That day is coming, though, so Lief and I are fitting together the pieces we've accumulated into a more formal Next Stage Plan. This plan has Paris as its hub. That's part of the reason we're in the City of Light this week, to lay more Next Stage groundwork. Specifically, this week, we're registering Jackson for school; he'll begin attending the Lycee International next year (we hope...assuming his interview with the admissions department this week goes well!) and graduate in 2017. Meantime, Jackson being in school in Paris rather than Panama City allows Lief and me to reposition ourselves to where we want to be when Jackson flies the coop. No, we're not decamping from Panama City. That city, where our Live and Invest Overseas headquarters are now firmly established, is part of the long-term plan, too. So is Los Islotes, on Panama's Pacific coast...Medellin, Colombia...Istria, Croatia...Cayo, Belize...and beyond. Paris and Panama City? Medellin, Colombia, and Cayo, Belize? The crashing Pacific coast of Panama's Azuero Peninsula and a medieval mountain village in the heart of Istria, Croatia? As I said, we like contrast. Thanks to our natural affinity for the place and the four years we lived there when the kids were younger, Paris feels like home, and, when we're too feeble to get on another plane, that's where you'll find us. Until that day, we also want to spend time regularly in the other places on our list and maybe in some others, too, that we've yet to identify. When we come and go from these spots, we want to do it as "locals," not tourists, and with a purpose. That's why we've worked hard to build infrastructure in each location that has gotten under our skin and stirred our imaginations. In each of these places, we've made friends and made investments, we've found partners and launched businesses... We've bought apartments, built houses, planted trees, and cultivated gardens. We've become involved in the local communities, contributing, as we can, to help support local schools, for example. When we show up in each location, we want to have something to do with ourselves (in addition to drafting these dispatches). We want company for cocktails and companions for dinner, but we also want to be engaged in activities with an aim. In Cayo, Belize, we're trying to learn a little about farming and self-sufficient living, with the help of friends in that part of the world who qualify as experts at those things. In Istria, we intend to try our hand at viticulture. What we know about wine right now is that we like to drink it. Istria is a great place to grow grapes to make it, so we're counting on friends with experience in the region to show us how. On Panama's Pacific coast, at Los Islotes, we're building an oceanfront community in the Spanish-colonial style. Here we're also investing in a small wood-working operation so we can learn to make doors, windows, and moldings for the houses we'll be building and maybe furniture, too. In Paris this week to enroll Jackson for his final two years of high school, I'm coming face-to-face with the passage of time. The eventual "Next Stage" of life that Lief and I have been piecing together in the background for years is nearly upon us. We'll soon be "Next-Stagers." Yikes. For my 40th birthday (more than a decade ago), Lief took the kids and me to Galway for the weekend. We were living in Waterford at the time. Walking along the seafront in Galway town the eve before the big day, Kaitlin, then 14, looked up at me and asked, "Does it bother you that your life is over?" Before I could respond, she continued... "I mean, you're married. You have two kids. You've been doing the same job forever. Does it bother you to think that all that is already all figured out and over?" A 14-year-old's take on turning 40. Now that milestone is way back in the rear view, as is the big 5-0. Does it bother me? Well, sure. We'd all like to slow things down if we could. On the other hand, nothing's over till it's over. When will that be? Lucky for us, we don't know. So we'll keep pushing ahead and moving around, Next-Stagers with a plan. Kathleen Peddicord
What expenses am I thinking of? Trips back to the United States and U.S. health insurance.
We recently heard from a Seattle couple planning to retire to a tropical climate. They're on a budget and are thinking of Ecuador, which they know to be a good low-cost choice. They're interested in Ecuador rather than one of the tropical countries in Southeast Asia (which could, in fact, be more affordable than Ecuador) because they want to be closer to "home." They plan to make "frequent" trips back to Seattle.
I told them to forget about saving money. If they make frequent trips to Seattle their cost of living, all in, after moving to Ecuador will almost certainly exceed what they spend now.
Let's run some numbers for this couple. A quick check on Expedia shows fares from Guayaquil, Ecuador, to Seattle at about US$1,300, or US2,600 for two. Those are the deep-discount, advance-purchase, come-hell-or-high-water fares, non-refundable, non-changeable. In many cases, the couple will have to pay more.
