Retiring in Puerto Rico: a complete guide
Puerto Rico, a Caribbean island territory of the United States, is a popular retirement destination for many Americans seeking a tropical environment with access to outdoor activities, cultural events, and a lower cost of living.
Over 18% of the population in Puerto Rico is over 65, making it one of the top destinations with a large retirement population.
Puerto Rico has no specific retirement age that is mandated by law.
Puerto Rico offers significant tax incentives for retirees as long as they meet the qualifying requirements.
Puerto Rico offers a range of retirement options, with easy access to beaches, a relaxed lifestyle and a vibrant culture.
What age can you retire in Puerto Rico?
Puerto Rico has no specific retirement age that is mandated by law. This means that individuals are free to retire whenever they choose, as long as they are able to financially support themselves.
However, there are some age-related benefits and considerations for retirees in Puerto Rico:
Social Security benefits: The earliest age at which you can begin receiving Social Security benefits is 62, but if you delay taking benefits, your monthly payments will increase. Full retirement age (FRA) is between 66 and 67, depending on your birth year. Delaying benefits until after FRA can result in even higher monthly payments.
Medicare eligibility: Medicare eligibility begins at age 65, regardless of retirement status. However, if you choose to retire before age 65, you will need to find alternative healthcare coverage until you become eligible for Medicare.
Age discrimination: It is illegal for employers to discriminate against employees or job applicants based on age.
Retirement savings: Regardless of retirement age, it is important for individuals to start saving for retirement as early as possible. Many financial experts recommend saving at least 15 percent of your income for retirement.
In fact, according to data from the U.S. Census Bureau, over 18% of the 3.3 million people living on the island are over 65, making it one of the top destinations with a large retirement population.
With factors like healthcare coverage, income sources, and savings to consider, getting expert guidance can help determine the optimal retirement age in Puerto Rico.
Why do people retire to Puerto Rico?
There are many benefits and advantages of choosing to spend your retirement in Puerto Rico, including:
Tropical environment: Puerto Rico is known for its tropical climate, with warm temperatures year-round and beautiful beaches. Retirees can enjoy living in a tropical environment that offers plenty of opportunities for relaxation and outdoor activities.
Lower cost of living: Puerto Rico's cost of living is generally lower than many states on the mainland, which could be a benefit for retirees on a fixed income. Housing and healthcare costs are generally lower than in many other locations.
Tax benefits: Puerto Rico offers significant tax incentives for retirees, including lower local taxes, a 0% tax rate on capital gains, and federal income tax exemptions for qualifying residents.
Rich cultural heritage: Puerto Rico has a rich cultural heritage, with a blend of Spanish, African, and indigenous influences. The island has a vibrant arts and music scene, and hosts several festivals and events throughout the year, including the San Sebastian Street Festival and the Casals Festival.
What are the disadvantages of retiring to Puerto Rico?
While retiring to Puerto Rico has some benefits, it also has some drawbacks you should be aware of:
Natural disasters: Puerto Rico is prone to natural disasters such as hurricanes, which could be a concern for retirees living in certain areas.
Language barrier: While English is widely spoken in Puerto Rico, Spanish is the primary language, which could be a challenge for some retirees who are not fluent in the language.
Infrastructure: Some parts of Puerto Rico may have less developed infrastructure compared to mainland locations, which could be a concern for some retirees.
How do I retire to Puerto Rico?
American citizens can easily establish residency in Puerto Rico without permits or applications by spending over 183 days a year on the island and taking steps to make it their tax home.
Additionally, to solidify Puerto Rico as your home base for tax purposes, you can obtain a local driver's license or update the voter registration to Puerto Rico with the IRS.
If you’re considering spending your retirement in Puerto Rico, there are a number of financial factors to weigh up. To help you plan accurately, it’s best to seek out expert financial advice. Unbiased can help you find an SEC-regulated financial advisor who can work with you to develop a bespoke retirement strategy. Find a financial advisor here.
Does Puerto Rico tax retirement income?
Puerto Rico offers tax benefits to people who choose to retire to the island due to its own tax laws.
In simple terms, Act 60 provides tax exemptions to those who relocate to the island. Income sourced in Puerto Rico is exempt from US federal and state income taxes. However, an individual’s “worldwide income” is still taxed by the US.
To qualify for Act 60, you need to meet a number of requirements, including:
An individual must become a “Resident Individual Investor” after becoming a resident of Puerto Rico before January 1, 2036.
You must not have lived on the island for at least 10 years prior.
You must purchase residential property within the first two years of becoming a resident.
Act 22 is a tax law in Puerto Rico that is particularly desirable to potential retirees. The Act allows qualifying people to be excluded from paying any taxes on dividends, capital gains, or interest. To qualify for this exemption, you must live in Puerto Rice and stay there for more than 183 days a year.
Withdrawals on tax-deferred accounts, including your IRA and 401(k), are taxed as normal. The same applied to income from Social Security and pensions.
Where are the best places to retire to in Puerto Rico?
If Puerto Rico is your chosen retirement state, here are some of the best places to retire in:
San Juan: As the capital city of Puerto Rico, San Juan offers a unique blend of rich history and modern conveniences. It boasts a vibrant arts and culture scene, with numerous museums, galleries, and music festivals. San Juan is also known for its beautiful beaches, excellent restaurants, and shopping centers.
Ponce: Located on the southern coast of Puerto Rico, Ponce is a charming city that is often referred to as the "Pearl of the South". It is home to a number of historic landmarks, such as the Ponce Cathedral and the Parque de Bombas. Retirees can enjoy a relaxed lifestyle in Ponce, with easy access to beaches and outdoor activities.
Rincon: Rincon is a picturesque town located on the western coast of Puerto Rico. It is known for its beautiful beaches, excellent surfing spots, and laid-back atmosphere. Retirees can enjoy a quiet and peaceful lifestyle in Rincon, with plenty of opportunities for outdoor activities such as hiking, swimming, and fishing.
Dorado: Dorado is a popular retirement destination located on the northern coast of Puerto Rico. It is known for its upscale resorts, golf courses, and beautiful beaches. Retirees can enjoy a luxurious lifestyle in Dorado, with access to world-class amenities and recreational activities.
Aguadilla: Aguadilla is a small coastal town located in the northwest corner of Puerto Rico. It is known for its beautiful beaches, excellent surfing spots, and natural beauty. Retirees can enjoy a quiet and relaxed lifestyle in Aguadilla, with easy access to outdoor activities such as hiking, fishing, and snorkeling.
In conclusion, Puerto Rico offers a range of retirement options, with easy access to beaches, a relaxed lifestyle and vibrant culture. Retirees can enjoy a tropical climate all year round and significant tax incentives but should be prepared for language and infrastructure barriers.
It's important to seek expert financial advice to weigh up all of the costs associated with retiring in Puerto Rico, including property taxes, insurance, and living expenses, in order to make an informed decision about whether the state is the right choice for your retirement. Find a financial advisor today.
Kate has written for leading publications and blue chip companies over the last 20 years.