Author Topic: Case Study - Can We Move Abroad Indefinitely?  (Read 6552 times)

Keri B

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Case Study - Can We Move Abroad Indefinitely?
« on: September 29, 2014, 12:22:48 PM »
Hello Everyone,
   Long time lurker here.  Me and my husband are planning on moving abroad and I think we can do it but I am just getting nervous as to if I have missed something large in my calculations.  Many napkin math sessions with many different scenarios and I think we can move in 1 year or so. We plan on selling our 2 homes (currently renting one), liquidating our assets and heading to mexico as our gateway country (possibly further south as years pass). I am 33 and my husband is 44. I do not work formally outside the home so we are solely dependent on my husbands income. We have no dependents and are o.k. with spending our last dime. I am the one that has been fascinated with ER and FI ever since I started reading this blog.  My husband is trusting me and I don't want to be irresponsible with that trust.  I spoke with a financial advisor and she thought I was crazy and strongly advised my husband work for at least 10 more years but I think that is 10 years of our life we could be enjoying and spending as we wish.   Thank you so much for your input.

Assets in 2015: $350k we plan to invest in vanguard index funds
                        $200k in 401k =$600/mo SEPP until age 60
                        Conservative estimates of $900/mo pension from Boeing in 2030 and $2200/mo Social Security in 2035
                        $20k emergency fund
           
Budget for Mexico:$2750  planning on having expenses of $2k/mo with an extra $750 budgeted for travel- Increases as we age

New napkin math:
           First 15 years:      $600/mo SEPP   Withdrawal $2150/mo from vanguard investments
                   assuming 6% interest earned and 2% withdrawal increases annually with 10% tax $350k reduced to $105k

           Next 5 Years:    $1250/mo from 401k (Balance now $300k) $900/mo pension  Budget: $3650/mo
                                   Withdrawal $1500/mo from $105k stock investments (sames assumptions above) $105k down to $30k
           
           Next 25 years or until death:   $1250/mo from 401k $900/mo pension $2200/mo Social Security     
                                                         =$4350/mo + $30k stock as an emergency fund

Questions: Am I nuts in assuming this can work financially?  Am I being overly optimistic?   I have assumed a larger budget than necessary and have used very conservative estimates on the pension and Social Security.  Me and my husband are frugal by nature and can make lifestyle adjustments as needed.  I have focused on monthly income mainly, is there anything I am missing?  Is 6% interest a safe assumption?  I know the SWR is 4% but we don't have anyone to leave anything to when we die.  Will our money last?
                               
                     
« Last Edit: October 01, 2014, 01:23:25 PM by Keri B »

nereo

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #1 on: September 29, 2014, 12:50:45 PM »
Following your back-of-napkin calculations I don't see why your calculations won't work under most normal circumstances.    The only things I'd be be aware of is a massive market plunge in teh first few years, or the loss of that pension (is this a pension through a private company, through a state/local/federal agency?). 

I'd just advise staying flexible - make sure you are able to earn $1k/month or so if/when the s*&t hits the fan.  As long as you have the option of making some money when/if it becomes really necessary I think your plan sounds fine.

Keri B

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #2 on: September 29, 2014, 12:58:30 PM »
Thank you Nereo.  The pension is through Boeing.  I will update accordingly.  Backup plan #3 or #4 is possibly moving back to the states and I can work to give my husband a break.  Also visiting friends and family and working short term gigs for extra cash if necessary.
« Last Edit: September 29, 2014, 01:13:38 PM by Keri B »

Bob W

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #3 on: September 29, 2014, 01:31:41 PM »
Yes!

In fact,  I believe that you will be living pretty high on the hog at $2,500 a month.   You can find some pretty nice places in Ecuador and Belize.   If you're not dead set on having an  ocean view.  Check into the hills above Panama as well.    I currently live in the $2,500 range in the Midwest.  So in a cheap to live country it would be easier.

Don't forget the health insurance of some type.   Perhaps the ACA at $100 a month, plus a travel policy.

If you didn't need cars,  phones,  internet,  fridges,  hot water or all those overhyped items you could probably live the lifestyle for $800 per month and spend everyday fishing or hanging at the beach.

Personally,  I would be bored as shit and want to kill myself after 2 weeks of that,  but to each his own. 

