Where to Retire

How to Compare Cost of Living Between Countries: A Method That Actually Works

Shoppers and stallholders at an open-air farmers market under green awnings in Lisbon.

A Saturday market in Lisbon, where the real price of a life is counted in oranges and conversation.

Photo: Remy Gieling / Unsplash

Key takeaways

  • Cost of living indices compare an average basket of goods. You do not live an average life, so use them only to shortlist, never to decide.
  • The reliable method is to price your own spending, category by category, in each place you are considering, using real local sources.
  • Housing, healthcare, transport and travel home usually decide the answer. Food and coffee rarely do.
  • Add the costs a move creates (insurance, visas, advice, flights, currency) and remove the ones it ends.
  • If your income and spending are in different currencies, treat exchange rate risk as a real cost and build a margin.
  • Prices change and so do exchange rates. Recheck your numbers before committing, and test them during a trial stay.

"It's so much cheaper there." Few phrases launch more retirement moves, and few are less reliable. A country can be cheaper for coffee and dinner out, but more expensive for the things that matter to you: a comfortable home, good healthcare, a reliable car or flights to see your grandchildren. And a price that looks low today can look very different after an exchange rate swing.

This guide gives you a method to compare the cost of living between any two places in the world, for your own life, in a way that stays valid however prices change. It fits into our wider decision guides, How to Choose Where to Retire and How to Retire Abroad.

Why cost of living indices mislead

Online cost of living sites and published indices are useful for a first look, but they have built‑in limits:

  • An average basket. They price a standard set of goods and services, weighted for a typical household, often a working one. Retired households spend differently: often more on healthcare, travel and home, less on commuting and childcare.
  • Crowdsourced or sampled prices. Data quality varies, particularly for smaller towns.
  • City‑level averages. A capital and a small coastal town in the same country can differ greatly.
  • Expatriate bias. Some indices reflect what international newcomers pay, which may be more or less than locals.
  • Snapshots. They capture prices at one moment and are converted at one exchange rate.
  • Missing categories. Tax, healthcare access and insurance, which can dominate a retiree's budget, are often excluded or treated crudely.

Use indices to narrow a list from twenty places to five. Then switch to the method below.

The method: price your own life

Step 1: Know what you spend now

Gather twelve months of bank and card statements and sort spending into categories. A useful set:

  1. Housing: rent or mortgage, property taxes, service charges, maintenance, insurance.
  2. Utilities: electricity, heating fuel, water, internet, phone.
  3. Food and household: groceries, toiletries, cleaning.
  4. Eating and drinking out.
  5. Transport: car purchase or lease, fuel, insurance, repairs, parking, public transport, taxis.
  6. Healthcare: insurance premiums, co‑payments, medicines, dental, eyes, hearing.
  7. Personal care and clothing.
  8. Leisure: hobbies, clubs, classes, culture, sport.
  9. Travel: holidays, trips to see family.
  10. Gifts and support for family.
  11. Tax: income tax and any local taxes.
  12. Other: subscriptions, pets, professional fees, charitable giving.

If you are not yet retired, adjust for changes retirement will bring: no commuting, more leisure, perhaps more travel early on.

Step 2: Separate essentials from choices

Mark each category as essential, important or discretionary. This tells you how much a cost difference really matters, and how much flexibility you have if numbers change. It also connects to your income plan: essentials should be covered by secure income where possible (Retirement Drawdown).

Step 3: Describe your life there

Before pricing, describe how you would actually live in each place:

  • What kind of home: size, type, neighbourhood, with or without stairs?
  • Rent or buy?
  • Car, or walk and use public transport?
  • How often would you eat out?
  • How often would you travel home, and would family visit?
  • Which healthcare route: public, private or both?

Without this, you will price a lifestyle you would not choose.

