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Geoarbitrage: The Live Here, Hire There Approach

The Live Here, Hire There approach is the third type of geoarbitrage I want to cover. This will be a short post since I have little experience with this approach myself. So…

This approach takes advantage of the fact that pay rates vary drastically around the world. Data gathered by the Gallup organization a few years ago illustrates what I mean. It shows that in 2013, US citizens reported a median income of over $19,000 per person. Meanwhile, people in the Philippines were reporting a median income of $478 per person!

Add these facts:

  • There are millions of well-educated, English-speaking people in low-wage countries like the Philippines and India.
  • The Internet makes it possible to work with distant people extremely inexpensively.

The result is the outsourcing movement from the end of the last century.

Corporate Outsourcing, the Predecessor to the Live Here, Hire There Approach

The outsourcing movement is where I got to see the potential (both good and bad) of this form of geoarbitrage. I was working as a manager at a startup during the dot-comm boom. While I didn’t hire software engineers, my company did. Somehow I got tasked with reviewing contracts, including one that involved outsourcing work from our company in New Hampshire, USA, to some small engineering firm in India.

Without giving away any proprietary details, I can say that the engineers in India were being billed to us at something like one-fifth of what we were paying our own local people. It was crazy, and more than a little scary. Fortunately for our local guys, the people managing the project screwed it up and we gave up on outsourcing. But the potential savings were enormous.

About now you’re probably saying, “Yeah great Bill. Another war story from decades ago. Why should I give a damn?” The reason you should give a damn is that this kind of geoarbitrage or outsourcing isn’t limited to just businesses hiring businesses. You can hire people in other countries to do work for you too. There are a few ways to go about it.

Working Through an Outsourcing Firm

And you don’t have to be looking for engineering help or similar techie skills either. There are companies like BrickWork India that provide what they call remote executive assistance. In addition to hardcore techie services, they offer virtually any service that can be done remotely across the Internet.

The Live Here, Hire There Approach

The Live Here, Hire There Approach is a form of personal outsourcing.

If you need someone to monitor your Outlook Inbox for you, or do some detailed research and analysis, companies like BrickWork can get it done for you. Rather than waste time and space trying to summarize their offerings in this post, I suggest you use the link above to visit their site and see for yourself.

Finding Someone Providing Specific Types of Work

Another way to implement the Live Here, Hire There approach is to go to marketplaces where people offer the particular type of work you are looking for. One such marketplace is Fiverr.com. Here, people offer a specific service, usually at a fixed price. I’ve used them for gigs like translating an article to a different language, or recording short videos for marketing purposes.

You can find people to do the kinds of things that BrickWork India and similar companies can do for you. But at Fiverr you are generally hiring a specific individual for a specific short project for a specific low price. It used to be that all the stuff at Fiverr was $5 (a fiverr) but now they are more flexible.

The other difference with marketplaces like Fiverr is that you are exposed to service providers from all around the world. Whereas BrickWork India provides you with people from India, anyone from anywhere on Earth can offer a service on Fiverr. You could end up working with someone from India, or anyplace else, including your own back yard. It is more of a coincidental geoarbitrage play.

Get People to Bid on Your Specific Projects

Here you go to a network like Upwork and post a specification for the work you want done. People then bid on the job and you get to choose who you work with. I have used their service both as a buyer of services and as a provider.

In my experience, the lowest-price bidders are likely to be from low-paid countries like India, rather than from places like the USA or Europe. But for the kinds of work I was involved with, qualifications were much more important than where a person was from or how much they were charging. As a result, the live here, hire there approach didn’t really come into play.

Pros of This Approach

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

  • You can often get quality work done for a lower cost using workers from “there”
  • The lower cost can make it practical to hire people for tasks that otherwise wouldn’t make sense

Cons of This Approach

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

  • As I saw in the company I worked for, managing workers “there” can be difficult
  • With nationalism on the rise around the world, outsourcing work to foreigners is getting a bad reputation

Wrapping it Up

The Live Here, Hire There approach really doesn’t fit with my workstyle/lifestyle. Still, it is a viable way to do things. Outsourcing stuff at great prices can definitely make you freer tomorrow. If you want to explore this topic in more depth, I suggest you search for:

personal outsourcing

in your favorite search engine. You’ll find a ton of links related to the topic.


Have you tried the “Live Here, Hire There” approach? If so, leave a comment below and let us know how it worked out for you.

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!

Geoarbitrage: The Live Here, Earn There Approach

As promised, I am going to describe various approaches to Geoarbitrage in some detail. We’ll talk about the approach and how it works, then cover the Pros and Cons. By the time we’re done, you will have a good handle on which approaches (if any) fit into your future.

Ready? We’ll start with…

What is the “Live Here, Earn There” Approach

The “Live Here, Earn There” approach is my favorite approach to geoarbitrage. That’s because it is the approach that allows me to lead the wonderful life I have now. Consider this:

  • I live in the city that is frequently described as the best place in the world for North Americans to retire.
Live Here, Earn There

Living in a place like Cuenca, Ecuador can make you Freer Tomorrow.

