How Purchasing Power Parity Explains the Boom in International Retirement Services

International economics teaches a key concept known as Purchasing Power Parity (PPP). It’s a simple idea that the same amount of money should get the same quantity of goods everywhere in the world once the exchange rates are adjusted. Though the yardstick is often used to measure the success of national economies, it is also driving a new and very personal trend that has been growing rapidly – the boom in international retirement services that make it easier for people to move from high-cost economies such as the US or UK to cheaper alternatives such as Spain, Portugal, or Thailand.

In the last decade, this movement has gone full-throttle industry, with companies offering everything from visa support to property hunting, concierge medical services, and cross-border financial planning. The allure is obvious: by shifting their retirement to a place where the cost of living is much lower, retirees can suddenly make their retirement dollars go a lot further, getting the most actual purchasing power for their local currency—but without having to earn another dollar.

Retirement in Spain: A Smart Economic Move

A typical illustration of this new trend at play can be seen in how the same sum of $1900, which is the average monthly Social Security Check in the United States, have different purchasing powers in two separate geolocation/ This amount can barely cover your rent in cities like Los Angeles, London, or New York. Meanwhile, take the same amount to Spain, especially cities like Valencia, Seville, or Alicante, and you’ll be surprised by the massive purchasing power it commands. You’ll be able to conveniently afford a modest but high-quality lifestyle, buy fresh groceries, rent a comfortable apartment, and even have the luxury of dining out every week.

These are not just bogus claims, the numbers back it up. For one, Numbeo’s cost of living index confirmed that it’s much cheaper (45%) to live in Valencia than New York City. They also revealed that healthcare in Valencia is 70-80% lower compared to the latter. So, it’s no surprise retirees are flocking to Spain to enjoy their twilight years. They are simply leveraging PPP to ensure they get the most out of their fixed income.

A Booming Industry Built on PPP

There are many businesses taking full advantage of this opportunity by targeting these “geo-arbitraging” retirees. These global retirement services help them with their Spain’s non-lucrative visa (a popular one for retirees), property finding, rental negotiation, tax and legal advice around pension transfers, residency compliance, language translation and bureaucratic support, and health insurance and private health care. These so-called "retirement concierge packages" are starting to appear with increasing frequency, particularly among middle-class retirees seeking to seamlessly transition into retirement.

Economic Forces Driving the Trend

A number of macro and demographic driving forces are accelerating this trend: cost of living spikes in the West—housing, healthcare and insurance costs for places like the U.S. and the U.K. have outpaced wage growth and savings for retirement; aging populations—with more than 70 million Baby Boomers in just the U.S., the need for affordable retirement is on the rise; remote services and digital communication—everything from Zoom discussions with a relocation advisor to virtual property tours has made the fear of moving abroad less scary; and policy support—countries like Spain are actively facilitating this movement by promoting long-term residence visas that attract pensioners who come with capital without taking local jobs.

Behavioral Economics Meets Retirement

This is also in line with behavioral economics. Many retirees would rather have certainty and security today, while sacrificing a little bit of financial uncertainty tomorrow. Rather than downsizing or reducing costs on their home turf, they aim to double down on high-quality living for less by looking abroad for a situation that provides them with sunshine, community and some degree of safety—on the cheap. Retiring in Spain, for example, is not only about cost savings, but more about getting more life per dollar spent: more relaxation, more access to affordable health care, and more of a social life.

Long-Term Ramifications

The consequences extend beyond the realm of personal finance. Spain and Portugal, by contrast, gain from the arrival of foreign money by way of rent, property sales and spending in the local economy. For others, though, the influx is leading to housing pressure and cultural friction as foreign retirees contribute to demand in already tight markets.

Nevertheless, for a vast majority, the math is simple. When pensions are stagnating, costs at home are rising and retiring elsewhere is an act of rational economics. It’s a strategic decision made possible by globalization and explained perfectly by purchasing power parity.