In this report, I discuss the New Biggest Risk of Retiring Early Cheap Overseas.
There is a new and potentially even bigger risk threatening your overseas early cheap retirement. You must think about this new risk carefully when planning your retirement. But why should you listen to my thoughts on retiring early overseas?
I was born in the United States in 1960. In 2007, at the age of 46, I left the United States. I have lived outside the USA in 67 different countries that entire time. I only visit family and friends in the US, every other year, or so.
For this reason, I believe I am uniquely qualified to share what I have learned while living all over the world.
After I explain this new bigger risk, and how it could cause problems for early retirees, I will share the various ways I will adjust my life so this new biggest risk does not ruin my early retirement.
I am not a financial planner. I am just a guy on the Internet that is sharing how he thinks about retirement as he slowly travels around the world. I will share pictures I took all over the world as I speak. The beautiful woman in the pictures with me is Qiang Hui of Hobo Ventures. You don’t need to take notes. At the end of this video, I will give you a link to a webpage with all this information in writing.
Inflation is the New Biggest Risk for Retiring Early Overseas.
You don’t have to be a genius to figure that out. But how do you deal with it? Here is my short story and my ideas about the new biggest risk–inflation.
In about 1974, when I was around 14 years old, my mother pulled up to a gas station in our 1972 Dodge Polara Station Wagon. She screamed and pounded her fist on the dashboard, “Why have gas prices doubled in the last year?” I remember the look on her face.
That period of American History was known as the Energy Crisis of the 70s. OAPEC had decided to fix pricing and limit the number of oil exports so they could make more money. But by 1986, an oil glut had returned gas prices to their 1973 prices when adjusted for inflation. Source.
You see, throughout the 70s, inflation steadily increased in the USA due to an excessive supply of money in the system. By 1980, inflation in the USA had reached 14% per anum.
A year earlier, in 1979, President Carter had nominated Paul Volker to be Chairman of the Federal Reserve. Volker announced that the Fed would manage bank reserves and the federal funds rate more aggressively to tame inflation. But high inflation continued for 1 more year.
The federal funds rate reached a record high of 20 percent in late 1980. Eventually, Volker’s aggressive monetary policy slowed the economy. The aggressive monetary policy slowed inflation but the unemployment rate shot up to 10.8 percent in late 1982 Source.
There was a huge public outcry because Volker’s tight monetary policy pushed the USA into a recession. Many politicians called for Volker’s resignation. But populism did not control the government in those days. So Volker was able to stay the course. By 1983, inflation was back down to 3.7%.
But if you had retired early in 1970 on $500 USD per month, inflation would have reduced the purchasing power of that $500 down to about $200 by 1981. That would have had a dramatic effect on your purchasing power and lifestyle.
Since that time, inflation has remained relatively tame. Between 1983 and 2019, inflation averaged about 2.89% per year. Source. Over the last few years, the Fed has lost control of inflation again. For the 12 month period ending in May of 2022, the Consumer Price Index shows that inflation reached 34% for energy and 11% for food.
If you weren’t born yesterday, that is Deja Vu all over again.
So what should you do about it? The average inflation rate in the 70s was around 6.8% per year. Source. That reduced the purchasing power of $500 USD down to $200 USD. That is a 60% reduction in purchasing power over a 10-year period.
So if you are retiring on say $1500 USD in 2022, and the Fed fails to maintain an aggressive monetary policy for 10 years, as it did in the 70s, your $1500 per month will be worth only $600 per month, a 60% decrease in purchasing power.
Will the Fed Wait 10 Years This Time?
The first question I think about is whether or not the Fed will be able to stop inflation quickly this time. The Fed waited 10 years during the 70s before Volker took control and started getting aggressive with monetary policy in 1980. But Volker had the nerves to do what was right for the country.
So, will divided governments at home and around the world be able to withstand the pressure of growing populism and do what is right? Will they bend to populism or will they keep the aggressive monetary policy until inflation is under control? That is the million-dollar question.
I have no control over what governments do at home or around the world. I just focus on things I can control. I take actions I can take to reduce the risk of inflation on me personally. Pointing a finger just wastes my energy.
As you have probably figured out by now, I don’t spend much time pointing the finger at other people and politicians. Instead, I just observe and learn what I can about the world and take actions within my control.
