How Does AFP Works In Chile

How Does AFP Works In Chile – that will be the topic of today’s article.

Before introducing this article, if you are interested in our core services which are expat financial, insurance and mortgages, you can contact me here

The best time to consider your financial situation is when you are moving to a new country.


AFP (Agence France Presse) is a pension fund administrators or scheme in Chile. While you’re living in this country, you’ll have access to pension funds if you meet the required age limit. The normal retirement age is 65 years for men and 60 years for women within the defined contribution system.

How Does AFP Works In Chile

But before that, what do you know about living in Chile as an expat? Of course, expats who live in Chile enjoy a very high standard of living. And the country is known to have the lowest level of corruption in Latin America, the strongest economy, the lowest level of poverty, and many others, to mention a few.

If you’re just visiting this country for the first time, you should have a lot of things in mind. In fact, expats have been wondering whether Chile is suitable for retirement. Well, since it’s among the safest country with a good healthcare system, why not consider it? Or would you love to retire in Chile today? Yes or No?

Did you answered yes? That’s good, and if you choose to say No, it’s even better. Regardless of the country you’ve chosen to retire from, you should consider the pension scheme available for expats. However, it’s possible to come and spend your retirement in Chile. To do so, you need to apply for a temporary visa.

Aside from that being mentioned, you’ll have to prove to the officials that you have a regular income allowing you to live in Chile. Here, most income types are eligible, including rent, dividends, real estate property, and many others, to mention a few. Read further to get a glimpse of what pension in Chile entails.

How to Retire in Chile as an Expat

While many retirees flock to warmer climates like Florida, others venture much farther south, with Chile rated among the most popular destination. From the Mediterranean-like weather in the nation’s north, stunning mountains and numerous fjords in the south, and a highly regarded wine industry, the benefits of retiring in Chile cannot be overemphasized.

So, if your dream is to retire in any Spanish-Speaking country of about 18 million people, below are the key facts to be aware of before you make a move.

How Does AFP Works In Chile

Average Cost to Retire

Before you grab your passport and choose Chile to retire, it’s always essential to understand the average cost involved as countries differ from one another. Like any other country, your cost of living is determined by the city and the lifestyle you choose.

From the result collated by Numbeo, a website that collects pricing data from citizens, we discovered that the average cost of living is 42.8% lower than the average cost of living in the United States of America. So, you may need to consider the utility cost, rent, and many other factors, to mention a few.

Healthcare System in Chile

Of course, the healthcare system is the first thing to consider when planning to retire in a country. For the fact that Chile’s healthcare system is excellent, you have the privilege and opportunity to spend the rest of your lifetime in this country. Moreover, healthcare is ranked 33rd out of 190 countries.

Furthermore, you will need to register for either a private healthcare plan or public when you’re living in this country. Besides, if you’re making an income while living in Chile, about 7% of your money will contribute to a health plan. With that being said, both the public and private have emergency facilities.

Visa Laws/Restrictions

In order to have a successful immigration process, you need to understand the visa laws or restrictions to be free from uniform men’s disturbance in the country. On the other hand, many retirees choose to relocate with a retirement visa.

And this is because; it allows people to spend one year in Chile while renewing the visa on a yearly basis. Also, if you wish to work during your retirement, you can apply for a work permit as well. Surprisingly, you don’t have to prove that you’re retired to apply for a retirement visa in Chile as of today.

Housing Cost in Chile

As you plan to relocate, one of the biggest factors you’ll consider is housing. From our research, Santiago is a hotbed for American retirees, but you may want to consider smaller cities as well. This means, anyone, resident or not, may purchase property in Chile.

As of the time of writing this article, the average home cost in Santiago is about $200 per square foot for home in the city. Well, it is among the most expensive in the country as a whole. Therefore, if you plan to live in the countryside or a different city, the prices will be lower. And this is comparison to New York City, where homes cost approximately $1,380 per square foot and more.

Buying a Home in Chile (2021)

The home purchasing process in Chile is a bit different from what you’ll see in the United States of America. Fortunately, once you’ve selected a home, don’t be surprised that the process only takes about a month. On the flip side, you need to know that there are a lots of fees involved, and they are listed below.

  • Lawyer fees amounting to about 1% of the property value
  • Stamp duty amounting to 0.2% (or more) of the property value
  • You should be ready to pay a notary fee of about 0.1% of your property value
  • Be ready to pay Value Added Tax of 19% on the first sale of a new construction

Furthermore, when you’re searching for a home in Chile, it’s also essential that you assemble the team of professionals that’d help you through the home buying process. This way, you may need a lawyer that’d do all the due diligence on the property, including collecting all the property titles, encumbrance certificates, and many other important documents.

In the long run, if you need a mortgage, expats can borrow money from Chilean banks. This may increase the time it takes to purchase a home, and you’ll still be required to put at least 10% of the purchase price down on the home.

