You will need visas which require a passive income of a bit over 40.000 euros. If your only income is your US pensions then the double tax treaty will offset many taxes here, but if the USD continues to tank then it obviously doesnt work in your favour. Having said that, 40.000 euros a year for a couple in Milan won't go a long way, its not cheap. Id speak to a US international accountant, as if you move here you are still liable to answer to the IRS for everything.

 

Why Milan?

Basically everything will work against you. The weather is colder which means more heating expense. My guess you'll find it humid enough that even if it's cooler than a southern town you'll want A/C during the summer. Lodging tends to be more expensive.

The other issue is a lot depends on you. It depends on what you buy. It depends on what you want to do.

For example I just pulled up the Carrefour online shopping website. A 340 gram jar of Skippy peanut butter is €6.45. That's basically the same price of a 750 gram jar of Nutella. Worse the Skippy will likely be dusty with few people buying it while the Nutella is fresh stock that might be on sale every couple of months.

The point being if you feel the need for familiar brands it might get expensive. Not just brands but types of foods. The cheapest Quaker oats on Amazon.it is almost €7 a kg. Even local brands are about €3 . Oats are more or less a niche product.

The more you want to live like the US the more expensive it'll be.

 

The key thing "fiscally" is that you remain on the hook for US income taxes for the rest of your lives, no matter where you live. (Unless, of course, you renounce - but that's easier done after you have Italian or some other citizenship and that takes time.)

Your US tax obligation remains pretty much what is was while you were in the US. As retirees you don't get the FEIE (only applies to "earned" income - i.e. salary) so your only real option is the Foreign Tax Credit, which can get seriously fiddly. For that side of things a genuine US tax advisor is the best way to go. Many US based tax accountants and tax advisors really aren't terribly familiar with the various tax treaty provisions and they will have a tendency to be somewhat overly cautious when applying what they do know about.

If you want to get an idea how US taxes work overseas, take a look at IRS Publication 54
Publication 54 (2024), Tax Guide for U.S. Citizens and Resident Aliens Abroad | Internal Revenue Service

I can't help you with the Italian tax system, other than to say they do tend to withhold applicable taxes when the money is received by the bank. But don't be surprised to find little or nothing available to explain Italian taxes in English. If you speak (or better, read) Italian here's where it will come in handy.

 

What I discovered is that there are a number of small "boutique" accounting/law firms in Italy run by American expats who are qualified to do IRS work and who serve other American expats. The big US/International accounting firms also often have a local operation in Italy that addresses expats.

The way it works for me is that I interact mainly with a 1 or 2 man/woman firm in Italy, give them all my info including all my bank and brokerage statements, W2 forms etc. They prepare my 1040 and submit it electronically, then they turn over my information (with all figures converted to Euros and after signing a confidentiality agreement of course) to an Italian commercialista they have a long-standing relationship with who prepares my "Modulo PF" tax form for the Italian tax authorities. They coordinate the 1040 and PF so that proper tax credits are taken under the US/Italy Tax Treaty.

The nice thing is that I don't have to do much, the bad is that it is a rather expensive arrangement, costing about 2000-4000 for the tax preparation alone. Also, Italy is, as my accountant stated with understatement in my first meeting with him, "not a particularly low-tax jurisdiction". A permanent resident is taxed on their "worldwide income" whether produced in Italy or abroad. A nonpermanent resident is taxed only on their Italian income.

I disagree that Milan is not a good location. My impression is that there are many American and British expats there. I happen to live in another big city, however. I don't have local knowledge.

 

Its a bad location if you're worried about money.

Last year before the UK election many UK bankers etc moved and that drove up what was already higher than national average rents. Now the French seem to be whining about everybody moving.

Obviously if you have money it's a non issue . But if you're trying to make budget there are other lower cost areas.

 

I’m based in Portugal with my family, we also considered Italy but preferred PT in the end due to the lifestyle. A close friend of ours retired in Florence, and what helped them a lot was working with both an advisor in Italy who understood the bilateral tax treaty.

 

Not sure it's a fiscally sound move. We are especially interested in the impact of taxes.

Once you become a resident of Italy, that is, you apply for and obtain official residency, which you need if you are going to live there full time, you are on the hook for Italian taxes for all of your income. The only income that is exempt from Italian taxes is U.S. govt. civilian, law enforcement and military pensions. Whatever you pay to Italy gets deducted from what you owe to the U.S. govt.
The tax rates in Italy are very high, much higher than in the U.S., plus you pay a wealth tax of 0.2% of whatever amount you have in a foreign bank, with the exception of a simple checking account for which you pay a small fixed annual tax.
Living in a large city in Italy, just like in the U.S., will be more expensive than a smaller city or town.

 

My wife and I are US citizens, retired, and thinking of moving to Milan or the surrounding area. Not sure it's a fi......

Welcome to the forum. We retired to a town north of Milan 3 years ago and though the costs of are higher than other regions, the better infrastructure ie healthcare, transportation, etc was worth it. We like to recreate in the mountains yet only be 40 minutes away from Milan's airports and train stations. You are correct in checking into the tax situation. For example if you have Roth IRA's be aware that those are taxed as normal taxable accounts. Many people have an accountant back in the states and an accountant in italy (commercialists). There a a tax treaty that basically results in you paying the highest tax ( to italy) and get a tax credit for that amount in the other country (USA). For us our comercialista gets a draft of our US taxes to verify sources of income are identical in US and Italy, then he does Italian taxes and US account then has the amount for generating the tax credit. Net result is you pay higher taxes and pay for filing 2 returns. Nicolo Bolla is our commercialista, he is a great source expat tax info as well as a myriad of other expat questions around income taxes and property taxes, he speaks English well and is very patient as well very responsive...highly recommend.....accountingbolla.com. Prior to moving we selected 3 cities that met our requirements and lived in each for a month. The one we liked the most, we lived there for the month of November, cool, rainy, short days. We figured if we still liked it in November we would like it in better weather 😁. I'm glad we did because you get a better idea what it's like living there not as a tourist....how do the bus schedules work, is it too noisy, are you close enough to the things you like to do, how is traffic, where are the areas you want to live in or avoid. As for Milan we have friends who live around Milan, many lived downtown but eventually moved to the suburbs. It can be muggy with mosquitoes in the summer and cold and foggy in the winter but many people love it. Give it a try in the summer. Good Luck