Retire in Panama: Tax Guide for US Citizens (2025)

Planning to retire in Panama? Here’s what every American needs to know: most US expats living abroad owe $0 in taxes thanks to powerful protections like the Foreign Earned Income Exclusion. Panama offers one of the world’s most attractive retirement programs through its Pensionado visa, requiring just $1,000 monthly pension income for immediate permanent residency. Combined with Panama’s territorial tax system that doesn’t tax foreign income, your retirement dollars will stretch further while your US tax obligations likely disappear.

If you’re considering joining the 20,000+ Americans already living in Panama, this guide shows you exactly how to retire there while keeping more of your hard-earned money.

Why Do So Many Americans Choose Panama for Retirement?

Your Money Goes Further Here

Panama costs about half as much as living in the US. A single retiree lives comfortably on $1,400-$1,700 monthly, while couples need $2,000-$3,000. With the average Social Security benefit around $1,827 per month, many retirees live entirely off Social Security while enjoying a higher quality of life.

Panama Won’t Tax Your US Retirement Income

Panama only taxes income earned within its borders. Your Social Security, pensions, and retirement account withdrawals remain completely exempt from Panamanian taxes. This territorial approach creates an incredibly tax-efficient retirement scenario.

Quality Healthcare at Reasonable Costs

Healthcare in Panama costs 60-80% less than US prices. Private insurance runs $50-$900 monthly, and you’ll find English-speaking doctors in expat areas. Many procedures that cost thousands in the US cost hundreds in Panama.

What Is the Panama Pensionado Visa and How Do I Qualify?

The Pensionado visa grants immediate permanent residency to retirees who meet these simple requirements:

Basic Requirements:

• Age: 18 or older (no maximum age limit)
• Income: $1,000 monthly pension or retirement income
• Reduced to $750 monthly if you buy $100,000+ worth of Panama property
• Dependents: Add $250 monthly per dependent
• Clean criminal record and pass a medical exam

Qualifying Income Sources:

• Social Security payments
• Government pensions (military, state, federal)
• Private company pensions
• 401(k) and IRA distributions

What Benefits Does the Pensionado Visa Provide?

The visa includes generous discounts throughout Panama:

• 50% off entertainment (movies, concerts, sports)
• 25% off domestic airline tickets
• 20% off medical consultations
• 15% off hospital bills
• 10% off prescription medications
• One-time $10,000 duty exemption for household goods
• Car import exemption every two years

You only need to visit Panama once every two years to maintain permanent residency status.

Will I Owe US Taxes While Retired in Panama?

Here’s the relief you’re looking for: most American retirees in Panama owe little or nothing in US taxes. While you still need to file annual returns, the US tax system includes powerful protections designed to prevent double taxation.

The Foreign Earned Income Exclusion Protects Working Retirees

If you’re still working in retirement, you can exclude up to $130,000 of foreign earned income from US taxation for the 2025 tax year using Form 2555. This means:

• Consulting income earned in Panama: potentially $0 US taxes owed
• Part-time work: likely covered completely by the exclusion
• Self-employment income: excludes income tax (though not self-employment tax)

The Foreign Tax Credit Handles Other Income

For income that doesn’t qualify for the exclusion, the Foreign Tax Credit provides dollar-for-dollar credits for foreign taxes paid. Since Panama doesn’t tax foreign-source income, this typically doesn’t apply to most retirement income.

What About My Retirement Distributions?

• Social Security: Only up to 85% is potentially taxable, and many retirees fall below thresholds where any tax is owed.
• Traditional IRA/401(k) withdrawals: Taxable as ordinary income, but deductions and credits often reduce or eliminate actual taxes owed.
• Roth IRA withdrawals: Completely tax-free if you’re over 59½ and the account is at least 5 years old.

Where Should I Live in Panama?

Panama City: Urban Convenience

Modern metropolitan living with luxury condos offering ocean views. Neighborhoods like Punta Pacifica provide upscale amenities, while El Cangrejo offers affordable options with active expat communities.