Taxes in Chile

The taxes in Chile are another thing to put into consideration. More so, Chilean residents are only taxed on income earned in Chile as the rate is progressive and has risen to a maximum of 45% in recent times. As of today, if you’re a U.S. resident, you must file taxes in the United States each year.

Aside from that, you’ll have to report any foreign bank accounts as well. If you earn money outside the U.S, you can use a few provisions to reduce your U.S. taxable income. These include the foreign earned income exclusion, the foreign housing exclusion, and the foreign tax credit, among others.

This way, if you’d love to forecast your tax burden more specifically, you can consult a tax expert who’s familiar with both the United States and the Chilean tax laws.

Safety in Chile (2021)

Compared to most South American countries and some of the North American countries, Chile is safe as of today. However, if you decide to retire in this country, you’ll want to be aware of your neighborhood and surroundings. Besides, keep a low profile and follow instructions of local authorities, including movement restrictions, as well as curfews, lock down measures, as well as obey.

General Tips for Retiring Overseas

How Does AFP Works In Chile

Retiring abroad is becoming increasingly popular, with estimates ranging from 10% of people in the United Kingdom considering retiring abroad to over 30%. That being said, moving to a warmer climate with a lower cost of living enables you to enjoy a more active retirement. Below are the tips to retire abroad.

1.    Decide where you want to live (city/country)

This is one of the first things to consider when you’re planning to retire overseas.  As many people have a clear idea of where they want to live, you need to decide the kind of lifestyle you want for yourself and how you’ll enjoy your stay in the country. Even if you have a firm idea of where you want to live, it is worth considering other options in terms of cities and the countries that suit your retirement packages.

2.    Be Realistic About Your Retirement Goals

When assessing how much you need to live the life in retirement in your new home, you need to be realistic in identifying all of the costs that you might face in the long run. Some of the cost to consider includes; local taxes, property costs, and many others to mention a few.

Additionally, when assessing what you can afford, you need to consider the impact of exchange rates on any income you’ll receive from your state of residence and private pensions, plus any other income such as rental income from any property back in your home country.

3.    Understand the Tax Position

When you move abroad, you’re likely to cease to be a resident for tax purposes. Meanwhile, it depends on your specific circumstances and will be determined by applying the Statutory Residence Test. Nonetheless, understanding your tax position is essential before planning to relocate to a new home.

In addition, most countries will tax you on your income when you become a tax resident in the country. This same method is applicable to what you’ll experience in Chile. On the other hand, always know that the tax system is different in each country and it is well worth taking qualified advice before you travel.

4.    Arrangement to Receive Pension

Why considering moving to a new country? Making arrangements to receive your state pension is essential. To keen further, your pension will only increase each year if you’re in a country in the EEA, Switzerland, Gibraltar, or in a country with which they have a social security agreement.

However, the tax treatment of your pension will depend on the country where you become a resident. On the other hand, there are ways in which you can minimize tax in some countries. Moreover, retirement is inevitable, and it makes access to good quality health care. So, ensure that you have the right pension package.

5.    Access to Good Quality Healthcare

Of course, this is another thing to consider. If the quality of the healthcare system is not as high as you would want, you should ensure that you have an international insurance policy that will enable you to travel to another country for care. But, in Chile, you’ll have good healthcare services if you’re an expat wanting to retire in the country.

What is AFP in Chile?

As research disclosed, the AFP is a pension in Chile, and it refers to old-age, disability, and survivor pensions for workers in this country. In addition to this fact, the AFP is a private company whose functions are limited to managing pension funds and providing and administering certain pension benefits.

Now how does it work? Of course, AFPs collect workers’ contributions, credit them to the workers’ accounts, and invest these monies according to regulations set by the government. Not only have that, but the AFPs contracted with an insurance company to provide survivors and disability insurance for their members. Meanwhile, not until July 2008, the Superintendent of Pension Fund Management Companies (SAFP), an autonomous government agency, oversaw and licensed the AFPs.

Furthermore, at the normal retirement age in Chile, workers can use the balance in their individual accounts to do one of the following, which constitutes the function of the AFPs, and how it works.

  • Purchasing an immediate annuity that gives retirees in the country a lifetime benefits
  • With the AFPs, individuals can set up programmed withdrawals to provide income over the retiree’s expected life span. More so, if the retiree dies early, dependents may inherit the balance in the deceased’s individual account.
  • Workers can also purchase a deferred annuity, meaning that you can set a future date for purchasing an annuity and, until that date, make programmed withdrawals from your personal or individual account.
  • Workers can purchase an immediate annuity with a portion of the funds in the individual account and make programmed withdrawals with the rest of the funds in due time

Additionally, retirees in Chile should know that annuities are purchased from an insurance company. And this is usually for an administrative fee, while most AFPs charge a monthly fee for programmed withdrawals. Again, early retirement is permitted for individual retirement account holders under certain conditions. This way, excess funds can be withdrawn from the account for any reason as long as your account balance is sufficient to finance 150 percent of the minimum pension.