But airfares are only the beginning. The couple will have to get from their overseas home to Guayaquil, in a bus, car, or taxi, maybe spending a night in a hotel. Once in Seattle they may need a hotel, too, and a rental car. They'll need presents for the grandchildren, and they'll want to have dinners out with family, including a few splurges.
We have to make some guesses, about total trip costs and what the word "frequent" means. For the sake of argument, let's put the trip costs at US$5,000 per and figure on three trips a year. That totals US$15,000, easily more than the couple might spend annually on rent, food and entertainment, or any other cost category living in Ecuador.
The couple faces a second major expense, tooâ€”health insurance back in the United States. Many expats keep their U.S. insurance just in case, especially if they plan to visit the United States from time to time. Let's say U.S. health insurance for a couple in their 50s comes to US$500 each per month, or US$1,000 monthly for the two of them. In addition, they'll have to come up with co-pays, deductibles, and other health-related out-of-pocket costs.
Again, we're making assumptions, but it's easy to imagine this couple's medical costs associated with their time in the United States exceeding US$15,000 a year.
Those medical costs will likely go up under Obamacare. Insurance companies already predict big increases, especially for individuals (as opposed to groups). And Obamacare requires minimum standards of coverage, co-pays, deductibles, and so on, depending on the plan you choose. The low-cost, high-deductible plan that costs only $500 a month might disappear.
Note that we're assuming this couple of retirees is younger than 65. After age 65 most Americans would be covered by Medicare during trips back to the United States. (Medicare doesn't cover medical costs overseas, but I recommend keeping it even if you do retire overseas as a back-up.)
What's the bottom line of all this? Every year our Seattle couple might spend US$15,000 or more on travel to the United States, plus US$15,000 or more on U.S. health insurance (at least until they reach Medicare age). They could easily find that these costs, US$30,000 in total, exceed the cost savings of moving to Ecuador in the first place.
So what to do? Expats and retirees overseas can easily get around these two big costs by skipping those trips back home and by opting for medical care abroad, which can be significantly, dramatically less expensive than coverage in the States.
We know retired expats on strict budgets who do exactly that.
Many of us, though, want the freedom to travel back to the United States to see the grandkids, attend a wedding or two, visit the old neighborhood and friends, whatever. In that case we should be realistic about what we'll spend on travel and, if we're under age 65, on health insurance. Otherwise, travel to the States and health insurance while in the United States could easily be the two biggest costs in an overseas retirement.
This isn't a reason not to retire overseas, of course. It's a reality check to help with your retire overseas budget planning.
Jerry and Helen kept their two cars, one for each of them. They stayed in the same house, with the same mortgage and taxes, utilities and gardening costs. They kept the golf club membership, their pets, and their symphony tickets. Food costs stayed the same. So in retirement's early years Jerry and Helen had pretty much the same expenses as before, plus they figured they'd go out and travel more, go out to eat more, go out with friends more. They would save a bit of money on work clothes. Jerry had more than enough ties, enough dress shoes. But that small savings was more than offset by trips to Europe, cruises, wine tastings, and more time at the golf course.
By contrast, Vicki and I retired in Argentina. We moved out of our luxury apartment to a small, one-bedroom condo in Buenos Aires with minimal maintenance costs. We lived without cars, without pets, without much of anything. We wanted a small apartment to serve only as a base, a place to land now and again between our overseas trips. Often during our sojourn at "home" we house-sat for friends who lived in the suburbs and wanted to spend their summers in Punta del Este. Our living costs in retirement fell to practically nothing, mainly just air travel, local hotels, and food.
Make no mistake: To retire cheap, you need to relocate. We at Live and Invest Overseas recommend that, when you are considering where to retire in the world, you relocate to a new, sexy, exciting place abroad. After all, as long as you're going to relocate you might as well do it in a big way. Relocating in your same neighborhood seems boring, almost depressing. The word downsizing comes to mind. Relocate to Vietnam, on the other hand, and the mind fills with fun and adventure, the new and exotic.
So, again, Jerry and Helen started their retirement spending more. That was 10 years ago. I can report that, today, Jerry and Helen continue to see their spending go up. They recently remodeled their house--a major expense--and bought new cars. They still take short, expensive trips abroad, afraid to leave their house and pets for very long.
Vicki and I, on the other hand, probably have about the same expenses as when we retired in 1984, adjusted for inflation. We've moved in and out of Buenos Aires a number of times since then. In our view, Buenos Aires these days has become too expensive, and too dangerous, a place to live comfortably. But we'll go back. Meanwhile we're spending most of our time in Southeast Asia.
