Geoarbitrage: The Live Here, Retire There Approach

In this post, we will talk about the “Live Here, Retire There” approach to geoarbitrage. This is in contrast to the “Live Here, Earn There” approach we covered last time. With the Retire There approach, you follow many of the same steps as before, except that you move to a new location after you retire. This will be short and sweet so let’s get going.

You’re Probably Already Contemplating a Live Here Retire There Approach

If you’re old enough to be contemplating retirement, chances are good you have been thinking about something like this. For an awful lot of people, moving to a less expensive location after you retire is a necessity. Typically, a person’s post-retirement income is much less than their pre-retirement income. Moving to a less expensive location after retirement is a must for millions of retirees every year.

The Retirement Money Equation

Many people calculate how large their retirement incomes must be to survive. This retirement money equation then governs their lives in the years before retirement. To avoid misery after retirement, they plan on saving enough, and working long enough, to make the equation balance. That makes sense.

live here retire there to avoid working far longer than planned

Economic conditions are blowing up people’s retirement plans, forcing them to work many years longer than planned.

The trick is hitting the numbers you need to hit. In the US and Western Europe, interest rates are ridiculously low, crippling retirement savings. And payments for programs like Social Security aren’t keeping up with real-world cost of living increases. As a result, many people have to work longer and longer to make the math work. Or they find themselves working minimum-wage jobs into their 70’s and 80’s just to put food on the table.

Rebalance the Equation

Working longer and harder to earn more money for retirement is one way to make the equation work. The other way is to reduce the amount of money you’ll need. The “Live Here, Retire There” approach can make this possible. By retiring to someplace where the cost of living is much lower, you reduce the amount of income/savings you will need to live comfortably.

I know several expats who live comfortably in Ecuador on pensions of less than $1,400 US per month ($16,800 per year). What does “live comfortably” mean? It means:

  • Renting a nice house or apartment, possibly with a maid to cook and clean
  • Eating fresh, healthy food and going out to eat with friends several times a month
  • Getting quality medical care when needed
  • Visit family and friends back home every now and then

In most cases, these folks would be in deep trouble if they were back in the USA or Europe. The US Poverty Level for a family of 2 in 2017 is $16,240 so these folks would be living not far above poverty level. Not what most of us picture for our retirement years.

We’ve seen that the Live Here, Retire There approach is a powerful way to make the Retirement Money Equation work. You can actually take things one step further than that. This geoarbitrage approach makes it easier to retire when you expected to. But why stop there? This approach can let you retire years earlier than you ever thought possible!

Blow Up the Retirement Money Equation Altogether!

I’ll use my brother Tom to illustrate this. He worked as a computer tech at a community college in Morris County, NJ for two decades. It sounds like he would be all set. Unfortunately, that is a very expensive place to live. And state budget cuts resulted in budget cuts at the college, along with pay freezes and other fun stuff. As a result, even though he was working full time, money kept getting tighter and tighter.

What about his retirement? What about that annoying equation? When we looked at this, he was only 52. He had a long time to go before retiring, but the numbers didn’t look good. It seemed that Tom would be one of the tens of millions of Americans for whom a comfortable retirement would be out of reach. It looked like he would have to join the folks on the “work your ass off and hope your pension plus Social Security will be enough to live on someday” plan.

But that didn’t take into account the Live Here, Retire There approach. I was already living in Ecuador at the time. Tom had visited me here and liked what he saw. He had also just recently reached the 20-year milestone at work. That meant he was eligible for early retirement at a reduced pension. This wasn’t an option he could consider if he stayed in the USA.

So we ran the Retirement Money Equation using his early retirement pension and my cost of living for Ecuador. Those numbers worked nicely. In other words:

  • He could keep working, keep scrimping, and keep praying that he could pay his bills for another 13 years. Then pray that his pension plus Social Security would be enough when the time arrived. Or…
  • He could retire right then, move to Ecuador, and live comfortably the rest of his life.

