Some Swiss people consider spending their old age in a less expensive place abroad. In fact, some destinations offer a similar quality of life at a lower cost of living. However, these also depend on habits.

Many people in Switzerland dream of living in a foreign country, and use retirement to realize this adventure. Simpler and more practical motives, such as better weather or maintaining the accustomed standard of living in a more favorable location, are also part of the picture. "The true cost of living, however, depends very much on personal situation and spending habits, as seemingly cheap destinations can turn out to be expensive," say UBS economists James Mazeau and Jackie Bauer. Taxes and health care could strongly influence the overall cost of living, they warn, and advise considering Social Security agreements.

Trade-off between costs and quality of life is imperative

"Most countries require a trade-off between cost and quality of life," the economists continue. They analyzed 26 countries based on two criteria: first, the wealth needed to finance 30 years of retirement for an individual, and second, the quality of life retirees can expect. "At first glance, it would seem that a higher quality of life would require more wealth. But there are some arbitrage opportunities: For example, about 33% less wealth is required to retire in Germany or France than in Switzerland with a similar quality of life. Around 50% less wealth is needed in southern European countries, but the quality of life varies greatly," the economists explain.

Emigrants must take out basic insurance for EU/EFTA countries

With regard to healthcare, the economists state that emigrants with a Swiss pension who move to the EU, Iceland, Norway or Liechtenstein must take out basic insurance in Switzerland in accordance with the agreements between Switzerland and the EU/EFTA countries. The premiums are adjusted to the cost of health care in the various countries, he said. In some of these countries, retirees may choose to join the local healthcare system, which is not always financially advantageous. There could also be an impact on family members.

Those moving to a non-EU/EFTA country, such as New Zealand, would be able to join the tax-funded public health care system relatively soon after a certain number of years in the country. Other countries would require foreign retirees to have private local health insurance.

Tax implications must be considered

In terms of taxes, some countries offer preferential tax regimes for retirees who move permanently, the economists added. These tax benefits would take the form of flat tax rates or tax concessions, and these benefits could be subject to conditions such as minimum income levels, minimum wealth and/or property purchase. This is the case in Portugal, Malta, Greece and Italy, to name a few. The tax advantage is sometimes limited in time, for example to ten years in Italy or Portugal.

It is possible that lower retirement income would be required abroad. In most cases, the entire retirement income would be taxed in the new country in the event of a permanent move, the economists continue. In many European countries, income tax is higher than in Switzerland, they say. Nevertheless, it could still be cheaper to spend retirement abroad. But they warn, "The picture can change if retirement income is lower or higher. Anyone planning to retire abroad who has not yet drawn an occupational pension should think about the tax implications of drawing a pension versus a lump sum abroad. "

Quality of life varies from country to country

The economists go on to point out the differences in quality of life. For the Quality of Life Index for Retirees, they made an assessment of the environment specifically for retirees. They created an overall score that focuses on several dimensions and used the following weights:

• Health infrastructure and health environment 30%

• Security (crime and natural hazards) 30%

• Political stability and rule of law 25%

• Economic stability 10%

• Quality of the general infrastructure 5%.

Accordingly, regardless of the weightings of the dimensions, some countries are always at the top of the ranking and others at the bottom. "Indeed, there is some correlation between some factors, such as political stability and the level of crime. In addition, retirees' preferences change during retirement, with the focus shifting toward health infrastructure as they age, such as its quality, capacity and accessibility," the economists explain.

It is not always cheaper abroad

While most countries require a trade-off between cost and quality of life, some destinations offer a similar quality of life to Switzerland, but at a lower cost of living. "Moving to a country with a cheaper cost of living does not necessarily mean lower overall spending if you want to maintain your desired standard of living," the economists continue. In some cases, they say, an "imported" lifestyle may cost more abroad than in Switzerland. Inflation is also individual and depends on one's standard of living and spending habits, they add: "The true cost of living depends very much on one's personal situation and spending habits, as seemingly cheap destinations can turn out to be expensive," the economists conclude.

A different country requires different financial planning

Retirement abroad brings a new set of challenges, especially managing finances. It is important to prepare for this, the economists advise. For example, retirement income is often in Swiss francs, but expenses are in a foreign currency. The currency risk, namely an appreciation of the spending currency against the Swiss franc, can be neutralized to a certain extent and at a certain price, they say. Those who earn their living with an investment portfolio can minimize the currency risk through clever strategic asset allocation. Once again, the economists point to the foreign tax system, which must be taken into account when it comes to capital gains, inheritances and pension income.