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The Math Behind Early Retirement

Finding the Affordable America, part II

By Victor Adams

If you read the first article in this two-part series, you know that expatriating requires some front-end work on your part. Now, I’m going to walk through a hypothetical budget, based on my experiences of living in Latin America. If you’ve chosen to live in another part of the world, great. It’s the mindset that’s important.

First, you have to take responsibility for the decision. With over 1.3 million lawyers in the U.S, advice is a lawsuit waiting to happen. Since I don’t have an address, good luck serving me papers. So there is a plus right off the bat.

Renting or buying a place will be the biggest decision. Real estate outside the US is a different animal. House flipping doesn’t exist unless you’re a local or well connected. You probably aren’t. If you buy, understand that if you decide to sell later, the place may sit on the market for years. My advice would be to rent, probably furnished, until you figure out exactly where you want to go. Depending on the city, an apartment rental could cost you as little as $300 a month and up to as high as you want to go.

In Medellín, for example, I know people in great neighborhoods renting one-bedrooms for four-hundred dollars. In the beach town of Cartagena, those numbers are higher. You can find furnished beach-front locations around $800. Rents vary depending on a variety of factors, so be prepared to negotiate.

Your utilities will probably run you between $100–160 a month. Power is the biggest variable. It’s more expensive down here. If you run daily air-con, you’re going to find a $300+ bill waiting for you. In Medellín you won’t use much power, whereas it might take you a few months to get used to Cartagena’s heat. Your wifi is about $50 and phone plans run $15–20. Water and gas aren’t major costs.

Food prices vary depending on where you shop. High-end grocery stores are probably 30% less expensive than the U.S. (excluding wine), but you save additional money if you don’t require a Whole-Foods type experience. As a single person, I spend about $60 a week on food, which includes proteins like steak and fish. That is somewhere around half what I spent in the States.

Most non-alcoholic beverages are about a buck, same with coffee and most national beers. Wine is more expensive, but you can find deals from time to time. International liquor is roughly the same price as the States. Then there is Aguardiente, a local firewater. I’d suggest not trying it in public.

So those are the fixed costs; call it $400 in rent, $100 in bills, and $300 for food if you’re in Medellín. So if something were to happen that forced you to stay locked in your home for months, you’d be spending somewhere around $750-$900 a month.

I’d bump that to $1,300 if you’re in Cartagena. It’s the most expensive city in Colombia, but we’re talking ocean front living.

“What would $1,300 a month get you in Destin or Los Angeles, besides laughed at?”

I’m not adding entertainment and other variable expenses because there is no way for me to plan what you’re going to spend. Gym? Dinner out? Coffee shops? I can price those, but you have to determine how much you use them.

The good news is that beers don’t get marked up much unless it’s a tourist trap. The restaurants keep their bars packed by keeping local beer prices low. The unintended consequence is a kind of bar-egalitarianism. I like it, personally. Anyone who can afford a beer can go to most of the nicest places.

Entertainment spending is obviously personal choice, but if you consider that you’re spending $2 per beer at a bar, you can easily have a blast for under $10.

Colombian night life is a tad different. If you sit there drinking and not dancing, you’re the weirdo. So no matter how dumb you look, and you will look dumb, you’ll have to dance if you’re in a club. The result is that between dancing and drinking, you can spend as little as $6–10 for a couple hours.

Restaurants cost a lot less. Tourist spots will cost you 60-70% of what you’d spend in the States. Once you’re familiar with the area, you’re looking at less than half. Dinner for 2 at my neighborhood Greek place costs me $30 all-in. It’s not a tourist spot, so that helps. Coffee and a croissant at a Juan Valdez will set you back about three bucks. Coffee from a street vendor comes in a dixie cup and they hit you for about thirty cents.

If you’re retiring early, you probably won’t need insurances yet. Car, dental, eye, health, phone, pizza…whatever racket they’re selling you now, you won’t need it. Spend a second and add all your insurances together.

Amazing isn’t it? All that cash to non-tangible items.

You won’t need auto because you won’t need a car unless you have a good reason. You won’t need dental because if you’re at the point of retiring early, you can afford to pay out of pocket. A cleaning is about $25. If you have phone insurance…I’ve got a garden gnome looking to be re-homed.