Sitting around crying in my beer about how other people are ruining the world, or my life, is victim talk. Victim thinking just wastes my time and relieves me from taking responsibility for my life. That is not my game.
I observe how the world really is instead of complaining about how it should be, how it used to be or arguing about whose fault it is. If I get distracted by all the political bullshit going on right now, I’ll get caught with my pants down in retirement.
That will not be a good look for me or happy retirement. So what are things really like right now and what can I do about it while there is still time?
I have no advice for you, but I will share what I am doing for myself. First I will share some budgeting ideas I will use to help me through inflation. Second, I will share some retirement nest egg preservation ideas I will use to help me through inflation.
Inflation Budgeting Ideas
Your biggest 5 expenses during retirement are likely to be rent, food, transportation, entertainment, and healthcare. Here are my thoughts about actions I might take to offset the effects of inflation on the big 5 expenses.
In a previous report, I explained the “Two Biggest Risks of Retiring Early Overseas.” That report explained how I think about budgeting and medical expenses to reduce my personal risk of early retirement. Make sure to watch that video or read that report.
This report assumes you know about that report and adds how I think about the new biggest risk–double-digit inflation.
So here is how I am going to handle my finances during these difficult times.
Monitor Inflation: I will monitor inflation closely over the next 12 months. If the monetary policy becomes highly aggressive like it did in 1980 and forces the world into a recession, then prices are likely to stabilize and I won’t worry too much. But if the Fed cowers to populism and isn’t aggressive enough, I will begin to do the following.
Rents: As you may know, inflation has been low over the last 15 years in general since I left the USA. Outside the USA, in many of the countries I have lived, rents have remained fairly stable over that 15-year period. Because rents have been fairly stable in many countries, and because I like to slow travel and see the world, I have just been paying rents as I travel the world instead of buying. In fact, I have a report titled, “Why Retired Expats Should Not Buy Real Estate Overseas.”
But if government monetary policy is not aggressive, I will buy a piece of property in one of my favorite retire cheap in paradise foreign countries. If inflation remains high, I would buy that house outside the USA in about 1 year.
Ideally, it would include a small unpretentious house with some land around it. I would look for a property for $50k or less outside the USA in one of my favorite countries in a rural area about 20 to 30 minutes from one of my favorite cities. I would pay cash for the property.
But I wouldn’t live in it right away. I would find a good property manager and rent it out on a one-year lease. Then, I would continue to monitor inflation for the next few years. Eventually, if inflation starts to challenge my monthly budget constraints, I would move into the property where I would have no mortgage, and I would begin to grow food on the land around the house.
Food: I would begin to grow my own food on the land around the house I purchased. I would move into the house and begin farming while my monthly budget was still able to pay my living expenses. That would give me time to get a steady stream of crops in place before inflation priced me out of food in the local open-air markets.
Electricity and Water: When deciding what property to buy, I would look for one with its own healthy water well and I would set up a renewable energy source on the property for electricity such as solar panels or wind generators with a battery system.
Residency: On or about the same time I was buying the property I would apply for residency or a retirement visa depending upon the immigration laws in the country I choose to live during the inflationary period. That way, I wouldn’t have to worry about visa runs and I could stay hunkered down until inflation runs its course.
Transportation: When I decide to move into the property, I would pay cash for an ugly old truck or car just so I don’t draw too much attention to myself. I would buy a make and model that any local car mechanic would know how to repair with nearby spare parts. I would avoid any vehicle that draws attention to me or requires me to take it to a specialist mechanic in the city to do repairs.
Healthcare: When I was in Panglao in the Philippines in 2019, the owner of the apartment we stayed in was an American. He had 7 small apartments and a house on his land. He was living off the income from rentals along with his American Social Security. He also maintained his senior health care in the USA, called Medicare. He looked to be about 75 or 80 years old.
I asked him if he also had insurance in the Philippines and he said no. He was self-insured in the Philippines. He said that the few times he got sick in the Philippines he would just pay for his doctor visits and medicine out of his pocket.
I asked him if he ever needed an operation for something more serious and he explained that he flew home to the USA every other year or so to get operations on his back. He had flown back to get several operations on his back and used his Medicare for those operations.
Most ex-pats I talk to in the Philippines say they would fly to the USA, Bangkok, or Manila if they ever needed any serious medical care. I am still only 61 years old so I am not old enough for Medicare yet.