And that's the point: We're used to relocating. When one place becomes unacceptable, we move to another. When one place we enjoy a lot, like Paris, costs big bucks, we balance our budget with stays in Southeast Asia.
Every time we move we get a kick out of it. We have our emotional struggles, to be sure. We have to get rid of stuff, over and over. But we're used to it, and each time the move becomes easier. With e-mail, Facebook, and Skype, we maintain heartfelt friendships and a sense of community with others we've made connections with around the globe.
Paul TerhorstContinue Reading:
In the report, completed just this week, Paul addresses three main themes:
As Paul explains:
"I'm an optimist. I'm a bull. I believe in the old adage, 'bears make headlines, bulls make money.' In particular I'm convinced that global growth will soon improve.
"Remember that globalization has come about only in the past several years. As recently as two decades ago, the Soviet bloc kept its citizens away from travel, away from markets. China and India persecuted the most productive sectors of society. Dictators from Burma to Brazil, from Romania to Egypt closed ports, markets, and trading in currencies.
"Then came globalization. We got used to trade, markets, and all the benefits economists tell us about. By now virtually every country, everywhere, has profited from trade and commerce. Modern-day dictators and communists have learned that trade fills coffers. Globalization has become unstoppable. You can't put the toothpaste back in the tube.
"As of this writing, the global economy appears shaky. Europe poses the biggest problem, but weakness seems to be spreading to other continents. I take weakness as normal growing pain. I believe we'll soon return to world growth that drives stock markets. After all, Europe has been down before and has always come back.
"In this report, you'll see ways to buy into global growth. Stocks. Natural resources. China. Just remember to stay the course, to stick for the long term.
"The second theme in this report is: Control spending. Advisers tend to believe our spending after retirement will decrease only slightly, if at all. Nonsense, I say. Move overseas, get your rent down, and, in most cases, you'll spend far less. You'll have plenty of money. Vicki and I live these days in Chiang Mai, Thailand. Our living costs are so low that, when we prepare our personal balance sheet, recent living costs amount to a rounding error.
"You may have higher expenses, depending where you choose to live. But almost everywhere you can find a cheaper rental if you have the right attitude. I argue that day-to-day living expenses, on la dolce vita, make more difference than how big your house is, than how big your yard is. Give up trying to impress. Enjoy the rest of your life doing what you want to do rather than spending on a big house.
"In this report I caution against hair-brained schemes. What schemes are hair-brained? All of them. I've seen people lose their retirement stash by opening a bar or helping someone open a bar. By day trading or otherwise going after what looks like a sure bet. By venture capital funding. By buying into IPOs. By buying or building a fortress home in a remote location.
"There are endless ways to lose money, an endless number of hair-brained schemes. Forget about them. Choose steady, long-term, solid investments in global growth, not short-term schemes.
"My final advice: Go For It. Vicki and I retired at age 35 and have enjoyed every minute of our retired life, most of it living overseas. You can retire, too, almost no matter how much money you have, if you're willing to think creatively.
"Choose to retire earlier rather than later; choose to act now rather than at some vague, unspecified future date. In almost all cases we've heard about, retiring early worked out better than imagined. You just need a little courage, a little luck, a little flair for knowing how to enjoy yourself."
Editor's Note: We're making Paul's all-new, hot-off-the-virtual-presses "Retirement Planning Guide--How To Get Your Finances In Order To Make Your Move Overseas Right Now" report available to all newOverseas Retirement Letter subscribers. Details for how to claim your copy are here.
Already an Overseas Retirement Letter subscriber? Donâ€™t worry. We didnâ€™t forget about you. Weâ€™re making Paulâ€™s new report available to you with our compliments. That is, free. A small thank-you for your continued loyalty and custom. Watch your in-box for your copy within the next week or so.Continuing Reading:
"Or take Fortune magazine. In a 2000 article, Fortune chose 10 stocks 'to last the decade.' Among the picks were Nortel, Enron, and Nokia, all disasters. If you had put US$100,000 into Fortune's very best decade-long picks, you'd have had only US$55,000 by 2010, according to Canadian Capitalist.
