The island of Puerto Rico and its 3.5 million residents have been in the news a lot these last few years, and not for very good reasons: economic/budget crisis, a devastating hurricane, mass migration to mainland America, the debate over statehood, and more.
However, all of this attention, along with plummeting home prices, has led more folks to wonder whether retirement on this Caribbean island was an option for them. In this article, we will explore the current situation in Puerto Rico and the pros/cons of retiring to this US territory.
10 Advantages of Retiring in Puerto Rico
There are few places on Earth that can beat the weather and beaches of Puerto Rico. In the following, we will explore what advantages there are in retiring to the Island.
1. Low Cost to Rent
Puerto Rico has the #1 lowest rental prices of any state/territory in the United States. The average rental cost for a 1 bedroom apartment in Puerto Rico is just $420 per month.
If we compare that to other “warm all year round” states, we find the average 1 bedroom in Arizona is $650, New Mexico is $820, and Florida is $860. The only state to even come close to Puerto Rico rental prices is Arkansas at $550.
Just be aware that the luxury communities that cater to American expats are going to come with American-style prices. The cheaper rent is found just outside the cities and main expat areas. But if you go too far out, and look for prices too cheap, you might end up living in a cinderblock hut a mile down a jungle trail.
2. Low Healthcare Costs
Retirees to Puerto Rico will not only enjoy a low cost of renting but also the low cost of healthcare. In an analysis of 298 areas in the United States, Puerto Rico comes in at #1 for having the lowest health care costs in the country, with costs averaging 31% lower than the rest of the nation.
Puerto Rico has both public and private healthcare hospitals. The public hospitals are funded by the government and services here are free or inexpensive for residents. Private healthcare is funded out of pocket by patients or paid with private health insurance.
Both public and private healthcare options are of decent quality, comparable to what you will find on the mainland. Quality of care in the city may be better than in rural areas, as is also the case on the mainland. However, the public hospitals are underfunded and have a shortage of doctors who often move to the mainland for higher-paying jobs. This means you should expect long wait times.
3. Possible Income Tax Savings
In 2012 and 2017, the Island passed “Act 22” in hopes of encouraging high-worth individuals to move to the Island. In very general terms, folks qualifying as a “bonafide resident” will enjoy the following tax benefits:
- Social Security income is not taxed by the Island or the Feds
- Dividends and capital gains are not taxed by the Island or the Feds
- Wages earned from an Island employer receives an Island tax of 4% and no Fed tax
- Pension, 401K, and IRA income receives an Island tax of 4% and no Fed tax; however, you may have to first withdraw and rollover your funds into a Puerto Rican retirement product
Keep in mind that everyone on the Island pays an 11.5% sales tax, which is the highest sales tax in America.
4. Summer All Year Round
It’s nice to have a low cost of housing and maybe save on taxes, but the real reason you retire to Puerto Rico is that it is a tropical paradise. The weather forecast is quite simple: It is always 70-80 degrees with 70% humidity. Some months get 3 inches of rain while others get 5 inches.
The topography of Puerto Rico is varied, having both lowlands and mountainous regions. These elevation differences can cause some differences in temperatures and rain, but they are not significantly different.
5. Beaches
You don’t move to a tropical paradise just to stay inside all day; you move to Puerto Rico for the beaches along the Island’s 300-miles of coastline. The pure white sand and crystal clear waters give Puerto Rico some of the best beaches in the world. With so many beaches available, it is not difficult to find one that is secluded and uncrowded.
In addition to old-fashioned sunbathing and floating, the beaches provide ample opportunity for water sports. The Island’s west coast is known for its surfing waves, the northeast is a favorite spot for windsurfing and kitesurfing, while the southwest gives scuba divers and snorkelers access to coral reefs.
6. Mountains and Forest
For folks not eager to swim and/or just want a break from the beaches, the interior area of Puerto Rico has mountains and forests to offer.