Not surprisingly, he filed for early retirement shortly thereafter, got his Ecuadorean residency, and left all the ugly stuff behind him.

Let that sink in for a minute. Because Tom was willing to think outside the box and apply geoarbitrage to his own life, he was able to retire 13 years early.

Blow up the Retirement Money Equation & Retire Early

Live Here, Retire There let’s you blow up the Retirement Money Equation. A better retirement (and freer tomorrow) is in your future!

Now moving to another country certainly isn’t for everyone. But if you want a better retirement, or if you just can’t make the Retirement Money Equation balance think about this approach. Even moving to a less expensive part of your own country could make the difference between a comfortable retirement and eating cat food in a shack during your golden years.

Is it Hard to Do?

This approach can be very easy to use. Your pension will normally follow you wherever you move within a country. So you could, for example, work in New York City until you retire, then move to someplace like South Dakota, where the cost of living is much lower.

NOTE: I don’t know the exact rules that apply to your retirement income. You need to confirm the details for your specific situation before retiring to someplace far away and discovering that your retirement income can’t follow you there.

Where things can get tricky is if you want to retire to a different country than the one where you earned your pension.

How Changing Countries Affects the Live Here Retire There Approach

There is usually no problem getting access to your pension money or savings when you are living in the same country as your accounts. But that may not be the case if you want to retire outside the country where you earned your retirement.

Unfortunately, I can’t give you specific advice because the rules vary depending on the source of your income, as well as the country you are starting out from and the country you end up in. What I can tell you is that who your income comes from and what your exact residency status is, could affect whether or not you can receive it while living outside your home country. For example:

  • People who get their pensions from non-governmental sources will probably have no problems.
  • People who get their pensions from governmental sources and give up their home country citizenship might forfeit their pensions.
  • People who have their savings or retirement accounts in their home country banks might be hit with charges to move money to another country. These kinds of currency controls are becoming more and more common around the world. Here in Ecuador, taking money out of the country hits you with a tax (3%? 5%? I’m not really sure).
  • People whose home country uses a different currency than their retirement country will be at risk due to exchange rates. I have retired friends who are Canadian and get paid in Canadian dollars. But we use the US dollar here in Ecuador. So my friends have to change their money before they can spend it. Now the value of the Canadian dollar is down sharply against the US dollar. These friends are still getting their same pensions as before in their home currency. But their pensions buy them far fewer US dollars than they did a year ago, leaving them less money to spend here.

US Citizens, FATCA, and the Live Here, Retire There Approach

I’ve touched on this topic before, but if you are a US citizen, the law called FATCA makes following this approach much harder. The law has made it much harder to find a non-US bank that will open an account for US citizens. It also imposes extra reporting requirements with brutal penalties for non-compliance or even for making a simple mistake filling out a form. As a result, many US retirees will be better off simply leaving all their money in the USA and using ATMs or wire transfers to get money as needed. The ATM fees and wire transfer fees and exchange rate risks hurt, but allow you to avoid the problems caused by FATCA.

Pros of This Approach

Here’s your quick summary of the benefits of the Live Here, Retire There geoarbitrage approach:

  • You can have a better quality of life in your retirement years
  • You can use it to make the Retirement Money Equation balance
  • You might be able to retire early, even way early

Cons of This Approach

While the financial benefits of this approach are clear, there are some non-financial drawbacks:

  • You need to move someplace new at a time in your life when change is harder
  • You may have to move far from friends and family
  • Governments often make this harder than it needs to be

Wrapping it Up

In my experience, the Live Here, Retire There approach to geoarbitrage is the most commonly used approach. It is one of the few ways that people can improve or even maintain their standard of living after retiring in high-cost places like the USA or Europe. If you are approaching retirement age, this is definitely something you should consider too. You can’t be freer tomorrow if you can’t afford to live after retirement!