"Gold buyers failed even more spectacularly. Richard Nixon closed the gold window in the 1970s. Gold promptly shot up to US$900 an ounce by 1980. Time to buy gold, right? Gold fell in 1980 and kept falling. From 1982 gold remained essentially flat. A 1980 investor would have waited until 2008 to get back to US$900. That's 28 years of failure, with people yelling at you to buy gold from nearly every corner. Buy. BUY. BUY!!! The dollar was going to collapse, gold was going to skyrocket, we needed to return to the gold standard to save the world economy.
"I mention these failures partly to scare you. Investing involves risk.
"And partly to drive home the point that no one knows what markets will do.
"So what's the average investor to do? Specifically, what should a retired expat do with his/her stash? Diversify. Stick to your game plan. Follow your instincts.
"You know you should diversify. Buy stocks and bonds around the world in different currencies. Throw in some real estate, again in different countries, and perhaps some gold and silver. My friend Lief Simon does a good job explaining how to diversify. I'll skip over the details here, except to point out that surveys suggest many of us fail to diversify. We fail to follow sound advice. Rather, we tend to put our eggs in one basket. I admit I fall into a two-basket category (see below).
"Perhaps even more important than diversification, we need to adopt our own investment style and stick to it.
"In my case, for example, I dislike the thought of buying gold. Gold produces nothing. We can't eat it, make airplanes with it, grow crops with it, or teach math with it. When we produce gold we take it out of a hole in the ground, called a mine, and stick it in a hole in the wall called a vault. Gold mania seems silly to me.
"With my anti-gold feelings I could remain satisfied from 1980 to 2008, as explained above. Gold bugs were wrong, I was right. Twenty-eight years of being right can make anyone feel superior.
"Then gold began to climb and has nearly doubled since 2008. I was right and satisfied no longer. I was left out.
"So be it. I think we're better off investing with our instincts and feelings. I think we're better off staying in our comfort zones.
"A friend recently told me of a hot stock, call it HS, for hot stock. HS had doubled and was going higher, no doubt about it. My friend's broker bought the stock for his own account and knew top executives personally. 'Paul,' I was told, 'get on the bandwagon.'
"I spent about five minutes studying the stock at finance.yahoo.com. I decided to pass. For one thing I could never figure out what the company does, exactly. The company profile reads like the tax code.
"More importantly, HS seemed to be a momentum stock pick.
"We used to believe in buy low, sell high. Short sellers would sell high and buy back low; only the order changed. But momentum investors buy high and sell higher. HS has doubled, so momentum investors pile on.
"Momentum investing has become the rage. Momentum investors have shown brilliant returns over the past several years.
"But, in my case, as with gold, I dislike the idea of momentum investing. Momentum players exaggerate market moves and destroy value, in my opinion. They follow the greater-fool theory, or, as I prefer to call it, the I'm-smarter-than-you-are theory. Since everyone is smarter than the other guy, everyone figures to get out before the crash. They'll make money on momentum alone.
"Not for me.
"As with gold I've missed the momentum gains of the past several years. Again, so be it.
"So how DO I like to invest? Regular readers know the answer. I like world stocks and natural resources. I like investing in stuff, or at least the natural resources industry uses to make stuff. I stick with these two sectors. I'm satisfied with my results, even though I've missed huge gains elsewhere in gold, momentum, and other strategies.
"You may be more comfortable with real estate instead of stocks. Friends have invested their entire retirement savings in U.S.-government bonds paying practically zero interest. You may be more comfortable doing the same. Another friend recommends annuities. He says as soon as your stash hits a desired level, buy a fixed, lifetime annuity and forget about markets and trends. Again, you may find annuities to your liking.
"Think back over your investment successes. How did you get there? By luck or hard work? See if you can figure out how to do it again.
"Choose your investment style and stick with it, period. Forget about the trends of the day, about making spectacular returns, about bragging rights. You want ease and comfort to enjoy your expat right. Make sure your investment strategy remains in sync with that goal."
P.S. Retirement Planning Correspondent Paul Terhorst writes a regular monthly column for my Overseas Retirement Letter.
In addition, I'm happy to be able to report that Paul and his wife Vicki, 30 years retired overseas (SmartMoney magazine calls them the "George and Martha Washington of cashing out early"), will be joining Lief and me, along with dozens of other friends, experts, and expats, on stage later this month for our Retire Overseas Conference taking place in Scottsdale, Arizona. We'd all love to meet you there. Full details of the program we're planning are here.Continuing Reading:
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Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter.
Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.
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