Step 4: Price each category from real sources

Use the most direct sources you can:

  • Housing: current rental and sale listings on local property portals, in the specific neighbourhoods you would consider, for homes that meet your needs. Ask a local agent what long‑term rents actually achieve, as asking prices can differ.
  • Utilities: local supplier price pages; ask residents for typical bills in summer and winter. Climate drives this: heating or cooling can be a major cost.
  • Food: online supermarket sites; build a sample shopping basket of what you actually buy, not a generic list. Imported favourites can be expensive.
  • Transport: car prices and insurance quotes locally; public transport fares; fuel prices.
  • Healthcare: official health ministry or insurance body pages for public contributions; insurance quotes for your age; local prices for dentistry and glasses. See International Health Insurance Explained and Types of Healthcare Systems.
  • Tax: official tax authority pages and a cross‑border adviser. Tax can swing the comparison more than everything else combined.
  • Leisure: prices for the clubs, classes and activities you would actually join.
  • Travel: realistic flight prices to see family, at the times of year you would travel.

Note the date and source of every price.

Step 5: Add the costs of being a foreign resident

Moving creates new costs that never appear in indices:

  • Visa and residence permit fees and renewals (Retirement Visas Explained).
  • Health insurance required by the visa, possibly for life.
  • Tax and legal advice in two countries.
  • Translations, apostilles and official documents.
  • International money transfers and currency conversion fees.
  • Flights home and accommodation for visiting family.
  • Storage or maintaining a property at home.
  • Language lessons.
  • Higher prices for some imported goods you rely on.

Step 6: Remove costs that end

Some costs disappear or shrink: perhaps a car, heating in a mild climate, or property taxes at home if you sell. Be honest; people overestimate savings.

Step 7: Convert carefully

Convert foreign prices into your income currency, but don't use just today's rate. Test your budget at several rates:

  • Today's rate.
  • A rate significantly less favourable to you.
  • A rate significantly more favourable.

If your plan only works at today's rate, it is fragile.

Step 8: Build the comparison

Lay it out side by side:

Category Current home Place A Place B Notes
Housing
Utilities
Food and household
Eating out
Transport
Healthcare and insurance
Tax
Leisure
Travel home / family
Foreign‑resident costs
Total (at today's rate)
Total (unfavourable rate)

Step 9: Add a margin

Add a contingency for things you have missed, price rises and surprises. Newcomers almost always underestimate first‑year costs: deposits, furniture, a car, setting up a home.

Step 10: Test it in real life

During a trial stay, track every expense for at least a month, ideally longer, and compare against your estimate. The trial will reveal costs you never thought of, and some savings too.

The big four: where comparisons are usually won or lost

Housing

Usually the largest cost and the largest difference. Things to watch:

  • The gap between tourist‑area and residential prices.
  • Seasonal rentals that are cheap off‑season but unavailable in summer.
  • Furnished versus unfurnished norms.
  • Quality differences: insulation, heating, cooling, damp, noise.
  • For buyers: transaction taxes, legal fees, annual property taxes and the time and cost to sell later.

Healthcare

The most variable and often the most underestimated. A place with a public system you can join may be cheaper in total than one with low prices but private‑only care, especially as insurance premiums rise with age. Consider the costs that public systems often exclude: dental, eyes, hearing, long‑term care (Long‑Term Care Explained).

Tax

Tax rules can transform the comparison. Questions to check with official sources and an adviser:

  • How will each type of pension be taxed where you live, and does a treaty affect it?
  • Are there wealth, property or local taxes?
  • Are there special regimes for new residents, and how long do they last? (These change often.)
  • Do you remain taxable at home, for example as a US citizen (IRS)?

Travel to family

Easy to forget, hard to cut. If you want to see children and grandchildren several times a year, flights and accommodation can be a major budget line. Distance also has emotional costs that no table captures.

Comparing within your own country

Everything in this guide works for moves within a country too. Regional differences in housing, property taxes, heating, transport and care costs can be as large as differences between countries. A move from a capital city to a smaller town, or from a cold region to a mild one, can change your budget substantially without visas or currency risk. Apply the same method: describe your life there, price it from real sources and test it with a long stay.

