Excerpted with permission of the publisher, Wiley, from The International Living Guide to Retiring Overseas on a Budget: How to Live Well on $25,000 a Year by Suzan Haskins and Dan Prescher. Copyright (c) 2014 by International Living Publishing Ltd. All rights reserved. This book is available at all bookstores and online booksellers.
Although it wasn't the only — or even the primary — reason, we moved overseas, the lure of a more affordable lifestyle was certainly a strong motivator. And it's one that's attracting more and more baby boomers to far-flung corners of the world.
After all, the opportunity to halve your cost of living and still enjoy better weather, healthier food, quality medical care, and a truly relaxed, "off the treadmill" pace of life is hard to pass up.
So what does it cost to live in one of those exotic locations you've been dreaming of? Well . . . how much does it cost to live where you live now? How much does it cost to live in Philadelphia or Phoenix, in Wichita or tiny Augusta, Arkansas?
It's personal… and completely subjective
The answer, of course, is completely subjective. It all depends on your personal needs, wants, and — most importantly — your comfort zone.
This is probably where we should share all those stories of people we know who are living a caviar lifestyle on a hot dog bud- get. And believe me, we have stories to tell. In fact, we've told many of those stories many times during our tenure as writers for International Living.
But a funny thing happens when we share someone else's budget…
Remember the old adage that if you don't want to end up in an argument, you should never talk about religion, politics, sex, or money? Probing into people's budgets and financial situations is intrusive. And there's always something they forget or choose to leave out (pet food, cigarettes, booze, guitar strings, travel), so answers are often not as accurate as they might be. And no fault implied. If we really knew how much we spent on our pets, hobbies, and vices, what fun would that be?
So instead of regaling you with other people's budgets, we'll share our own…
Make no mistake: We live well. We go out to lunch and dinner at least once a week. At home, we like to cook and we don't scrimp on ingredients. We enjoy the occasional martini or scotch, and every evening with dinner, we polish off a bottle of wine.
Unfortunately, wine and spirits are highly taxed in Ecuador (as are most imported items), so a good bottle of wine doesn't come cheap. But life is too short to drink cheap wine, so we consider its expense our most pleasurable splurge. If we were to give it up, our grocery bill would probably be more like $300 a month… maybe even less.
What's not included in the chart below this article? Obviously, there is no line item for rent or house payment. We own our condo outright and have no expenses in that regard. The average rental property in the countries most popular with expats starts at about $300 a month. And that's for something very basic, often (but not always) unfurnished. In the small town in Ecuador where we live, you might expect to pay $600 a month for a nice, fully furnished, two-or three-bedroom rental… possibly even with utilities and Internet included. By the way, our annual property taxes are $52 and change.
You may also notice there's nothing listed for travel or health care. We occasionally treat ourselves to a night or two in Quito, and our costs for that vary greatly, depending if we stay at a hostel ($30 a night), a mid-range hotel ($80 a night) or a four- star hotel ($150 a night). In Quito we're usually on the prowl for ethnic food we can't get in our little town, and those costs can range anywhere from $4 or $5 per person for Indian food at a spartan hole-in-the-wall to $45 per person for a five-course tasting menu at an upscale Peruvian seafood or Argentine steak restaurant.
We travel back to the States to visit family at least once a year. Airfare seems to be always on the rise, so we budget $1,000 each for that. Once we get back to Arkansas or South Dakota, our expenses can vary greatly, depending on whether we're staying with family and friends or off on our own.
As for health care, because we travel extensively for our work, we've opted for a private international policy that covers us any- where in the world we travel. We have a $5,000 deductible and the policy costs a bit more than $5,800 a year. Most expats, however, opt for a local-coverage health plan, which costs far less. (Read about health care options in Chapter 5.)
Add it all up and you can see that our annual expenses hover right at $25,000. And that's with no sacrifice or frugality on our parts. We could certainly spend less. And we know plenty of people who do. We also have friends who spend far more than we do. They live in spacious city apartments or large beach homes and have all the boats, cars, bells, and whistles.
Your cost of living is a personal issue. We've no doubt you can live on $25,000 a year, as we do, in many of the world's most popular retirement destinations. But we stress: Reducing your cost of living should not be your only reason for retiring overseas. This has to be something you want to do, not something you feel forced to do.
Don't forget about startup costs and unexpected expenses
In your first months of living overseas, we'd suggest you have a financial cushion of at least $3,000 if you're single and double that for a couple, because you'll spend that much or more on visas, rental deposits, household items, and other startup expenses. And be sure to budget for unexpected expenses that will always occur, no matter where you live, such as medical and dental bills or new eyeglasses, replacing a broken computer or appliance, and so on. And put a little aside for an emergency fund and/or for trips back home.
Strategies for reducing your retirement costs overseas
Choose your "place" wisely
Some countries can be more affordable than others. The best advice we can give is to do your due diligence before you bust a move overseas.
