Retiring abroad: what should Luxembourg residents consider?

Luxembourg has much to recommend it, but at retirement many people – nationals and foreign residents alike – long for sunnier weather or sea air. Retiring abroad is a major step, however, that requires some careful consideration of financial issues before making commitments that may be hard to reverse later. No-one wants to find themselves impoverished or without health insurance coverage in a strange country without friends or family nearby.

Ideally, planning should begin well before retirement and have been factored into long-term financial planning and structuring. Knowing you want to retire abroad can influence the way you manage your assets – for example, you may want to concentrate less of your money or investments in Luxembourg, and more in your intended destination country.

There are also logistical issues related to moving abroad that arise ahead of any financial commitments. Do you speak the language? Do you have friends there? Are there shops, services and other amenities, as well as access to medical care and hospitals? Most experts recommend a ‘try before you buy’ period of renting before you make the decision to sell your home in Luxembourg and leave your familiar life behind. Retirement can be a difficult adjustment even without a major relocation – and, all too often, the dream of living abroad does not match the reality.

Pensions and income

You want to be sure you can enjoy the lifestyle you are expecting in your chosen destination. What are the implications for receiving your statutory pension, for example? How will you be taxed on any employment-based or other private pensions?

Luxembourg has one of the world’s most generous statutory pension systems, and most employees will have paid a significant proportion of their salary into the scheme over the years. Most countries have reciprocal pension agreements with Luxembourg, but it’s best to check, particularly if you are going somewhere unusual – for example Panama, which is one of the world’s most popular retirement destinations.

The process of retiring abroad is much simpler when moving to another EU member state. Individuals who have made contributions to a state pension in one or more member states can receive their combined pension in any other EU country. However, if you have never worked in the country you plan to live in, the application may need to be processed in your last country of employment, or where you last contributed to a pension scheme. This adds another layer of complexity, at least in terms of bureaucracy, although not an insurmountable one.

The age at which you will be able to retire usually depends on when and where you have made contributions. In Luxembourg, the retirement age is 65, and you need to have made pension contributions for at least 10 years to obtain an ongoing monthly pension, otherwise your contributions will be returned as a lump sum. You can receive credit for contributions made in other countries, including some outside the EU, such as the UK and US.

Your circumstances and intended country of retirement may affect how you take the benefits from your pension plan.

The treatment of private and company pension schemes may be more complicated, and expert advice is highly recommended. Your circumstances and intended country of retirement may affect how you take the benefits from your pension plan. Some multinational groups have established pan-European pension schemes domiciled in a single EU member state, in some cases in Luxembourg, which would make accessing its benefits in other countries easier.

Pay attention to currency movements

Currency issues are straightforward for eurozone countries, where there is no exchange rate risk and retirees don’t have to adjust their living standards in response to fluctuations (as long as your destination country remains a member of the single currency, which looked questionable for Greece in the early 2010s). But outside the euro area, exchange rates will be a significant factor if your income is in one currency and your day-to-day living costs in another.

To some extent, retirees must accept the possibility of volatile exchange rates (which could benefit as well as disadvantage them), but there are ways to ensure greater predictability. You can use forward arrangements that set the exchange rate for transactions to take place at a future date. For major purchases, it is a good idea to stagger cross-currency transfers to avoid experiencing significant and unexpected fluctuations that could leave resources short for a property purchase, for example.

In recent years, political upheavals such as the UK’s withdrawal from the EU have led to profound and enduring shifts in currency markets, and retirees should seek as far as possible to reduce their vulnerability to the risk of their assets and income becoming significantly reduced as a result.

It is important to ensure you can access reasonably affordable healthcare in your new place of residence.

Social security and protection

While most people feel healthy and fit when they retire, old age tends to bring a range of lesser or greater health problems. It is important to ensure you can access reasonably affordable healthcare in your new place of residence. This is a particular issue in countries such as the US, where costs can be extremely high and there is little or no coverage automatically available to expatriates. Insurance will be vital to avoid the risk of one’s savings being consumed by a health emergency, and cover may not be cheap.

According to the most recent data available from the Centers for Medicare and Medicaid Services, the average American spent $15,474 on healthcare in 2024. In some other countries, healthcare is free for residents, but it’s important to know the extent to which healthcare may impact your finances. In France, for example, not all costs are covered by the state health system, and most people take out supplementary coverage to reduce the additional cost with a mutual insurer.

Property purchases

Buying property overseas can be very different from purchases in Luxembourg. Every country has its own legal idiosyncrasies, which can cause problems for unwary expatriates. While down-payments on home purchases can be high in Luxembourg, where investors must also factor in registration and transcription taxes on top of the agreed price, the UK imposes stamp duty as a proportion of the purchase price, which can be significantly higher. In Spain, the cost is 2% of the theoretical value of the property, but a notary’s fees for transmission of the property’s ownership can be as high as 10% of the purchase price.

There are also differences regarding the process of commitment to purchase a property. In France, as in Luxembourg, it involves signing a preliminary sale contract (compromis de vente), while in the UK it takes place much later in the process. Purchasers in an unfamiliar country should take expert advice from authorised local professionals to avoid becoming a victim of unscrupulous practice or simply by failing to follow prudent procedures.

More affluent retirees should also take into account wealth taxes. Although several European countries have abolished taxes on net worth in recent years, they still apply in countries such as France (although the tax now applies solely to real estate assets), Switzerland and Spain.

Preserving your lifestyle

While the cost of living can bring unpleasant surprises, in few countries in the world is it as expensive as in Luxembourg, so retiring elsewhere may help your retirement income go further. Still, it’s important to assess the cost of your desired lifestyle. If you need the heating turned up high or can’t live without your favourite Luxembourg chocolate, make sure the cost is factored in.

If life abroad doesn’t work out, you can always come back – but it’s important to check when you will be considered a resident again and whether you are still entitled to your previous benefits. While retiring abroad can be complicated, careful planning can enable you to live the dream and avoid the potential pitfalls.