These mountains cut down the middle of the Island and are rightfully called the Central Mountain Range. This range has over 50 peaks ranging in elevation of 2,000-4,000 feet. These mountains have a variety of different forests, depending on elevation and rainfall, and they support most of the flora and fauna of the Island, some of which are endangered.
Puerto Rico has 20 protected forests owned by the Island, totaling 66K acres. Most of these lands are undeveloped but two parks have infrastructure and amenities: Toro Negro State Forest and Cerrillos State Forest. The US government also owns the 29K El Yunque National Forest which is popular among both locals and tourists and offers full amenities.
Related: How to Register a Car in Puerto Rico
7. Easy to Get Back to the Mainland
Even though you have retired to a land that feels far away, the truth is that you are still pretty close to friends and family back on the mainland. Puerto Rico has two international airports: San Juan in the northeast and Rafael Hernandez in the west. The time it takes to take a flight from the Island to Miami, FL is just 2.5 hours. Puerto Rico also has 5 local airports, providing an efficient way to move around the island. Flying back is made even easier by the fact you won’t need a passport or exchange money.
8. Familiar Companies
Moving to a foreign country can be frustrating and confusing. In some countries, your American cell phone may not work, your credit cards don’t function, there is no postal mail system, no Walmart, no Amazon, your electrical devices may not even be compatible, etc.
That is not the case in Puerto Rico. The Island is just like visiting a different state. You will find the big-name stores and fast-food restaurants that you are used to, you can order stuff from Amazon and have it shipped via USPS, and your cell phone plans will continue to work like they do at home.
9. Luxury Expat Communities
If price is not a concern for you, and you wish to be surrounded by other American expats, then there are several expat communities to choose from in San Juan, Ponce, and other towns. Communities like Dorado, Bahia Beach, and Palmas del Mar offer everything you could expect from a luxury resort community. These areas will remind you of the luxury golf communities found in Florida. The houses are big, the amenities are generous, and the prices are high.
10. Great Food
Puerto Rico might be a part of the United States, but you’ll get to try foods you’ve never heard of before on the mainland. Popular dishes include:
- mofongo (fried plantains)
- triplete (like a cheesesteak with 3 types of meats)
- lechon asado (spit-roasted suckling pig)
Because of the warm climate, you will get to enjoy fresh fruit and vegetables all year round. Farm-to-table may be a recent trend on the mainland, but it’s always been a way of life in Puerto Rico.
You will enjoy some great coffee because the beans are grown right on the Island. Puerto Ricans also make their own rum. Try it in a pina colada, which was first invented on the Island.
Related: How to Open a Bank Account in Puerto Rico
7 Disadvantages of Retiring in Puerto Rico
Every tropical paradise has a darker side, so now we’ll look at what the Disavtanges are to retiring in Puerto Rico.
11. High Cost of Electricity and Goods
It is very true that the cost of housing (Pro #1), healthcare (Pro #2), and taxes (Pro #3) are significantly less in Puerto Rico than in the mainland. However, there are many products that are more expensive on the Island because they must be imported via boat or plane.
Puerto Rico does not have any domestic sources of coal, oil, and natural gas so it must import all of its fuel for energy. This imported fuel is not only used to power vehicles but also to produce most of the electricity on the island. Even though the island gets plenty of sun, wind, and rain there has been little investment in renewable energy. As a result, residents pay 26¢ per kilowatt per hour for electricity versus an 11 cent average on the mainland. High energy costs increase the cost of production of everything made on the island, resulting in higher prices.
Even though the island land is very fertile, there are few farmers, so the country needs to import 85% of its food. Even though they are surrounded by water, there is little fishing industry, so the country imports most of its fish. Even though there is land for a sustainable lumber industry, the country imports all wood. There are a few mineral resources in the ground, but not enough to support a profitable mining industry.
12. Economic Troubles
To keep it simple: Puerto Rico filed for bankruptcy in 2017 because it had racked up $123 billion in debt that it could not repay.
