition, after years of complying with traditional family expectations, more men and women are now seeking relationships with same-sex partners.

And when older couples watch more of their friends and neighbours split up, they’re more likely to take action to end their own unhappy relationships.

From financial security to precarity

Separation has a severe emotional impact. And while the newly single retiree is dealing with that, the financial impact can be as much of a blow or more. Instead of one home, one set of furniture, one set of appliances, and perhaps one car, there’s a whole new set of big-ticket purchases to be made. Plus added insurance policies on it all. And because the divorcees are no longer working, they’re going to have to do all of that on a lower income. No wonder divorce can turn long-term financial security into long-term financial precarity. In the UK, a quarter of divorced retirees are living in poverty – not exactly the golden age they were looking forward to.

No wonder that many ‘grey divorcees’ decide that their only option is to re-enter employment. And let’s face it, going back into the workplace can give some retirees a new lease of life by interacting with younger people and potentially regaining a sense of self-worth. But that largely depends on the employer: earning low wages for exhausting driving, warehouse and caring jobs may not do much for your self-esteem.

Could a move to a less expensive country solve the problem?

Whether you initiated the separation or not, the experience can be brutal. But it is an opportunity to reconsider exactly what you want from your retirement rather than what you thought you had to settle for. And that includes rethinking where you want to live.

Traditionally, we stayed in the same area so we could be near our loved ones: friends, parents, children, grandchildren. But there’s a good chance that your children have already moved away to find better employment or lifestyle opportunities. And with technology like WhatsApp keeping you connected, and cheap air fares making it easier to get together for those holidays and family celebrations, you now have the same opportunity. So instead of eking out your retirement on half the money, why not opt for the lifestyle you want in a country that simply costs less?

Check the figures and you’ll see that a coastal life in Cape Town, for example, could cost about half what it costs to live in Brighton (both the British and Australian versions) – with a familiar, Western lifestyle and infrastructure, no need to learn a new language, and easy access to spectacular beaches and mountains. And if you want to up the luxury while swimming in the sea year-round, Thailand and Vietnam are two other options that will stretch your Western currency even further.

But wait, I hear you say, what about visas? Well, while you may currently live in a country that’s actively discouraging new settlers – especially older ones – a number of other countries are doing the exact opposite.

The rise of the retiree visa

Good news for silver splitters is that more and more destinations worldwide are now competing for pensioner pounds, dollars and Euros. If you can show that you have a regular passive income (and in most cases, can afford your own health insurance), you can explore a number of special visa options for retirees – usually also offering a path to permanent residence after five or so years.

At the value end of the scale, with amazing food and excellent weather thrown in…

Portugal’s D7 Passive Income Visa is the outright winner, giving you access to a far lower cost of living than the USA or UK. The visa requires a passive income of just €920 per month, and provides a clear path to permanent residency or citizenship – and once legal residency is established, access to its healthcare system too.

Thailand’s cost of living is about a third of that in the USA or UK. Visa-wise, the Non-Immigrant O-A Visa offers a stay of up to one year if you can show a bank balance of just 800,000 Baht (about $25,000), or a monthly passive income of at least 65,000 Baht (about $2,000). The Thailand Privilege (Elite) program, on the other hand, allows older adults to effectively buy access for five years or longer, starting from around $25,000.

On a bigger budget of around €2,000 or so per month, there are a number of other Mediterranean and Latin American countries – South Africa too – offering accommodating visa deals. To explore more options, input your retirement income into our calculator, select your target destinations and see what rules apply – along with the kind of lifestyle you can expect on that budget.

All this and lower taxes too

If you’re in the UK, you’re probably aware that the state pension is going up faster than the lowest tax bracket. So even if that’s all the income you’re getting, you’ll probably soon need to pay tax on it.

However, there are a number of countries that won’t tax you a single penny, cent or peso on whatever pension income you bring into the country. And that applies no matter what the source of your pension income: state-provided, workplace pension, personal pension or all of them together.

Some of those countries aren’t exactly in the ‘affordable’ bracket. But Panama, Philippines and South Africa are just three very affordable countries that charge no tax whatsoever on foreign pensions. Other low-tax deals on expat pension income are offered by Greece (7%), Italy (7%, but in specific southern and central regions only), and Cyprus (5% on pension income above €5,000).

Beware the dwindling pension catch

If you're receiving an old-age pension, be aware that the amount may drop if you relocate. In the case of Australia, for instance, this will depend on a number of factors and you need to do your homework before you move overseas long term.

If you're a UK pensioner, depending on where you resettle, once you're no longer tax-resident in the UK, your state pension income might not continue to grow automatically each year. No problem if you move to Europe (most of it anyway), the United States, Jamaica, Turkey, Israel or Mauritius, bad luck if you're moving somewhere else.

What that means is that if you move your tax residence from the UK to a country like Panama, Philippines or South Africa, you will need to make up for a state pension that’s slowly dwindling in real terms by religiously putting aside a small percentage of it each month and investing it.

Time to explore your options?

This article is far from comprehensive and there’s probably more you need to consider – food for a follow-up article in the near future, hopefully. But whatever your post-separation financial situation, it’s likely that you can make your retirement income go a lot further somewhere else. You’re also likely to find a welcoming community in your new home, and plenty of scope for personal growth and new relationships. Start off by exploring your potential tax and lifestyle outcomes in some retirement hotspots around the world.

This article is for general information only and does not constitute financial, tax or immigration advice. Visa requirements, tax rules and income thresholds change frequently, are applied case by case, and depend on your own circumstances and the treaties between the countries involved. Please speak to a qualified, licensed adviser in both countries before making any decisions about relocating or restructuring your retirement income.