Monthly budget for couples: $2,500-$4,000

Coronado: Beach Paradise

Pacific coast town with pristine beaches, golf courses, and year-round outdoor activities. Popular with Americans seeking relaxed coastal living.

Monthly budget for couples: $2,000-$3,000

Boquete: Mountain Retreat

Cool mountain climate in Chiriquí Province with stunning scenery and large expat community. Perfect for those seeking cooler temperatures and outdoor activities.

Monthly budget for couples: $1,800-$2,500

Bocas del Toro: Caribbean Island Life

Tropical paradise with crystal-clear waters and laid-back Caribbean culture. Ideal for those wanting true island retirement.

Monthly budget for couples: $1,500-$2,200

What Tax Reporting Do I Need to Know About?

Annual US Tax Filing is Required

You must file US tax returns annually, regardless of whether you owe taxes. Think of this as paperwork that confirms you owe nothing rather than a bill demanding payment.

Foreign Bank Account Reporting

If your foreign bank accounts total $10,000 or more at any point during the year, you must file FBAR (FinCEN Form 114) by April 15, with automatic extension to October 15.

Property Ownership Considerations

Many retirees place their Panama home in a Panamanian corporation for asset protection. While beneficial, this requires filing additional forms (Form 5471) with potential penalties starting at $10,000 annually if not filed correctly.

What’s a Realistic Tax Scenario for Panama Retirees?

Meet Bob and Carol: Retired couple in Boquete with a combined income of:

• Social Security: $3,400/month ($40,800/year)
• Traditional IRA withdrawals: $1,600/month ($19,200/year)
• Total income: $60,000/year

Their US tax outcome: After the standard deduction ($29,200 for married filing jointly in 2025), their taxable income drops to $30,800. Combined with Social Security exclusions, they typically owe $0-$300 in US taxes while enjoying a comfortable retirement in Panama.

How Do I Start Planning My Panama Retirement?

12 Months Before Moving

1. Visit Panama to explore different regions
2. Begin organizing pension documentation for the visa application
3. Research healthcare options and insurance
4. Connect with expat tax specialists about tax optimization strategies

6 Months Before Moving

1. Apply for a Pensionado visa through a qualified Panama attorney
2. Set up a US mail forwarding service
3. Notify financial institutions of the pending address change
4. Research Panama banking requirements

Upon Arrival

1. Complete the visa process and obtain a residency card
2. Open a Panama bank account (required for visa maintenance)
3. Establish local healthcare relationships
4. Connect with expat communities for support

What Are the Main Pros and Cons?

Why Panama Works for Many Retirees

• Affordability: Significantly lower cost of living
• Tax efficiency: Territorial taxation plus US expat protections
• Healthcare value: Quality care at a fraction of US costs
• Infrastructure: Modern amenities in major cities
• Community: Established expat networks for support
• Safety: Stable, secure environment
• Climate: Year-round warm weather

Potential Challenges to Consider

• Language: Spanish is helpful, though not required for the visa
• Cultural adjustment: Different pace and customs
• Distance: Flights to the US typically $300-600
• Rural infrastructure: Some areas lack reliable internet/utilities

What Should I Do Next?

Retiring in Panama offers an exceptional opportunity to stretch your retirement dollars while potentially eliminating your US tax obligations. The combination of low living costs, quality healthcare, and favorable tax treatment creates an ideal scenario for many American retirees.

Your next steps:

1. Visit Panama to experience different regions firsthand
2. Consult with expat tax professionals to optimize your specific situation
3. Begin gathering pension documentation for the visa application
4. Connect with current expat communities for real-world insights

Remember: The vast majority of American retirees in Panama owe little or nothing in US taxes. The key is proper planning and filing to claim the protections available to you.

Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, click below to get a consultation with one of our expat tax experts.

This information is for educational purposes only and should not be considered tax, legal, or financial advice. Tax laws are complex and change frequently. Always consult with qualified professionals before making significant financial decisions.