In order to live in Italy, you must have the legal right to reside there. You can't simply show up and start living there. This is an area which I do not know a lot about. But here is what I think is relevant.
Here are several ways you could acquire the legal right to live in Italy. Remember, all this is in the context of the 7% flat tax program for retirees.
Citizenship — It may seem obvious, but if you are a citizen of Italy, you already have a right to reside there. Some people have dual or even multiple citizenship with Italy and other countries.
Immediate Family of a Citizen — For example, if your spouse is an Italian citizen, you can reside together in Italy under a visa for close family members. As I understand it, immediate family includes spouses, children, and parents. Children over the age of 18 must demonstrate financial self-sufficiency. Aunts, uncles, cousins and other non-immediate family do not fall in this category. You will still be required to apply for a residency permit called a "permesso di soggiorno motivi familiari" (residency permit for family reasons), but it will almost certainly be granted. Italy is very family-oriented.
EU Citizenship — A citizen of another EU country has a legal right to reside in Italy. EU citizens have the right to visit, live, or work in any other EU country. You simply register with the police in the Italian town where you take up residency. After 5 years you can apply for permanent residence status.
Elective Residency Visa — This is for retirees who want to retire and live permanently in Italy. You must demonstrate an annual income of at least €31,000 for singles and €38,000 for couples. You must also have health insurance worth €30,000. You cannot apply for this visa from within Italy. You apply to the Italian embassy or consulate in your home country. The visa is good for a year, but can be renewed as it expires each year. This visa does not allow you to be employed in Italy.
Professional Help — There may be other ways to establish legal residency in Italy. You should contact an expert in immigration issues in Italy before making any final decisions.