Best Countries for US Retirees: Where Your Tax Dollars Go Further

2026-07-09

Last reviewed: July 9, 2026. This article reflects current IRS rules and EA exam requirements as of this date.

Retiring abroad doesn't reduce your US tax obligations — you still file Form 1040 on worldwide income. But the country you choose determines your local tax burden, which affects your FTC position and your overall net income.

Here's how the most popular retirement destinations compare on the taxes that matter to retirees.

The Comparison

Portugal. Formerly the top pick due to the Non-Habitual Resident (NHR) regime — 10 years of 0% tax on foreign-source pension income. The NHR was replaced by a new regime (IFICI) with more limited benefits. Portugal still offers no wealth tax and no inheritance tax for direct descendants. US Social Security is taxable in Portugal under the US-Portugal treaty but may be creditable via FTC.

Spain. The Beckham Law offers 24% flat tax for qualifying expatriates for up to six years. After that, progressive rates up to 47% apply. Spain has a wealth tax (varying by region — Madrid exempts it, Catalonia doesn't). The US-Spain treaty coordinates pension taxation. Best for: retirees who qualify for the Beckham Law and live in Madrid or Andalusia.

Mexico. No wealth tax. No inheritance tax (federal). Progressive income tax rates from 1.92% to 35%. US Social Security is taxable in Mexico but the effective rate is often lower than US rates. The large American expat community means English-speaking EAs, CPAs, and notarios are widely available. Best for: retirees seeking proximity to the US, low cost of living, and a warm expat community.

Panama. Territorial tax system — foreign-source income is not taxed. US Social Security, pension distributions, and investment income from non-Panamanian sources are tax-free in Panama. No wealth tax. No inheritance tax for non-residents. US tax still applies. Best for: retirees with substantial investment income who want zero local tax on that income.

Costa Rica. Territorial tax system — only Costa Rican-source income is taxed. US Social Security and foreign pensions are tax-free in Costa Rica. No wealth tax. The US-Costa Rica tax treaty provides coordination but the territorial system limits the need for treaty relief. Best for: retirees with primarily US-source retirement income.

France. The US-France treaty provides favorable treatment for US pensions and Social Security. French social charges (CSG/CRDS at 9.7%) apply to most income but may not be FTC-creditable — making the FEIE potentially better for French residents with earned income. France has a wealth tax on real estate (IFI) for properties above €1.3 million. Best for: retirees who want European lifestyle and healthcare, and who don't own significant French real estate.

Thailand. Recently changed its tax rules — foreign-source income remitted to Thailand is now taxable for Thai tax residents. US Social Security and pensions are taxable in Thailand if remitted. The US-Thailand treaty provides limited relief. No wealth tax. Best for: retirees willing to manage remittance timing to minimize Thai tax.

The US Side Doesn't Change

Regardless of where you retire:

Form 1040 on worldwide income
FEIE only applies to earned income (not Social Security, not pensions, not investment income)
FTC on Form 1116 credits foreign taxes against US tax on the same income
FBAR for foreign accounts over $10,000
Required minimum distributions (RMDs) from US retirement accounts still apply

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