Using Annuities to Fund Retirement Abroad (2026)

Published on: June 16, 2026

Quick answer: An annuity is designed to turn a lump sum into income that is contractually guaranteed for life (subject to the insurer's solvency and the contract terms), acting as longevity insurance against outliving your money, at the cost of access to the capital. For retirees abroad the biggest hidden risk is currency: an income guaranteed in one currency is not guaranteed in another, and a normal 15–20% swing is a 15–20% cut in spending power. Tax depends on your double-tax treaty, not a rule of thumb, usually your country of residence taxes it, but verify, and rarely annuitise everything.

If reverse mortgages and equity release are about turning property into income, annuities are about turning capital into a paycheck that never stops, guaranteed income for the rest of your life, no matter how long you live or what markets do.

For retirees abroad, that guarantee is attractive precisely because the risks of expat retirement, long lifespans, volatile markets, and a currency that can swing against you, are exactly what an annuity is built to manage. But annuities also carry their own cross-border traps, especially around currency and tax. This guide explains how they work, the choices you face, and the questions that decide whether an annuity fits your overseas life.

What an annuity is, in one paragraph

You hand a lump sum to an insurer; in return, the insurer pays you a guaranteed income, either for a fixed term or for the rest of your life. You are essentially buying longevity insurance: protection against the risk of outliving your money. The trade-off is loss of access to the capital. Once it's annuitised, it's generally gone; what you keep is the income stream.

That trade, capital for certainty, is the whole decision. If your biggest fear in retirement is running out of money in your 90s, an annuity directly solves it. If your biggest priority is flexibility and leaving capital to heirs, it may not.

Immediate vs deferred

Immediate annuity (income now). You pay the lump sum and income starts almost straight away (typically within a year). This suits someone already retired who wants to convert savings into a guaranteed floor of income today, for example, to cover essential living costs abroad regardless of markets.

Deferred annuity (income later). You pay now (as a lump sum or over time), the money grows, and income begins at a chosen future date. This suits someone still some years from needing the income, or who wants to "insure" specifically against very old age, a deferred annuity that starts at 80 or 85 is a cheap way to guard against the cost of a very long life and late-stage care.

Fixed, index-linked, or variable

• Fixed (level) annuity, the same payment every year. Highest starting income, but inflation erodes its real value over a long retirement. A level payment that looks generous at 65 can feel thin at 85.
• Index-linked / escalating annuity, payments rise each year (by a fixed percentage or with inflation). Lower starting income, but it holds its purchasing power. For a 30-year retirement abroad, inflation protection often matters more than the headline rate.
• Variable / investment-linked annuity, income depends on underlying investments, sometimes with a guaranteed floor. More upside, more complexity, more cost. Read these especially carefully.

You can also add features: a guarantee period (income continues to a beneficiary if you die early), a joint-life option (income continues to a surviving spouse), and enhanced/impaired-life rates (a higher income if you have health conditions that shorten life expectancy, worth disclosing honestly, because it pays more).

The expat's biggest hidden risk: currency

This is where annuities catch out retirees abroad. Your annuity is almost always paid in the currency of the country where you bought it, often sterling, dollars, or euros. But you spend in the currency of where you live.

If you buy a sterling annuity and retire in Spain or Portugal, every monthly payment is converted GBP→EUR at whatever the exchange rate happens to be. A guaranteed income in one currency is not a guaranteed income in another. A 15–20% currency swing, entirely normal over a multi-year period, is a 15–20% cut (or rise) in your real spending power, and unlike a market dip, it may never recover.

Ways to manage it:

• Match the currency. Where possible, buy an annuity that pays in the currency you'll actually spend. Some international providers offer multi-currency annuities.
• Don't annuitise everything. Keep other income sources in different currencies so a single exchange rate doesn't control your whole budget.
• Build in a buffer. Plan your essential spending below the annuity's value at a pessimistic exchange rate, so a bad year doesn't breach your floor.
• Use a proper FX service for the conversions, not your bank's retail rate, to stop spread quietly eating the income each month.

How annuity income is taxed across borders

This is the part generic guides get wrong, because the answer depends on a treaty, not a rule of thumb.