  • I rent a nice 3-bedroom house not far from the ritziest part of the city.
  • My quality of life is much higher than I had before.
  • Because I live and work outside my home country, there are several completely legal ways I can reduce my US tax bill.
  • Over the 5+ years I have lived here, my average workweek has probably been 10 to 15 hours. I had over a year where I only had to work around 10 minutes a day to pay all my bills.

“So how the hell can I pull this off?,” you ask. It isn’t that hard to do if you apply the Live Here, Earn There approach to geoarbitrage. The idea is that you earn your money someplace where the cost of living is high. But you live someplace where the cost of living is much lower.

For example, I earn most of my money doing work for companies based in the United States, where the cost of living is pretty high. So the companies I work for pay me what they would pay someone who is based in the USA.

But I live in Cuenca, Ecuador, where the cost of living is a fraction of that in the USA. So my expenses are much lower than they would be up north. This allows me to live nicely while only working a fraction of the time I would in the US.

For example, according to Numbeo, the cost of living here in Cuenca, Ecuador (excluding housing) is less than half that of living in NYC. And the cost of housing is only about 11% that of NYC! Adding to the fun, Cuenca is one of the most expensive places to live in Ecuador, due to all the publicity it gets internationally.

The high cost of living in a place like New York City means you can get paid a lot more than people living in less expensive places.

How to Implement the “Live Here, Earn There” Approach

If you are still reading, I bet you are thinking either:

  • This sounds great, I wanna see how to do it, or
  • This sounds like a crock, I’ve gotta see how he claims this is possible

It really is possible to live here, earn there if you set things up right. In fact, it is much easier than it was even a few years ago when I started. These days, companies are frantically outsourcing work, hiring contractors, basically doing anything they can to reduce headcounts. The old style job (where you had to be in your desk at 9am every day so the boss could see you and lord over you) is quickly disappearing. You might even be able to convert your current office job into remote work and implement the plan without changing gigs.

Let’s take a look at how you could take advantage of this form of geoarbitrage. You implement this approach as follows:

If You Work a Normal Office Job

  1. Start busting butt at the office so your boss sees how valuable you are to the company.
  2. Begin thinking about where you might want to live.
  3. After a few months, talk to your boss about working from home one or two days a week.
  4. Once you can work from home, make sure not to slack off. If anything try hard to be more productive on your days working from home. You want your boss to be impressed with the results.
  5. Make short trips to the locations you are considering moving to. You need to get a first-person feel for what they’re like. No point in going through all this then moving someplace you are going to hate!
  6. Gradually increase the number of days you work outside the office until you never have to be physically present.
  7. Move someplace cheaper and enjoy the benefits of living here and earning there!

NOTE:  Tim Ferriss has a much more detailed plan for making this happen in his book, “The 4-Hour Workweek.”

If You Make Your Living with a Location-Independent Business

This is pretty easy. You know how much money you are making now, and how much you are likely to make in the next few years. So all you need to do is figure out a few places where you might want to live and can afford to live. Then go scout out your top choices and pick the one you’re going to move to.

If You Have Both Regular-Job Income and Location-Independent Business Income

This is the situation I was in. I had a full-time job and a side business that was location-independent. In this situation, it should be just as easy as if all your current income is from a location-independent business. But it can get tricky.

Assuming you plan to live on your location-independent business income, you have to be careful of your assumptions. It is easy to assume you are going to increase your income a lot once you move. After all, you won’t be wasting most of your days at your office job anymore.

This can be a dangerous assumption. You would be much better off assuming that your income is not going to go up. Plan to live on what you have been making with your side gig. If you do make more, that’s great. But if you don’t, you could find yourself in a strange place with not enough money to pay your bills. Imagine getting evicted from your apartment in some foreign city with no friends, no options, and not even enough money to buy a plane ticket home. That would really suck.

The Pros and Cons of the “Live Here, Earn There” Approach

With all that out of the way, let’s take a quick look at the pros and cons of this approach before wrapping up for the day.

Pros

  • You can buy far more lifestyle if you earn someplace expensive and live someplace inexpensive. This can mean more free time, more money in your pocket at the end of the month, a higher standard of living, or any combination of the above.
  • You can choose the place you live based on what you like, instead of based on where your job is located.
  • You may be able to save on taxes.

Cons

  • You need a location-independent business that pays well enough to fund the lifestyle you are looking for.
  • You lose the camaraderie of the office environment.

Conclusion

In the next part of this series we’ll talk about the “Live Here, Retire There” approach. It is a form of geoarbitrage that my brother and millions like him are already taking advantage of. While the retiree lifestyle isn’t really a theme of this blog, the approach allowed my brother to retire at 52 instead of 65. The super-early retirement angle is definitely one way to become freer tomorrow, so we’ll talk about it next.