How Does AFP Works In Chile

Government Guarantees in Chile

In Chile, we gathered that all account holders that switched from the public PAYG to the individual account system receive a recognition bond at retirement that represents the value of their accrued rights under the old public system in the country.

This way, the value of a bond is adjusted annually to changes in the consumer price index and provides 4 percent interest per year beginning on the date the worker enrolled in the new system. To add to that, disabled workers must have had ten years of contributions to qualify for MPG in the country.

Understanding Survivors and Disability Insurance

This is another thing to know if you’re considering the AFPs pension policy. An AFP contract with an insurance company that’s mainly for survivors and disability insurance is what this package is meant for. In fact, those younger than the normal retirement age (65 for men and 60 for women) who become disabled from an illness or accident in Chile not related to work may be eligible for a disability benefit.

Aside from that, the medical commission first determines if the worker’s disability is either total, with at least 66 percent loss of earning capacity, or partial, with at least 50 percent but less than 66 percent loss of earning capacity.

Interesting Facts about Retiring in Chile

As of today’s digital world, we can tell you that Chile offers the first-world lifestyle at an affordable cost of living. Aside from that, it’s also an appealing option for retirees, and not only because of the affordable cost of living. Without further ado, let’s quickly walk you through the facts about retiring in this country, either as an expat or a citizen.

1.    High Standard of Living

Undoubtedly, Chile is a first-world country with Latin America’s highest standard of living. Not only that, but the water is drinkable, phone and internet services are fast and reliable, the public transit system is modern and efficient. At the same time, the highways are modern, fast, and well-maintained.

2.    A Part of the U.S.

The good news is that Chile is now part of the United States of America Visa Waiver Program. Well, since May 2014, Chileans can enter the United States without a visa, just like people from England, Japan, or Denmark. With that being said, you should know that this indicates that in the eyes of the U.S. government, Chile is strong and economically successful, and it offers its people enough opportunities.

3.    Low Level of Corruption

Chile has an honest culture with low levels of public corruption, and that’s why many people choose to retire in this country. According to Transparency International’s 2014 study, this country is considered to be in the clean category along with Uruguay, Barbados, and the United States of America.

And make no mistake, corruption can affect your life as an expat but what we’re saying is that the country isn’t just politically corrupt. Moreover, there are also places where you’re more likely to be short-changed, have your pocket picked, or be cheated in a business deal with locals.

4.    Amazing Geographic Density

Amazing geographic density is another thing to take note of in Chile. As research disclosed, the country runs 2,650 miles from north to south and offers an astonishing array of climates and settings, from seaside resorts and small beach villages to mountains, lakes, and the sophisticated scene in Santiago.

How Does AFP Works In Chile

5.    Reasonable Cost of Living

Unlike other countries, Chile’s cost of living is reasonable. It’s not super cheap, but we can tell you that it’s a bargain given the standard of living you’re buying. To put this into consideration, Santiago is a more affordable place to live than many other cosmopolitan retirement options in Latin America, including Panama City, Costa Rica, Montevideo, and Uruguay. On the other hand, retirement in places like Santiago would be more expensive than retirement in Medellin, Mexico, Vallarta, and Ecuador.

Frequently Asked Questions about AFP in Chile

Is there a mandatory retirement age in Chile?

Well, we can tell you that the normal retirement age in this country is 65 years for men and 60 years for women within the defined contribution system. Also, individuals are not required to stop working to claim a pension benefit as of today. That being said, the basic solidarity pension (PBS) is an entitlement for individuals without other pensions.

What are the requirements to become a resident?

To be eligible for permanent residency in Chile, there are certain things to be put into consideration. You have held a subject to contract work visa for at least two years. Expats must have held a temporary resident visa for one year, and you should have also held a student visa for two years and have completed your profession or secondary studies. The factors above are how you can become a resident.

What’s the average Social Security benefit?

The social security benefits are much more modest than many people realize. As of June 2020, the research disclosed that the average Social Security retirement benefit was about $1,514 a month, or approximately $18,200 a year. Meanwhile, the average disabled worker and aged widow received less.

Can foreigners live or retire in Chile?

Of course, foreigners or expatriates can retire in Chile. Not only that, but they can also apply for a work visa at their country’s Chilean Embassy or the Ministry of Foreign Affairs in the capital city of Santiago.


Chile’s decision to let people draw funds from their pensions is incredible. Either you’re an expat or a citizen, you don’t need to worry about your retirement lifestyle as the government of Chile provides a sustainable pension scheme. That way, moving or retiring in Chile in 2021 could be your best decision ever.

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