Questions to ask people who already live there

Local residents, both long‑term locals and newcomers who have stayed for years, are the best check on your numbers. Useful questions:

  • What do you actually spend on heating and cooling in the hardest months?
  • What did your first year cost compared with what you expected?
  • Which costs surprised you?
  • What do locals pay for things newcomers tend to overpay for?
  • How have rents moved in this neighbourhood over the years you have lived here?
  • What do dental work, glasses and hearing aids cost here?
  • Do you need a car?

Treat answers as anecdotes, not data, but look for patterns.

Common mistakes

  • Using a single index to decide.
  • Pricing a holiday lifestyle, not daily life.
  • Assuming you'll live like a local, when your preferences may cost more.
  • Ignoring tax.
  • Ignoring healthcare cost increases with age.
  • Using one exchange rate.
  • Forgetting first‑year set‑up costs.
  • Comparing city averages rather than the neighbourhoods you'd choose.

Your income side

Cost is only half the comparison. Check how your income behaves in each place:

See How State Pensions Work for how pension systems treat people who move, and The 4% Rule Explained and Sequence‑of‑Returns Risk if you rely on savings.

Beyond money

A cheaper place is not better if it makes you lonely, unwell or far from those you love. Cost is one factor in a weighted decision. Purpose, community and health matter at least as much: see Loneliness and Connection After Retirement, Working in Retirement and Healthcare When You Retire Abroad.

Planning for later decades

Costs change through retirement. Early years often include more travel; later years may include more help at home, adaptations and care. Compare places on how costs might evolve, not just on year one. And remember that a move can affect your estate and documents: see Wills and Estates Across Borders and Power of Attorney Across Countries.

A worked illustration (hypothetical)

These are invented round numbers to show the method, not real prices.

A couple currently spend 3,000 a month at home. A popular index suggests Place A is far cheaper. They price their own life:

  • Housing: a two‑bedroom flat in the walkable neighbourhood they want costs more than the index average suggested, because it is in demand. Saving: smaller than expected.
  • Food: local produce is cheaper; imported items they like are dearer. Roughly a wash.
  • Transport: they can give up one car. A real saving.
  • Healthcare: they must hold private insurance until they can join the public system, then add dental and optical cover. A new cost.
  • Tax: after advice, their pensions would be taxed somewhat differently; overall a modest change.
  • Travel: four return trips a year to see family. A significant new cost.
  • Foreign‑resident costs: visa renewals, advice and transfers. Modest but real.

Their total for Place A comes out moderately below their current spending, not dramatically. At an unfavourable exchange rate, the saving almost disappears. They decide the move is still right for lifestyle reasons, but they no longer count on it to fix their finances, and they keep a larger margin.

Frequently asked questions

What is the best way to compare cost of living between countries?

Price your own spending, category by category, in each place using local listings, supermarket sites, official tax and health sources and insurance quotes. Add foreign‑resident costs, test several exchange rates, then verify during a trial stay.

Are cost of living indices accurate?

They are useful for a first look but reflect an average basket at one moment. They often miss tax, healthcare access and the costs of being a foreign resident.

Which costs matter most for retirees abroad?

Housing, healthcare and insurance, tax and travel home usually decide the comparison. Everyday prices like food matter less than people expect.

How do exchange rates affect cost of living abroad?

If your income is in a different currency from your spending, a move in exchange rates changes your real income directly. Test your budget at less favourable rates and keep a margin.

How much should I budget for the first year abroad?

More than for a typical year, to cover deposits, furnishing, a car, legal and visa costs, insurance and flights. Add a contingency.

Is it cheaper to rent or buy when retiring abroad?

It depends on local prices and taxes, but renting first keeps the move reversible and avoids buying in the wrong place.

How often should I recheck my numbers?

Before committing, after your trial stay, and at least once a year after moving, especially when exchange rates or rules change.

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This guide is general information, not financial or tax advice. Prices, exchange rates and rules change; verify with current local and official sources.