Ratchet Down Your Current Life To Retire Better, Freer, Cheaper Overseas
What’s the best way to retire now rather than at some point in the future? Get a handle on how you spend.
If you’re like most of us, you’ll find you spend some 80% to 85% of your income on just three things: housing, transportation (your car), and taxes.
Prove it to yourself. Look at your tax return to see how much money you earned last year. Then break down your spending during those 12 months. Start with housing—your mortgage payments, property taxes, maintenance, cleaning, furniture, and insurance. If you rent, you’ll have expenses for rent, utilities, cleaning, and insurance.
Next move to transportation—car payments, insurance, gas, parking, licenses, registration fees, and repairs. You don’t have to work hard to get exact numbers; estimates will do.
Finally, add up your taxes, including income, Social Security, Medicare, and state and local taxes. Estimate sales taxes you pay.
I predict those three figures will easily add up to 80% of your total income. Work through this exercise, and you’ll begin to wonder how you have money for a cup of coffee, a movie, or a dinner out.
I propose, however, that you look on the bright side of this exercise. You’ve just discovered a way to retire much sooner rather than later if you’re up for it.
Getting rid of taxes becomes the easiest hurdle—just stop working. You eliminate income taxes, payroll taxes, all of it. Join the nearly 40% of working-age Americans who have left the labor force.
Next up: Your car. Just get out from under it. A majority of the world’s population lives without a car. You could become one of them.
Finally (and here’s the real secret), move overseas. Reposition yourself to a low-cost destination where you could retire easily and well without income other than savings and/or Social Security and without a car.
You’re on your way.
I’ve simplified the strategy to make a point. Most of us work and struggle just to pay our housing, vehicle, and tax expenses. Maybe you’re satisfied with this grinding approach to life, but maybe you’re looking for alternatives.
If you’d like to make a change, start by accepting the idea that it is possible for you to live a life that allows you to spend your days however you’d like rather than doing what earns you enough to pay the bills. In other words, it is possible for you to retire now, regardless of your age or retirement nest egg.
But quit work? Where would you get the money to live? Sure, you hate paying 85% of your income just for the privilege of working. Then again you need some money to get by.
If you’re old enough, you could take Social Security. I recommend you consider collecting as soon as you are eligible. Don’t wait for a maximum monthly payout at some point down the road. I’ve known people living some places overseas on as little as US$500 or US$600 per month. In parts of Mexico, Panama, Nicaragua, Ecuador, Thailand, the Philippines, and beyond, it’s possible to rent a small room for as little as US$100 to US$200 a month, all in. Your housing and utilities covered, whatever budget you have left over is for eating and entertaining yourself. We all hope to have more than US$500 or US$600 per month to retire on, but my point is that, even on that very modest budget, it’s possible to live a pretty fair life if you’re willing to consider the whole world of possibilities.
If you’re too young for Social Security, or if you need to supplement those monthly checks, consider an online business. I’ve known people with successful coin, engine parts, travel writing, transcription, and advice businesses online. Getting something like this off the ground can seem daunting but apply a little imagination. You’ll come up with something.
What about transportation? In many places around the world, you could get around as you needed and wanted using public transportation and taxis. In Bangkok, for example, seniors enjoy discounts on buses and the metro and taxis cost a dollar at the flag. A short trip from one neighborhood to another costs only US$3 to US$5. This is one of dozens and dozens of places where transportation costs would be a negligible part of your budget.
It can be easiest and best to take this in steps. Shift from your current, perhaps well-appointed life, to your new, simpler but freer life in stages. Call it the ratchet-down process. You can test your tolerance for a simpler life in a foreign land through a series of trips. Try out destinations as well as accommodation and lifestyle. How basic are you willing to go? The answer to that question will help you to define your budget. In this new life overseas, you’ll have less money than you have now (probably). You’ll also likely have less space and less paraphernalia.
What you’ll have a whole lot more of is freedom and control. It’s a trade-off that you should address directly and honestly. How much stuff are you ok giving up in exchange for newfound absolute control over your time and how you spend your days?
Take transportation. In the beginning, many people find it hard to live without a car. Again, you can ratchet down. You could start out with a rental, for example. Or you could make a deal with a private driver or rent a motorbike. Then ratchet down to using taxis and maybe riding a bicycle. Next step public transportation and walking. If, as you try different transportation strategies on for size, you find that you just don’t like living without a car of your own, then develop a budget for owning one in the place where you’re living. If your current level of retirement income doesn’t support your owning-a-car budget, consider where else in your budget you might make a cut… or ideas for how to generate a little more cash flow each month.
Many people continue working for the privilege of working, spending 80% or more of what they make to pay the bills necessary to supporting a working lifestyle. If that’s your choice, great. However, I recommend you take stock of your life and consider the alternatives for how you could be spending your time and your money. Know that you could ratchet down to a new life in a new country. You could find a dream come true. Certainly, you’ll have an adventure.
Editor’s Note: Paul Terhorst retired at age 35 and has been traveling the world for more than 30 years since. Paul writes a monthly retirement-planning column for our Overseas Retirement Letter, available here.
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