I've read some blogs (there are many) of people who have been doing this for a very long time.   You will want to read them all.   

Have fun!

NinaNina

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #4 on: September 29, 2014, 01:50:31 PM »
What a great adventure!

We moved to Oaxaca, Mexico 8 years ago. Our expenses are $1,600 per month which covers a family of four. This covers all expenses except housing (we own free and clear): tuition for two kids in private school, piano lessons, aerial dance lessons, housekeeping once a week, all fresh/organic/local produce, all (high quality) medical/homeopath and dental out of pocket, maintenance for one old car, utilities. In Oaxaca, no a/c or heating is necessary, so our bills are low. (Electric is usually about $12-$15 per month). Skype for int'l calls, about $8 per month for pay-by-the-minute dumb phones for local calls. Use the Schwab banking card to avoid all international transaction fees on cash withdrawals.

The surprise expense not covered here is travel to the U.S. With two young kids, we wind up going twice per year to see extended family, which adds up, but such is the cost of living a vacation-like existence for the bulk of the year. We drive usually to keep costs down and then stay with family when al norte.

I should add we live cheaply, moreso than other expats might. We eat local and fresh rather than replicate the prepared foods diet of many U.S. people. We only lightly drink and are vegetarians. Rather than join a gym, I dance Zumba in a local park and my husband runs in the mountains. We are budget travelers. We eat street food more than restaurant food. We go out all the time, but to free film festivals, street parties, ancient ruins, villages, parks, cantina concerts, art openings--very low budget.

In short, it's absolutely wonderful and I wholeheartedly recommend the path you are considering. Good luck!

arebelspy

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #5 on: September 29, 2014, 01:54:10 PM »
In fact,  I believe that you will be living pretty high on the hog at $2,500 a month.   You can find some pretty nice places in Ecuador and Belize.

My sample Belize budget is ~3100/mo (though it's for 2 adults and 2 kids), and that's assuming we own a house free and clear, otherwise add 1200/mo rent - 325/mo property tax and insurance = an extra 875/mo.  Total, if renting, would be about $48k/yr.

Of course I'll show my work.

Item   Monthly Cost
Electricity (1000 KW)   210
Telephone   40
Internet   50
Water/trash pick up    25
Butane   50
Groceries   500
Entertainment/Dining Out    100
Health Insurance   300
Out of pocket medical/Dental   100
Travel expenses (e.g. airfaire)   533
Clothing   50
Household help   200
Property Tax   25
Home Insurance (2% of 180K value)   300
Gasoline (40 gallons a month @ $3/gal)   120
Auto maintenance   100
Other   200
Tourist Card ($50/mo/person)*   200
Monthly Total:   3103

Based on info from:   http://www.belizefirst.com/cost.html
Prices are in 2009 US Dollars   

And yeah, you can probably cut some places (especially without kids, assuming you don't want to travel as much as we do - e.g. the airplane flights, etc.).  But overseas living isn't always as cheap as people make it out to be when they haven't looked into it. 

I think 2000k/mo. that the OP estimated (plus 750 for travel on top) is a reasonable estimate.
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Keri B

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #6 on: September 29, 2014, 02:00:27 PM »
Thank you very much for your responses. I think living abroad opens up so many opportunities to live for less. I guess my question is more will our money last?  I have researched extensively about the cost of living in our preferred destination. Are my financial calculations overly optimistic or realistic? 
« Last Edit: September 29, 2014, 02:04:43 PM by Keri B »

Eric

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #7 on: September 29, 2014, 02:27:46 PM »
Great case study here Keri.  Hope we can help you out.  I think your biggest issue is/will be properly accounting for inflation.

Assets in 2015: $350k in Equity we plan to invest in vanguard index funds
                        $200k in 401k =$500/mo SEPP until age 60
                        Conservative estimates of $900/mo pension from Boeing in 2030 and $1000/mo Social Security in 2035
                        $20k emergency fund
           
Budget for Mexico:$2750  planning on having expenses of $2k/mo with an extra $750 budgeted for travel- Increases as we age

How'd you come up with that SS#?  Through the official site using your husband's actual SS#?  http://www.ssa.gov/retire2/estimator.htm
I'm asking because I've never been able to figure out whether the estimate given is in today's dollars or in Year Turning 62 dollars.  Because $1000/mo will be a fair amount less in 20 years than it is now.  I'd ask the same question about the Boening pension as well, although I'm sure that will be a lot easier to figure out.