I know, I know, phone insurance is serious and important. You won’t need it. I bought an old Iphone SE for $200. It works fine after 4 years. Saving money and retiring at 40 is a lot cooler than an iPhone Hal-9,000.

Health insurance depends on immigration status, age, health, and wealth…just like the U.S. If you have residency, you can pay into the basic system for about $40 a month. That covers pretty much everything. It works, but bureaucracy is the key feature, not speed. If you go the private route, most expats pay a company like Sura up to $300 a month. It’s crazy expensive, but that gives you the experience you’re probably accustomed to: private rooms, small wait times, etc. If you’re pretty healthy, you can pay out of pocket for basics until age smacks you full force. A lot of prescription drugs are OTC, so you can get antibiotics and basics without the headache of organizing multiple doctor visits. Imagine that.

So let’s put all this together. Let’s say you’re 40 years old. You’re single-for whatever reason. The first 40-years produced a life that has you reading an article about how to change your life. Can you expect a different result following the same path? Maybe. Or maybe you’ll spend the next 20-years balancing prescriptions, hair tonics, and dating apps? What if you just sold everything and put together $400,000? What does that get you?

Beachside in Cartagena, you’re looking at living expenses of $1,300 a month for 12 months; roughly $16,000 a year. You’re going to waste $5–8 thousand in the first months learning how to adjust. If you divide that out, your fixed costs and waste should last about 25 years. If you pay for private health insurance from day one, that number drops by 5 years.

If you buy a beach condo, that will run you around $150,000. Your monthly burn rate drops because you don’t have rent, so $1,300 becomes $500 a month, or $6,000 a year. You have about $234,000 left after you outfit the condo. Even if you’re paying for health insurance, your leftover should last about 25 years.

In Medellín, holy Toledo those numbers drop. There, the monthly burn-rate is cerca $800, or $10,000 a year. Your savings should last over 30 years, or right at 30 if you add private insurance. Even if you pay $600 a month for a condo, you’re still looking at 25 years.

Suppose you buy a condo for $70,000. That leaves you with about $314,000 and monthly fixed cost burn rate of $700 (if you buy insurance). See the chart below. That should alter your perspective a bit.

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While math is precise, life isn’t. So will you spend more? Obviously. Spanish lessons, nightlife, travel, all those take a toll. But don’t miss the forest for the trees here. I also didn’t include possible credits to the ledger.

Example? You’re in Medellín. You own a condo and pay health insurance. You take part-time work online that nets you $500 a month. Peanuts? Sure. Except your fixed costs just dropped to $200 a month. Chew on that math.

What if you put $200,000 that you aren’t using into a 3–4% bond (which you can get outside the U.S.), and rolled it over for 10 years?

There are too many factors to sketch out a full financial budget. That’s why the math is directionally correct, but not precise to your situation. That’s why I don’t include entertainment, you have to factor your own personal ideas. My goal is to get you looking at the math to see what your personal calculation looks like.

Don’t forget to budget the items that aren’t coming with you, nightlife, travel, and a security deposit. And don’t forget to scale your spending habits. It takes time to adjust to local brands and tastes. You’ll try local bacon, not like it, then spend twice that on the brand you know. Then you’ll realize the mistake and adjust your taste buds. That’s just how it works.

The original deal in the U.S. was that we paid a premium because the infrastructure was so far ahead of other countries. A lot of countries have caught up. If they say you need $2,000,000 to retire, take a look at the road you’re on. Are you going to have it? Are you going to be close? If you’ve got $400k at age 40, are you going to round up another $1.6 million by retirement? If the answer isn’t yes, maybe you should take a hard look at not only what you’re doing, but where you’re doing it.

As I’ve said, I love the U.S. It’s my home. And maybe, one day, if I’m rich enough, I might have the desire to move back. Until then, I’ll save you a seat in the sand…beach chairs are only six-bucks.

Victor Adams is a retired franchisee, independent business owner, and Siberian husky breed snob. He is the author of the new satirical adventure, The Last One Out, available on Amazon.

Author of The Last One Out, former entrepreneur, financial analyst, and Siberian husky breedist. Auburn & Vanderbilt alum.

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