The longer story: As short-term tax incentives died off, businesses began to pack up and head away from the Island. Many of its people, especially the educated and wealthy, moved to mainland America. Tax revenue plummeted. Poverty soared, as did the demand for social programs like welfare and medicare. Then, Category 4 Hurricane Maria hit in 2017 and decimated the island’s infrastructure and caused a humanitarian crisis. Investors got nervous and moved PR bonds to junk bond status, causing the interest rates on the Island debts to spike. PR didn’t have enough cash to pay the interest bill and it defaulted on its bonds. The Island sought bankruptcy protection.
Today, the country is still looking to emerge from the bankruptcy process, but the Island has been able to balance its budget thanks to the $123 billion it received for Federal COVID relief.
However, in order to succeed in the long term, Puerto Rico must make reforms to its labor and welfare systems, improve K-12 education, reduce hurdles to start and run a business and make electricity on the island more reliable and affordable. Without meaningful reforms, the Island may again suffer budget problems within just a few years.
Folks looking to retire to the Island should keep a close eye on the political situation, and understand that the government and its economy are not in a healthy condition. At any time, the government may decide to take away tax breaks in order to increase revenue.
13. Rampant Poverty
The median income for a Puerto Rico resident is only $20K versus a median income on the mainland of $28K.
The Federal poverty threshold is $24K. So this means the average PR resident lives below the poverty line. The official poverty rate of the Island is 44%. For comparison, the highest poverty level on the mainland is Mississippi with 20%, half as much as PR.
14. Crime
Poverty and crime are often part of the same package, and Puerto Rico is no exception to this rule.
The Island’s murder rate is 20 per 100K per capita. For comparison, consider the murder rates of the following US cities:
- Chicago 18
- Philadelphia 22
- Detroit 41
- Baltimore 58
- St. Louis 64
When compared to mainland cities, PR would be the 20th worst city for murder rates (this means PR is safer than 20 mainland cities)
And just like on the mainland, the murders usually take place in specific areas of PR that are plagued with drugs and gangs. These are usually public housing areas, away from expat communities and tourists.
The most common crime for an expat or tourist to encounter is petty theft.
15. Hurricanes
Retirees living in Puerto Rico need to prepare themselves physically and mentally for the next major storm when it comes. Usually, these assessments take educated guesses on what would happen if a major hurricane hits a certain area. But we know exactly what happens when a major storm hits Puerto Rico because, in 2017, Category 4 Hurricane Maria made a direct hit on Puerto Rico and the results were devastating.
Nearly all of the phone and internet wires went down. Half of the sewer plants were taken offline, and nearly all roads were closed due to damage. The hurricane destroyed the power grid, leaving all 3.4 million residents of the island without electricity. Nearly all residents went weeks without power, 300K were in the dark for 6 months, and it took 11 months to get the final community reconnected.
Total damage to PR was an estimated $90 billion, with 80% of the island’s agriculture lost and 18 million coffee trees destroyed. 2,975 people were killed and 14% of the PR population fled to the mainland.
16. Lack of English Speakers
Puerto Rico has been speaking Spanish since it was colonized in the 15th century. English was not introduced until America acquired the island in 1898. 95% of families speak Spanish at home and only 20% of Puerto Ricans can speak English well.
New retirees should not come to Puerto Rico and expect to find a lot of English speakers. If you want to fully participate in island society, you will need to learn some Spanish.
17. Water Pollution
All of the world’s oceans are littered with plastic and microplastic, and Puerto Rico is no exception. Those pristine beaches are so perfect because humans and/or machines rake up the plastic litter and debris every morning. If you travel to a more remote beach that lacks pollution pickup service, you may actually find it is less pristine than the busy beaches.
Don’t drink the tap water. The island has a long history of contaminated water aggravated by inadequate testing. Despite being under the EPA authority, the island still allows industry and sewage to flow into its waters.
Does Puerto Rico Tax Social Security?
No, Social Security income is not taxed by the Island.
What are the Tax Benefits of Retiring in Puerto Rico?