Following these ideas, I could probably get my living costs down to only a few hundred dollars a month during the inflationary period. Once I am 65, I would then be eligible for Medicare and would then add American Senior Care to my health care strategy.
I am not recommending my strategies for rents, food, transportation, utilities, residency, and health care during a double-digit inflationary period, but there is a decent chance they will keep me alive if inflation goes crazy for a long period of time.
Qiang is on Malaysia health insurance so we would fly back there if she ever ended up with an expensive medical problem.
If inflation is just mild, the money I save per month with the strategy can be invested so my retirement nest egg grows which should help fight inflation.
Retirement Nest Egg Preservation, Growth, and Income Ideas
Next, I will share my retirement nest egg preservation, growth, and income ideas. I will save the most important one for last, grow your passive income during inflationary retirement.
Pension: Some government retirement plans have a cost of living adjustments (COLAs) to account for inflation. For example, in the USA, the Social Security Administration does cost of living adjustments that are intended to keep social security on pace with inflation.
In December of 2021, the social security checks were adjusted upwards by 5.9%. If your retirement pay has COLA adjustments, and those adjustments are not cut by your government during your retirement, then your purchasing power might not suffer the full consequences of inflation.
I am eligible for my social security in a few months, at age 62, but I have decided to wait until I am older so I can get the higher amount. Since I don’t need the money now, why not wait and let it grow? You see, I started an online business called VabagondBuddha.com a few years ago and the income from that is paying for my travels. I will explain more about that in the grow your passive income section below.
Real Estate: I didn’t sell my property when I left the USA in 2007. I just hired a property manager that charges me 8% of collected rents to manage the property. The property manager has done a great job and I have experienced very little vacancy.
I didn’t sell the property when I left the USA because real estate is one of the better hedges against inflation historically. That has turned out to be a good strategy. When I first left the USA, I had a few years where there was some minor negative cash flow.
But now the property pays for itself including expenses, taxes, and insurance. And it has grown in value. So if I ever decide to cut ties completely with the USA, I can sell that and have a nice chunk of money to help hedge against inflation going forward.
Grow Your Passive Income: I studied online businesses for a few years and finally found a business model that I believed in. I love it because it has no inventory, no office, no phone, no employees, no geographic boundaries, and because the income follows me no matter where I go in the world.
Starting an online business has been the smartest action I have taken since leaving the USA in 2007. It took a few years to get off the ground, but for a few years now, it consistently throws $4000 to $6500 USD per month at me no matter where I am in the world.
But Life is not all about Money.
First, you need to remain motivated and passionate about life in retirement. Once you quit your job and retire, you need something your feel passionate about. An online business about subject matter that you are passionate about will add meaning to your life in retirement.
Second, if you are like me, you are older now. You know things about life that you can teach others that will help them save time and money. Contributing to the life of others in this way, with ideas you have learned over the years by trial and error, is a rewarding feeling.
Third, you have to keep your mind active and healthy in retirement. One of the ways to do that is to stay engaged in life and learn new things. By starting an online business, you will need to learn new things that can be challenging at the time. This engagement will help keep your mind fresh as you age.
For those of you interested in learning more about how to start the best online business for overseas retirees, come to VagabondBuddha.com and click the link at the top in yellow that says, “How I pay for My Travels.” That link has a video that shows you the internal working of my webpage and how I turned my favorite hobby into a passive income stream that will help reduce the dangers of inflation in my early retirement overseas.
So that is it. Those are all of the ways I think about the New Biggest Risk of Retiring Early Cheap Overseas. But I am not a qualified professional on any of these topics. This report is just intended to generate ideas in your mind to ask a professional about. So talk to your lawyer, doctor, accountant, and financial planner before taking any actions in your life.
Please subscribe to VagabondBuddha.com or our Youtube Channel to watch us move around the world, 15+ years, and 67 countries so far. Make sure to grab a free copy of my eBook, How I Fired My Boss and Traveled the World for 15+ Years. It has most of my best tips and tricks.
This is Dan of Vagabond Awake, the Youtube channel for VagabondBuddha.com. Thank you for stopping by. The world is your home. What time will you be home for dinner?
Please leave questions and comments on the first Youtube video above.