My napkin math:
           First 15 years:      $500/mo SEPP   Withdrawal $2250/mo from vanguard investments
                   assuming 6% interest earned and 1% withdrawal increases annually with 10% tax $350k reduced to 120k
I ran a 72t SEPP calculator and with a $200K balance at your ages, I'm getting about $7700/yr or $640/mo.  So $500/mo should easily be within your range.  It's not entirely clear from your statement above, but the SEPP don't increase.  They stay at the same rate and are eroded by inflation until they're finished.  I'm assuming you're aware of that, and will increase your taxable withdrawals by 1% per year as stated above, but wanted to make sure.  So then you're figuring on taking $2250/mo from your $350K taxable account, or $27K/yr + 1% increase per year.  I actually come up with $155K left after 15 years instead of $120K.  However, I think a 1% inflation increase is a pretty low estimate.  If you adjust that to a 3% increase, after 15 years you'd be left with $77K, which still isn't too bad.  And of course you'll have the flexibility of these withdrawals to lower them some based on market conditions and actual inflation as I think that your expenses are probably artificially inflated, as $2750/mo seems a little high to me.  So far so good.

           Next 5 Years:    $1250/mo from 401k (Balance now $300k) $900/mo pension
                                   Withdrawal $1000/mo from $120k stock investments (same assumptions above) $120k down to $85k
Agree with 401k balance.  The taxable account balance may be higher or lower based on inflation adjustments needed.  The problem may arise in that while your spending is now $3150/mo to account for a 1% inflation amount per year, that may not cover your actual expenses, because again, I think 1% is too low.  Most of us plan for 3%, which would be $4150/mo in 15 years and $4800/mo after 20 years.

           Next 25 years or until death:   $1250/mo from 401k $900/mo pension $1000/mo Social Security =$3150/mo
                   + $85k stock as an emergency fund
Similar questions to above.  Does the pension increase with inflation?  Counting on SS to?  You may end up short here.


Questions: Am I nuts in assuming this can work?  I have assumed a larger budget than necessary and have used very conservative estimates on the pension and Social Security.  Me and my husband are frugal by nature and can make lifestyle adjustments as needed.  I have focused on monthly income mainly, is there anything I am missing?  Is 6% interest a safe assumption?  I know the SWR is 4% but that is assuming you want your initial investment to stay the same or grow.

I also think that $2750/mo is a lot for permanent living in Mexico.  But I haven't looked into all of the expenses.  Health insurance?  Or are you just planning to pay out of pocket?  Are there Visa costs?  If you can really nail down these costs, and then are sure that this $2750 is way over and it's really closer to $2000, then even calculating inflation at 3% I think you're pretty darn close.

I think 6% might be a little conservative, which again, could make your numbers look even better.  But of course no one really knows.         

Keri B

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #8 on: September 29, 2014, 07:50:41 PM »
Thank you Eric,
   Exactly the information I was looking for.  The social security estimates are in todays dollars the calculator I used was about $2200 in 2035 dollars I tried to recalculate with that as my new amount.  As for the pension having a COLA I am still researching.  For the first 15 years of withdrawals, I also was accounting for 10%tax rate, is that why we ended up with different end numbers ($155k vs $120k)?  I have adjusted a bit to 2% withdrawal increases.  Can't seem to make the numbers work with the 3% increase annually  in withdrawals.  Maybe I am not understanding correctly but if inflation goes up, won't my investments be worth more as well?  I was trying to be conservative with the 6% interest earned on investments not including inflation (3% more) or maybe I missed something.  Here is an idea of our monthly budget.  Could easily be more in the $2000 range including travel but I have planned wiggle room in each category as my husband needs to be sure he can walk away from his great union job with seniority. 