The general principle in most double-tax treaties is that pensions and annuities are taxed in your country of residence, not the country that pays them. For example, a retiree resident in Portugal drawing a UK annuity is, under the typical treaty allocation, generally taxed in their country of residence rather than the UK, and the UK should in principle pay gross or refund tax under the treaty, but this depends on your specific treaty, residence status, and the paperwork filed.

But the details matter enormously, and there are real exceptions:

• Government / state pensions are often a special case, frequently taxable only in the source country, a separate treaty article from private pensions and annuities.
• Some treaties source-tax annuities, or split the treatment differently for "pensions" vs "purchased annuities." The exact wording of your specific treaty governs.
• Part of a purchased annuity may be treated as return of capital (not taxable) and part as income (taxable), depending on the country, changing the effective rate.
• The paying country may withhold tax by default, and you have to claim the treaty relief; it isn't automatic. Get the paperwork (e.g. a residence certificate) filed in advance.
• US persons are taxed by the US on worldwide income regardless of residence, so a treaty rarely removes US tax entirely, it coordinates credits instead.

The practical takeaway: before you annuitise, get a cross-border tax specialist to confirm, against your actual treaty, which country taxes the income, at what rate, and what you must file to avoid being taxed twice. This single check can change the net income by a large margin.

Annuities vs the alternatives

Many retirees use a blend: an annuity to guarantee the essential-spending floor, a drawdown portfolio for flexibility and growth, and property/equity release as a reserve. The annuity isn't the whole plan, it's the part that lets you stop worrying about the floor.

Who annuities suit, and who they don't

Consider an annuity if you want certainty over flexibility, you're worried about a very long life, you don't have a generous inflation-linked pension already, or you want to remove "running out of money" from your list of fears.

Be cautious if you want to leave the capital to heirs (annuities usually die with you unless you add guarantees), you're in poor health (a short life makes a standard annuity poor value, though enhanced rates help), interest rates are low when you buy (locking in a low rate for life), or your spending currency differs from the annuity currency without a plan to manage it.

Frequently asked questions

Will I lose my money if I die soon after buying an annuity?
With a basic single-life annuity, largely yes. Adding a guarantee period or joint-life option means income continues to a beneficiary or spouse, at the cost of a lower starting payment.

Can I buy an annuity that pays in euros if I retire in the eurozone?
Often yes, through international providers. Matching the annuity currency to your spending currency can substantially reduce one of the biggest hidden risks of annuitising abroad, though it rarely removes currency exposure entirely.

Which country taxes my annuity income if I live abroad?
Usually your country of residence under the relevant double-tax treaty, but government pensions and some annuity types are exceptions, and relief often must be claimed rather than applied automatically. Verify against your specific treaty.

Are annuities a good idea right now?
Annuity rates rise and fall with interest rates, so timing matters, higher rates mean more income for the same lump sum. This is a question to check against current rates with an adviser before committing for life.

Should I put all my savings into an annuity?
Rarely. Most planners suggest annuitising enough to cover essential spending and keeping the rest flexible, so you keep some access to capital and some currency diversification.

Build the income floor before the move

An annuity is one lever in a retirement that also leans on pensions, property equity, and the right care plan for the years that come later. The cross-border twist, currency and treaty, is exactly the kind of detail that never shows on a property listing but decides how much you actually keep. Get it right with a vetted cross-border adviser, and read the companion guide on the cost of growing old abroad. JanusHermes lets you compare property and residency pathways across 50+ countries with the full cost picture attached, explore listings and country intelligence on JanusHermes.

This article is general information about annuities and cross-border retirement income, not personal financial or tax advice. Annuity rates, tax treaties, and currency conditions change, and the right approach depends on your treaty, residence, health, and goals. Consult a qualified cross-border financial adviser and tax professional before annuitising.

A note on the numbers: where no source is named, the market figures in this article (prices, yields, costs) are indicative estimates compiled from publicly available market data and industry reporting at the time of writing. Markets move and rules change, so treat them as a starting point and verify current figures with official sources before acting on them.