Dec. 7, 2009
Panama City, Panama
PLUS:
- Avoid The Chic Addresses, And Buenos Aires Still Qualifies As Cheap...
- Ultra-Luxe Rental In Super-Charming Montevideo...
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Dear Live and Invest Overseas Reader,
"On a recent trip to the United States," writes retire-early expert Paul Terhorst in this month's issue of the
Overseas Retirement Letter, "my 40-year-old friend Bill told me he believes he needs US$5 million to retire.
"'Part of that will be equity in my home,' he explained. 'But I'd like to have US$4 million invested. With today's low interest rates, even with US$4 million I'll barely have enough to live.'
"Bill figures that, even if he can earn 5% on his US$4 million stash--tough to do these days--that's still only US$200,000 a year. If he pays half that in taxes, he'll have to live on US$100,000 a year, in an expensive house, in the fast lane he's used to. Also tough to do.
"Bill ran some more numbers by me and asked me how soon I thought he'd be able to retire.
"'That's easy,' I said. 'Never.'
"Bill makes a lot of money. But he faces both low investment returns and the progressive tax system in the United States.
"Low returns. When Vicki and I retired in 1984, we earned 16% and more on our CDs. Our modest savings threw off a huge amount of income. But today, interest rates on CDs, bonds, treasury bills, money markets, and so on approach zero, lower than the rate of inflation. Even with riskier investments, such as stocks, returns have been so low in recent years that we're left scratching our heads. The crash in March 2000, then the second crash in late 2007 and on into early 2009, combined to wipe out longer-term returns on the S&P 500.
"Progressive tax. The more money Bill makes, the more he pays in taxes. With his salary and bonus on top of investment income, he'll hit tax brackets of 70% or more (thanks to federal income tax, the Alternative Minimum Tax, state income tax, property tax, sales tax, gas tax, car and license fees, and so on).
"The more money you make, whether through work or investments, the higher your marginal tax rate.
"Conclusion: Bill will never reach his US$5 million goal, almost no matter how much he makes. His stash compounds at a miserably low rate. And the closer he gets to his goal, the higher his tax rate becomes. Like Zeno's paradox, Bill can get closer and closer to his goal but never actually reach it.
"Zeno's Paradox goes like this: Suppose I wish to cross the room. First, of course, I must cover half the distance. Then I must cover half the remaining distance. Then I must cover half the remaining distance. Then I must cover half the remaining distance...and so on, forever. The consequence is that I can never get to the other side of the room.
"What to do? You (and Bill and Zeno) have to think more creatively.
"First, forget US$5 million or whatever other goal you have in your head. You'll never make it if you approach things that way. Instead, ask yourself how you could retire right now, or in a year or two, with the money you already
have.
"In 1984, Vicki and I figured US$500,000 was enough. I suspect that might be enough for many people today, too, if you change your lifestyle. But only you know the number, and only you know the changes you're willing to make.
"Second, move. You have to get remove yourself from your high-cost lifestyle. You could sell the big house and move to a cheaper community in the United States or Canada. You could move to your cottage on the lake, and travel during the winter. However, because you're reading this, overseas living probably appeals to you. Start with
our top overseas retirement picks for 2010.
"Third, put the numbers together. Figure what the cost of living will be in your new life abroad..."
That is, get your arms around a realistic budget for taking up residence in the overseas Shangri-la with your name on it.
I'll walk you through it tomorrow...
Kathleen Peddicord
P.S. Read Paul's sage retire-early-overseas advice every month in the virtual pages of my
Overseas Retirement Letter. Not a subscriber yet? As we begin the countdown to the start of another New Year, I have to ask: What in the world are you waiting for?
Get on board here now.
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"A quick note about
Buenos Aires," writes Intrepid Correspondent Vicki Terhorst from Argentina. "Buying in this city's Recoleta neighborhood is absurdly expensive, as it has always been one of the most exclusive downtown B.A. addresses. It's possible, though, still, to live reasonably in Buenos Aires if you stay away from these chic areas. In other parts of the city, you find reasonable rents, as well as old-fashioned, family-run hotels where doubles go for less than US$30 a night and rooms in more traditional 2-star tourist hotels available for around US$50 a night. You can eat a decent meal for less than US$10 per person. One of my favorite places is an elegant all-you-can-eat vegetarian buffet that costs around US$7. Of course, you can also spend US$100 for a meal, depending on where you choose to eat.
"Right now, Paul and I are in the beach town of San Clemente, the most northern beach town south of Buenos Aires. Our off-season room rate on a long holiday weekend is about US$40 a night, including breakfast. We are one block from the beach, the hotel has a large pool, and our comfortable room even has a bar-sized fridge.
"I do want to write up some articles for you, but somehow time has a way of disappearing for me here in Argentina..."
"We are searching for a
rental apartment in Montevideo, Uruguay, preferably overlooking the ocean and the harbor. We require at least two bedrooms.
"In case of an exceptional opportunity, buying will be considered."
-- Hans W., United States
Friend and Uruguay Correspondent David James replies:
"I have a newly and beautifully restored 1920s Art Deco apartment in Montevideo that might suit you. It's 1,300 square feet with two bedrooms, two-and-a-half modern bathrooms, a formal dinning room, a living room, a modern kitchen, ample terrace space, and Rio de la Plata and Plaza de Independencia views.
"The apartment has high ceilings, decorative antique molding, a beautiful stained-glass window in the master bedroom, air conditioning and heating throughout, top-of-the-line wood cabinetry in the kitchen, granite kitchen counter tops, all stainless steel appliances, antique furnishings in the dinning room, living room, and bedrooms, and a 32-inch high-definition television.
"The building is two minutes walking distance from Ciudad Vieja, the famous pedestrian walkway Sarandi, Theatre Solis, restaurants, bars, theaters, galleries, and museums.
"The daily rate is US$150, the weekly rate US$800, and the monthly rate US$2,500. The apartment is also for sale. The price is US$269,000 without furniture, US$279,000 including the furniture."
For more information, get in touch
here.
.
