What’s Cheap?
The world’s cheapest place to live?
You write nearly every day, dear reader, inquiring as to its whereabouts. Our typical response is to point you in the direction of four countries in particular: Ecuador, Uruguay, Nicaragua, and Argentina, where, no question, your dollars (or euro or pounds) will go a long way right now.
The trouble is, that standard reply implies that there is such a thing as the “world’s cheapest place to live.”
Cost of living is both relative and a moving target. What’s expensive to me can be affordable to you, and vice versa, depending how we choose to live.
Furthermore, a country that was cheap a year ago can be less so today, thanks to inflation or currency fluctuations…and a place you identify as world’s most affordable right now may not qualify in six months.
I consider Argentina a very affordable place to call home, and Overseas Retirement Letter Contributing Editor Siri Lise Doub concurs, detailing in the current issue how US$1,000 could buy you a comfortable living in Mendoza, in particular, “provided you own your own home and part ways with your car.”
Friends who’d been living for years in the country, though, decided to move on early in 2008, because, for them, the place had become too expensive. Indeed, Argentina has seen inflation of at least 10% this year. Our friends who decided to bug out for Asia would argue that the real rate of inflation in Argentina right now is much greater.
Meantime, the Greenback has been plunging and spiking throughout 2008, meaning that, if you’re earning your retirement income in U.S. dollars, through Social Security or a pension, say, or via U.S. dollar-based investments, your spending power has, likewise, fallen and risen, maybe dramatically, these past 12 months. This has been true not only in Argentina, but also in Uruguay (whose peso has taken a wild ride against the U.S. buck in 2008), for example, in Mexico, and, of course, across the Pond in euro-land.
How can you plan for your retirement abroad in the face of all this?
You could relocate to a country that uses the same currency as the country you’re relocating from. For Americans, this means putting Panama or Ecuador at the top of your list. Each of these countries has pluses and minuses, but, if cost of living is your primary concern and your retirement nest egg is U.S. dollar-based, Panama and Ecuador, frankly, could make more sense than anyplace else because, living in either of these countries, you wouldn’t have to spend your days reviewing currency fluctuation charts.
What if you’ve got British pounds to spend?
A reader wrote last week to share a news clip he’d found telling of the plight of British retirees in France right now. When they left their island for the Continent, their sterling had seriously strong buying power. Today, the British pound is nearly on par with the euro…meaning these transplanted retirees with fixed British pound pensions are returning home in a hurry and in despair.
That’s the second thing you can do if the cost of living fluctuates dramatically in your adopted retirement haven. Move again…either to another, currently affordable Shangri-la (like our friends who left Argentina for Asia earlier this year)…or back home.
This seems a perfectly reasonable strategy to me, but I realize, for some, the idea of moving only to have to move again, maybe after you’ve become settled and comfortable, is unappealing, maybe even frightening.
So hedge your buying power…by creating a source of revenue in the currency of the country you’re adopting as your retirement home. The easiest way to do this is by investing in a rental property in your adopted homeland (assuming it’s also home to a rental market).
We know that we’d like to be able to spend time in France long term. It’s part of our eventual retirement plan. So, about five years ago, we bought an apartment in Paris. It was our home for four years…and, someday, it will be our home again. However, now that we’re living in Panama, we’ve rented it out…meaning it’s generating cash flow, in the form of rental income, in euro.
In fact, it’s some of those rental euro we’re spending while we’re in town this week, so we don’t have to worry about exchanging dollars.
You could also buy ahead, of course, exchanging a large amount of your current currency for the currency of your someday-to-be-adopted country…but that, to state the obvious, is risky.
Here’s my real point: Don’t let these kinds of concerns keep you from making a move in the first place. Research and planning are important parts of the retiring overseas process, but you need to recognize when the time for considering and deliberating is through…and the time for action has arrived.
Nothing is guaranteed, and things like cost of living, inflation rates, and currency exchange rates are ever-changing. You can’t try to plan your entire future based on where they sit today…for you can’t count on them being in the same places tomorrow.
Make your choice and take the leap. You’ll be fine. And your life will be the better for it.
I promise.
Kathleen Peddicord
