Many of us dream one day to retire and live out a fairly comfortable life on the savings they have. Unfortunately, with inflation and expenses such as healthcare constantly going up, it’s no wonder people wonder if they will ever have enough to retire.
The millennial generation started the craze of FIRE (Financial Independence Retire Early), but that method requires extreme an extreme percentage of your salary to be saved and works better for people who get higher paying salaries earlier in their careers such as tech workers. For the normal person, even normally saving for retirement can seem like a stretch with many news outlets saying $1 or $2 million and that is usually based on an assumption of retiring around 60.
But, what about the rest of us that might only be making $50-$60k a year trying to retire before the average 60 year old mark. Are you just screwed if you want to retire early?
You just need to find a place that values the dollar highly and gives you a great redemption rate. This is where retiring abroad can make sense as cost of living varies drastically.
Let’s say you make $50k a year and save about $20k a year (40% of your salary which is less than the traditional 50%-70% required for FIRE). You work like this until you are 42 which gives you 20 years of savings assuming you started your career at 22. At a baseline cash value, that would mean you saved $400k.
Now, lets say you put it in an index fund like the S&P 500 which has an average return of 8% that we will use. Now, that would be around a $950k nest egg – almost a cool million 🙂
If you’re an American like most of our readers are, lets say you expect to live to 79 which is the average life expectancy in the US. That means you have 37 years where you need to make 950k that you have saved work for you.
Some of you may now be thinking; oh wow, using the 4% rule, I can take out $38,000 a year and be fine! The 4% rule isn’t a fact and rather just a guideline to help you get through about 30 years of retirement – but we are trying to survive through 37 years of retirement
So, let’s be conservative with this number and assume you take no more risk because you are retiring early so you move to a pure cash/bond position – also means living off $25,675.68 per year which is not a lot.
This can easily run you dry before you hit 50 years old if you aren’t careful. Time to look abroad where those dollars run a lot further.
This is where you need to start doing some of your own research, but lets use Panama as a good example. This is a nice place which a wide variety of geography from beaches to forest and nice warm temperatures. The average cost of living there is about $1,360 per month and lets add the $30 per month insurance to be safe cause you’ll probably need it later on. That $1,390 comes out to $16,680 per year or $617,160 over a 37 year period of retirement. Based on our original nest egg of $950k, retiring in Panama would leave you with an excess of $322,840 which can cover be used for extra travel, unexpected expenses and inflationary measures.
At the end of the day, the decision is yours. We here at Crazyfinances see retiring abroad as a great way to make your money work for you as there are many great options to stretch your dollar. With retirement expenses growing year over year, are you looking to make the jump abroad?