In 2012 and 2017, the Island passed “Act 22” in hopes of encouraging high-worth individuals to move to the Island. In very general terms, folks qualifying as a “bonafide resident” will enjoy the following tax benefits:
- Social Security income is not taxed by the Island or the Feds
- Dividends and capital gains are not taxed by the Island or the Feds
- Wages earned from an Island employer receives an Island tax of 4% and no Fed tax
- Pension, 401K, and IRA income receives an Island tax of 4% and no Fed tax; however, you may have to first withdraw and roll over your funds into a Puerto Rican retirement product
Here is the “fine print” for the above answer:
First, a reminder that residents of Puerto Rico may be required to pay both US Federal income taxes and a Puerto Rico “Island” tax (equivalent to a state tax on the mainland). Being a resident of Puerto Rico does not automatically exempt you from Federal taxes, so when asking tax questions, remember to research both Federal and Island tax rules.
Second, these tax questions are not easy to answer. The rules are complex, nuanced, and can be changed at any time by lawmakers on either side. You have to talk to a qualified PR tax expert so they can review your specific situation.
Finally, the best tax breaks only occur if you become a “bonafide resident” of the Island. This means you must abandon residency in the United States and move to a Puerto Rican home. You can visit the US for up to 6 months, but you can’t keep strong financial ties to the mainland, and you can’t do anything that would trigger a tax liability from a mainland state. If you are able to qualify as a bonafide resident, then you can take advantage of some nice tax breaks.
Related: Cost of Living in Puerto Rico
How Long do you Have to Live in Puerto Rico to be a Resident?
You must live in Puerto Rico for at least 183 days before you can apply to become a bonafide resident.
Can You Live on $1,000 per Month in Puerto Rico?
A monthly budget of $1,000 per month in Puerto Rico is going to be tight and likely will not provide you with a comfortable retirement.
It is true that rental costs on the Island are the lowest in America, but the costs for everything else (food, utilities, transportation, etc) are equal or more than the American averages.
The average rental cost for a 1-bedroom apartment in Puerto Rico is $420 per month, and the average for a 3-bedroom apartment is $640 per month. The traditionally recommended rent-to-income ratio is 30%, so rent should take 1/3 of someone’s monthly pay.
- A 1-bedroom rental at $420, at a 30% rent-to-income ratio, means total income needs to be $1,400 per month.
- If you were to choose a 3-bedroom rental at $640, then your total income would need to be $2,100 per month.
- A $1,000 monthly budget would comfortably afford a $300 rental price. Rentals at this price are going to be in rough shape and/or in rough neighborhoods.
Related: Best Cell Phone Service Providers in Puerto Rico
What are the American Retirement Communities in Puerto Rico?
Most expats settle in San Juan, the capital city. Popular expat communities in the urban San Juan area include:
- Old San Juan: High-cost community consisting mostly of row homes and multi-family houses
- Condado: High-cost community of condos and some houses
- Miramar: Average-cost residential community with townhomes and houses
- Santurce: Average-cost, largest, and most populated community in San Juan with a wide mix of housing options available
- Guaynabo/Bayamon: Low-cost residential neighborhoods located on the western side of San Juan
If you are looking to get away from the big city of San Juan, some options include:
- Dorado: A Ritz Carlton luxury residential community located 30 minutes west of San Juan, some of the highest-priced real estate on the Island
- Bahia Beach: A St. Regis luxury residential community located 30 minutes east of San Juan, a bit cheaper than Dorado
- Palmas del Mar: A luxury beach community located an hour southeast of San Juan with average-priced homes
- Rincon: A low-priced, less-developed town on the western side of the Island, 2 hours from San Juan.
Finally, many expats settle in Ponce, on the western side of the island, Puerto Rico’s second-largest city. Communities such as El Monte and Villas Del Monte offer luxury and average-priced homes to expats. There are plenty of lower-priced areas in the city though they may have local residents.
Related: 7 Best Places to Live in Puerto Rico and 3 Places to Avoid
