Budgeting Your Overseas Retirement
How Much Money Do You Need To Retire Overseas?
June 4, 2009
Panama City, Panama
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Dear Overseas Opportunity Letter Reader,
How much money do you need to retire and move to a new country?
In these dispatches, I introduce you daily to places where you could retire and live well and comfortably on US$1,000 a month or less. Cuenca, Ecuador, for example...Chiang Mai, Thailand...and Leon, Nicaragua, are top options right now.
The average monthly U.S. Social Security check is about US$1,200. Meaning that, if you're an American, for example, you may well be able to retire overseas on your Social Security alone.
If your Social Security income is less than US$1,000 a month or you're not of the age yet to collect it, and you have no other pension to count on, what are your options?
You need a lump sum of capital invested and throwing off yields and dividends enough to support you.
How much capital?
Longtime friends Vicki and Paul Terhorst retired in 1984 with only US$500,000. That was their total net worth, including house, cars, investments, pension funds, and so on. Considering inflation, Paul and Vicki's US$500,000 in 1984 would be about US$800,000 today.
To make your retirement work with less than a million, you'll need to convert all--or almost all--of your assets to cash and invest that cash into something that generates enough money to live on. You won't be able to buy a house overseas--at least not right away.
But renting long-term has its advantages. It keeps you mobile, and it means you don't have to worry over or pay for property maintenance or repairs.
To retire and live off dividends and interest generated from a nest egg of US$800,000, you'll have to live simply, with few fixed costs.
As Paul explains it, back in the mid-1980s, he and Vicki had it easy. At that time, CDs paid 16% interest. Paul and Vicki cut their money into chunks and put it into one-year CDs, with a couple of CDs maturing every month or two. They lived well on US$40,000 a year, which was 50% of their interest income of US$80,000 (a 16% return on their US$500,000). Reagan was president, inflation was low, the dollar strong.
More important, Paul and Vicki had arranged their lives so that they had virtually no fixed costs.
A decade later, interest rates fell, and they had to diversify their portfolio into stocks and bonds, foreign currencies, and natural resources.
As Paul explains, "Though we cried a lot along the way--especially beginning in March 2000, when the stock market tanked--our investments have performed very well, providing us with a much larger stash.
"However, that stash shrank again in the recent (2007 to 2008) bear market, one of the worst ever."
But Paul is not worried. As he puts it:
"You quickly catch on that, in order to succeed at this, you're going to have to assume some risk. You're going to have to withstand market ups and downs."
As you work through your own financial planning for your retirement overseas, here's a useful resource, a retirement calculator called Firecalc: fireseeker.com.
Firecalc answers the most fundamental financial planning question of all: Will you have enough money at the end of your life?
Firecalc uses a database of stock and bond returns over the past century to find an answer. You plug in how much money you have, how long you expect to live, and how much you spend every year.
The calculator assumes your spending will increase by inflation, and then gives you the result--that is, whether or not, based on your given circumstances, your money will run out.
Say you've saved up the US$800,000 nest egg I mention above. You're 50 years old. And you expect to live until age 90 (so you plug 40 years into the calculator).
Your expenditure is US$30,000 a year, adjusted for inflation over 40 years.
That's probably less than you're spending now but more than you'd need to live on in many of the places you read about in these dispatches. The key, again, is not to load up on fixed assets with carrying costs.
The result, according to Firecalc?
You have a 96% chance of making your overseas retirement work.
Kathleen Peddicord
P.S. I take up this budgeting for your retirement overseas discussion in the first section of the book on retiring overseas that I'm writing for Penguin Books, to be published early 2010. As I've set to work on the manuscript in earnest this week, I've noticed, too late, an inordinate number of typos and misprints making their way through in these daily dispatches to you. My apologies.
We've brought on board a new Editorial Assistant for the summer, my daughter, Kaitlin. By the time Kaitlin returns to States for her next fall semester at college, my book manuscript should be done and dusted. Between now and then, Kaitlin promises to help keep me on my editorial toes.
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Why You Don't Have to Worry About Outliving Your Nest Egg...
You can retire in style overseas and live better than you do now...for as little as $694 a month...
Live well -- including a maid, a gardener, a driver -- all on a Social Security budget...
Enjoy free medical care or health insurance for $150 a month or less...
Own your own home in the sun for as little as $99,000...and wake up each morning to the sound of the waves on the sand...or the freshness of clean, mountain air...
Find out The Six Best-Value Destinations for Living and Investing in the World Today -- Free here.
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