Target Budget for Mexico $2750/mo
$600 Rent/Utilities
$600 Groceries /Eating out
$100 Charitable Contributions
$100 Phones (probably much less)
$100 transportation taxis and busses or maintenance/gas
$100 Average out of pocket for Medical
$100 fun and entertainment/hobbies
$300 miscellaneous: Visas, Clothes, Haircuts, Electronics, Music Equipment, Unexpected
=$2000.         Also about 750/mo for large travel =$33000 annually

I have updated my New napkin math above.
           
« Last Edit: October 01, 2014, 01:24:58 PM by Keri B »

mxt0133

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #9 on: September 29, 2014, 09:08:46 PM »
Why are you assuming a 10% tax rate?  At those income levels you will not be paying anything on dividends or long-term capital gains.  And you still have room to have a Roth conversion ladder available to you, which will give you more flexibility than a SEPP.

Look at this post of how to earn up to 90k and pay zero taxes. 

http://www.gocurrycracker.com/never-pay-taxes-again/
http://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes/

Keri B

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #10 on: September 29, 2014, 11:18:27 PM »
Thank you Magnum
I have that post from go curry cracker bookmarked. I am hoping with proper planning to avoid taxes but was assuming 10% as a buffer. I figure if I overestimate expenses and underestimate rates of return I will be on the safe side. I would rather overestimate expenses and have a surplus as we are planning for 30+ years without traditional income.
« Last Edit: September 29, 2014, 11:28:48 PM by Keri B »

Jeremy

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #11 on: September 30, 2014, 07:28:09 AM »
Mexico is great, we spent about 8 month there last year living like royalty on about $84/day (~$2500/month)

This included 5 star housing rentals with maid service, at one point a private swimming pool, an arguably excessive amount of fine wining and dining, relatively expensive tourist activities such as swimming with whale sharks, and taking VIP buses back and forth across the country

Summary here:
http://www.gocurrycracker.com/how-much-does-it-cost-to-travel-in-mexico/ 

A little deeper here:
http://www.gocurrycracker.com/expenses/2013-expenses/

And much much deeper (photos of food, photos of housing, photos of swimming with whale sharks) in the monthly reviews accessible from the link above.  Adjust as you see fit

You can live very well in Mexico on $2000/month

Is 6% interest a safe assumption?  I know the SWR is 4% but we don't have anyone to leave anything to when we die.  Will our money last?                                                 

We are planning for 30+ years without traditional income

One general thought on "will our money last".  A tool like www.cfiresim.com would be a good thing to use.  Enter your future pension and SS assumptions and see what it gives you for a confidence factor.  This will give you a better idea than assuming the stock market goes up by 6% every year (even on average.)  It would also be good to see what happens for cases where SS or the pension are less than expected

Keri B

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #12 on: September 30, 2014, 10:15:11 AM »
Thank You Jeremy,
  I am familiar with your site and I really enjoy your detailed monthly budgets.  It looks like with some effort we can keep our spending around $2k/mo.  I will be spending some time this evening playing with this calculator: http://www.cfiresim.com/ 
« Last Edit: September 30, 2014, 10:37:15 PM by Keri B »

electriceagle

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #13 on: October 01, 2014, 02:04:16 AM »
$2500 a month will take you very, very far in Mexico once you get away from furnished residences catered towards gringos.

The one thing that you need to worry about is inflation. Developing countries are just that: developing. Over your lifetime, they will generally become wealthier. This change results in higher inflation than you see here in the US and is very difficult to predict.

Once you find someplace that you are happy with, can you lock in a portion of your costs by buying a residence (or two)?

Also, when you say "$350k in Equity", do you mean home equity? If so, don't forget to knock that number down for transaction costs in selling. RE agent + transfer taxes + etc.
« Last Edit: October 01, 2014, 02:06:01 AM by electriceagle »

Keri B

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Re: Case Study - Can We Move Abroad Indefinitely?
« Reply #14 on: October 01, 2014, 09:26:56 AM »
Thank you Electriceagle,
   We have discussed buying a property in mexico but are leaning towards renting as we want to be flexible to move, possibly to a different country.  Yes, the equity is from selling our 2 properties. The equity we have is after taking out for realestate fees and any loans and will be the full amount we are able to invest. I have tried to keep things as simple as possible by using big round numbers. We also,have some Roth IRA gains at some point and maybe a tiny inheritance but have not accounted for these.  Also I might qualify for social security but not likely so I have not accounted for that either.