And just as at home, some cities and towns can be more affordable than others. It's pretty much a given that it costs more to live in a city than in the countryside. There are just far more temptations
in cities… more places to spend money in and more things to spend it on — cultural activities, restaurants, shopping, transportation costs, and so on. That's not to say you should avoid city living. If that's the lifestyle you're after, don't deny yourself. But do choose wisely.
Same thing goes for weather. It's unlikely you're looking to move to a place with colder, drearier weather, where a good chunk of your monthly bill will go to heating costs. But keep in mind that in some warm-weather climates, your air conditioning bills may be hefty.
In Latin America and Asia, for example, electricity costs may be higher than you're used to at home. That's why hotels often give you key cards to slip into a wall slot for power. Remove the key card, leave the room, and the power goes off. It's also why most homes in these regions utilize mini-split air conditioning units rather than central or whole-house air cooling. If you cool just the rooms you use, you can save greatly.
If you have your heart set on living at the beach, you'll figure out how to save on the air conditioning that you'll no doubt want in your bedroom on a hot summer night. And of course, what you save on other line items in Latin America or Asia — like health care or rent — may offset your air conditioning costs.
Our advice: If cost of living is of critical importance to you, consider mountain and higher-elevation locales in the tropics — Lake Chapala or San Miguel de Allende in Mexico, Costa Rica's Central Valley, Panama's mountain communities of Boquete or Volcán, and the Andes Mountains of Ecuador or Colombia. Freshly grown local produce is abundant and affordable, and you'll rarely need heat or air conditioning. For our small two-bedroom condo in Ecuador, our monthly utility expenses rarely exceed $25 for electricity, $2 for water, and $5 for propane for hot water and cooking.
Consider travel and transportation costs
This goes hand in hand with choosing the right place to live. But it's so important it deserves its own category. You may think that you'll rarely need to go back to your country of origin, but as they say, "Life is what happens while you're busy making other plans."
Certainly, you'll want to go back to visit children and grandchildren, parents, and other family members — especially for special occasions like weddings, graduations, and the birth of a new baby.
And when you least expect it, the 3 Fs could come calling: Family emergencies, friends in need, and financial issues may require a quick trip back home.
Be sure you budget for these events or that you consider your options. It may make sense to live somewhere with access to an international airport with frequent, low-cost flights to the States and Canada. Mexico and Central America offer many good options in this regard.
One of the best things about moving overseas is that you may not need a car. Coming from a city like Omaha where it is essential to have a car (or two), we were happy car owners when we lived in Mexico, Panama, and Nicaragua. But did we need a car in those places? Not really. And when we moved to Ecuador we decided that car ownership was no longer a justifiable expense.
In Ecuador, the cost of gasoline is just $1.50 a gallon, and public transportation is ridiculously affordable. A taxi ride anywhere within Cotacachi, where we live, is just a dollar or two. It costs us 25 cents for the 20-minute bus ride to the larger town of Otavalo, where we can catch a bus onward to Quito for $2. A driver with a private car to take us anywhere we want to go locally costs about $10 an hour. So who needs to spend money on a car… or to pay for maintenance, gas, and insurance? Not us.
Live like a local
This can take a little doing, especially if you're used to convenience foods and/or not yet ready to give up those favorite recipes you enjoyed back home that require lots of prepackaged or exotic ingredients.
But if instead, you eat locally sourced produce and prepare your meals with local ingredients, flavors, and seasonings, you'll not only be eating healthier, but you'll make a healthy impact on your pocketbook. Plain and simply: imported items cost more. Those Cheerios and Cheez-Its you love may cost more than twice as much in some overseas destinations. And sure, it's okay to splurge once in a while when you need a quick fix from home, but you'll be better off in every way to just say no.
The same goes for cleaning products, cosmetics, clothes, and prescription medications you may take. If it's imported it will undoubtedly cost more. But you'll find local equivalents of all these things, and if you convert to their use, you'll be dollars ahead.
As we mentioned earlier, following the lead of locals who don't own cars can also save you money. Even foregoing taxis in favor of shared vans (called colectivos or combis in Latin America) can put money in your pocket. In our former hometown of Mérida, Mexico, a taxi might cost you 30 pesos (or $2.50) while you can travel even farther — anywhere in town — via colectivo for 6 pesos — less than 50 cents. Again, it comes down to personal choice and the lifestyle you're comfortable with.
Most locals also don't spend money on expensive electronics… even things we take for granted, like microwave ovens, bread makers, fancy coffee makers, deluxe barbecue grills, dishwashers, and clothes washers and dryers. And you may be surprised to learn that you won't need these things, either. In fact, learning to live a simpler lifestyle will not only save you money, it can be very cathartic and make you happier overall.
Our advice: Downsize — both the size of your home and the stuff you fill it with. (Why buy an expensive washer/dryer when you can get a load of laundry washed, dried, and folded for $3?) When we first moved overseas, we thought we'd need a home with several bedrooms for all the family and friends who promised to visit. Well, guess what? With a few exceptions, most have never come. We now live in a small two-bedroom condo. And on the occasion we have more guests than we can accommodate, we can rent an apartment or put them up at a local hotel for $25 or $30 a night — a win-win situation for us all.