Despite being one of the most accessible markets in the whole U.S., Puerto Rico is seldom recognized in national policy dialogues.

In fact, many of the challenges facing Puerto Rico, such as escalating home prices, displacement, and an outdated housing stock, exist equally throughout many states across America. 

However, Puerto Rico’s unique financial status increases its economic turmoil, making proper financial planning all the more crucial. For many years, this island has remained in an economic and legal limbo, subject to the federal laws of the US, while it lacks full representation. 

However, that should not cause deliberate financial stress for those living there!

So, let’s find out what the current scenario of the island looks like financially and how you can navigate your way through it with the proper financial planning process in Puerto Rico. 

Financial Instability of The Island

It has not been long since Puerto Rico was visibly struggling under a lot of debt. Its debt was not merely in one area, but a tangled web that had gone over US $70B as per the Oversight Board. This is when the island officially entered bankruptcy-like proceedings under PROMESA in 2016. Regardless, by this time, the island had no money put aside to provide for its pension liabilities that went up to US$55 billion, according to PR51st. 

The government of Puerto Rico, having suffered from monetary shortfalls and excessive debt incursions, was unable to meet its financial obligations with respect to debt repayments and public employee pensions while continuing to provide for essential government services. 

By the end of 2017, the cash available to the government of Puerto Rico had dropped to as low as $15 million, against a total consolidated budget of approximately $28 billion and a population of about 3.3 million. The current 2026 budget is about $13B, which is 1.5% higher than last year, with debt at 16.87% GDP. 

With the government having such a limited amount of cash on hand, the situation developed into a crisis where the government had to freeze public employee wages, increase taxes, underfund the pension plans, cut the amount of supplies and other aid that it provided to schools and hospitals, and defer maintenance and repairs on the island’s energy and water systems.

Such instability and limitations are not something abstract and can often show up in your everyday life. Amid such low-income possibilities, housing rates have increased by 8-10% without any hope for a hike in salaries. 

What Makes Financial Planning in Puerto Rico Essential?

Due to Puerto Rico’s territorial status, residents are subject to U.S. federal law, but they have a different tax system from the states. This distinction creates traps for individuals and businesses, such as double taxation or missing out on tax benefits available through Act 60 (which could wipe out the anticipated savings from the federal government of an individual), without proper expert navigation.

Puerto Rico has unique risks like hurricanes, increasing the cost of insurance, a very unstable electric grid, and 40% of families having a poverty-level income. This creates the need for a singular plan to address the problem of individuals not having enough (either for their personal use or as retirement savings). 

Ultimately, experts estimate that families in Puerto Rico have no savings, which poses a major risk to them in the long term. Individuals also desperately need individual plans to recover from disasters (hurricanes), funding for pension systems that have a $55 billion legacy funding shortfall, and financial plans to build up personal savings.

Navigating through all these complexities of this island is not possible in isolation. Here, every factor is associated with the other, making comprehensive financial analysis a vital part of your holistic growth on the island. 

Read Also: Wealth Protection in Puerto Rico: Asset Protection Plans That Work

Risks of Disconnected Financial Planning

Families who use several different advisors for their financial planning, tax, retirement, insurance, and investing tend to create disconnected financial planning because none of the advisors coordinate together, often causing missed opportunities and duplicate work.

The result is that families in Puerto Rico pay thousands of dollars every year due to overlapping fees for multiple planners charging over $6K. Being tax inefficient, and being exposed to risk that may be due to losing out on hurricane losses, or retirement funds being insufficient due to the effects of the PROMESA act.

For example, one investment advisor in Puerto Rico may be responsible for that aspect and may not integrate retirement planning services. This causes most families to pay tax twice, not having enough money available for emergencies, considering that 40% of all households do not have any savings.

Holistic Financial Planning Process

Holistic financial planning aims to integrate all aspects of your finances into a single, coordinated strategy that is tailored to your long term goals and Puerto Rico’s unique financial picture. For instance, a comprehensive financial analysis in Puerto Rico evaluates challenges like Act 60 tax incentives, PROMESA fiscal oversight, and frequent disaster risks. This ensures a plan that ensures your sustainable development through the years you live on the island. 

Step 1: Comprehensive Assessment 

The first step is to gain an overall idea of your whole financial scenario. This includes your current income, existing debts, assets, insurance gaps caused by hurricanes, local taxes, and underfunded pensions. Such a thorough analysis often uncovers hidden issues like disconnected advisors missing the Act 60 eligibility. 

Step 2: Goal Setting 

Establish a focused and prioritized set of goals, like

  • Create an emergency fund. This will help you deal with unplanned expenses, since already 40% of the population is in poverty, and most do not have any type of savings. Thus, having an emergency fund will not take away from your immediate funds.
  • Fund retirement accounts (currently, the total shortfall of pensions is in excess of $55 billion)
  • Prepare for housing costs to increase by 8-10% (+/- on average), which exceeds average wage growth.

Step 3: Integrating Tax and Retirement Planning Services in Puerto Rico

You should follow advisors who coordinate different strategies so that Act 60 allows for 4% tax rate on new income coming into the island. This way, you can avoid double taxation through coordination between U.S. federal regulations and state regulations on income taxes. Combining or prioritizing retirement income sources will also ensure that PR can continue to pay pensions without the threat of cuts due to the law (PROMESA).

Step 4: Investing/Risk Management

Establish diversified investment portfolios that are protected against energy grid failures or debt instability (currently, our government represents 16.87% of G.D.P.). You can use insurance with the least amount of deductible, and establish a process where all advisors coordinate and consolidate their fees to minimize the possibility of secretive fees that can cost thousands of dollars annually.

Step 5: Implement the Strategy and Annual Review

Engage a fiduciary investment advisor that specializes in providing services to clients in PR to execute the investment strategy; conduct an annual review of the investment plan, or upon experiencing significant storms or other major disruptions to the economy that may result in a revised fiscal plan or market conditions that could change the course of your long-term savings.

Following these steps will ensure you have a plan that coordinates retirement and tax planning. This will not only help you secure a sustainable financial plan in the long run but also support your everyday expenses and emergencies.

Read Also: Indexed Annuities Explained: Retirement Income for Puerto Ricans

Wrapping Up

The current economy in Puerto Rico is unpredictable. In this scenario, disjointed planning can not only cost people thousands of dollars but also lead to poor financial planning. 

Start planning for your future by connecting with a local and professional federal financial planner, like JLA Financial Planning, and develop an all-encompassing financial analysis and cohesive movement towards retirement and taxes. 

Get financial planning services in Puerto Rico that not only serve you today but also in the future.