Anywhere away from cities and industry. Small villages and towns that are a few hours drive from major cities will be the cheapest places to live. Property prices and property taxes will be low and the cost of food if bought at the local markets low too. You may have to make a longer journey now and then to a larger town to stock up on certain items and fill your car up with cheaper gas.
Alentejo towns and villages would be a good starting point. If you prefer a warmer climate in winter then the Algarve would be suitable but stay away from the coast and look inland, have a look at places like Alcoutim, Salir, Alte, Sao Marcos da Serra, Alferce, Monchique, Rogil, check out this site
If you are prepared to live sensibly, grow some of your own fruit and veg, have a few chickens, do without too many trappings you can make a pension go a long way. Much depends on where your pension comes from of course. Portugal has to be one of the most affordable countries in Europe in which to live.