In this report, we cover the two biggest risks of retiring early overseas.
The Two Biggest Risks are Money and Health
If you are going to jump on a plane and retire early for cheap overseas, or slow travel around the world like I do, you are going to need enough money. You will also need to remain as healthy as possible until the end. Nobody lives forever. So your goal is to have enough money to live a dignified life until you pass away.
That seems obvious, doesn’t it? In fact, since you don’t know exactly when you will die, your goal is to have more money than you estimate you will need. Why? Two reasons. One, you may live longer than you think. Two, inflation or currency fluctuations may devalue your retirement nest egg.
Plus, if you are a couple, one of you is likely to live longer than the other. If so, there needs to be enough money for whoever lives longer, yes?
There are actually six other smaller risk factors and I will share with you as a bonus if you listen to the end.
As we age, this is a concept most of us think about. We know that our memories will fade and we know that our ability to get a job and earn a decent living tends to diminish as we enter our twilight years. Older people have a harder time getting jobs.
Because of the uncertainty of how much you need before you quit working, many people just keep working into their 70s, some even into their 80s. I remember when I first thought about getting old without enough money.
In 1972, the movie Cabaret came out starring Liza Minnelli. My mom and dad took us to see it at the drive-in movies. There was a scene in the movie where Liza sang, “Money makes the world go round.” (link provided). I was mesmerized by that scene and I will never forget it.
I was 11 years old at the time. That idea stuck with me. If I was going to experience all the world had to offer, I would need money. No money, no life. No money, no honey. You have heard it said many different ways. That song taught me that money would be necessary to avoid poverty and desperation.
My mother worried about money all the time. She had grown up during the depression and she was the youngest of eight kids. Her father was a city employee so her oldest brothers and sisters worked as soon as the law allowed to help the family survive the Great Depression.
So, how do you know if you have enough money to retire early overseas?
Do You Have Enough Money to Retire Early Overseas?
That is a question I am unwilling and unable to answer for you. I am not a financial planner and I am not qualified to give financial advice. Plus, we each have our own spending behaviors and lifestyle needs and I know nothing about you. All I can do is tell you how I think about money.
Monthly Cash Flow: I think about money very simply. You need a monthly cash flow that is larger than your monthly expenses. Why? Because you need to live below your means in case of inflation or currency fluctuations. This cash flow can be from a pension, rents on property, 401(k) (retirement savings) withdraws, dividend payments, passive income from a business, etc.
How large should your monthly cash flow be?
Enough to pay for all of your living expenses plus enough more to increase your emergency fund. If you are able to pay all of your living expenses plus increase the size of your emergency fund each month, then you have a better chance of being successful. Then, you will be accounting for inflation and currency fluctuations.
Emergency Fund: Before you leave your home country, and on top of the assets creating your monthly cash flow, you also need a large pool of money that you can access in case of an emergency. You can’t rely on your cash flow for this because cash flow pays for typical living expenses and is not designed to pay for large emergencies. Your emergency fund needs to be immediately available to you in an emergency. But I would keep it in my home country bank (My International Banking Mistakes Report). I believe your emergency fund should be completely separate from any of the assets that are the source of your monthly cash flow. If you start dipping into the assets that are the source of your monthly cash flow during an emergency, that is likely to reduce the monthly cash flow you receive in future months. Your emergency fund must grow over time not decrease.
How large should your emergency fund be? That depends on a number of factors.
Reliability of monthly cash flow?
Rents. If your monthly cash flow is based upon rents you receive back home, what if the property goes vacant for 3 to 6 months? Your emergency fund must be much larger than any interruptions in your monthly cash flow source. So you are not flying home at the first sign of trouble.
Penson. However, if your monthly cash flow is based upon a check you receive from your government (like US social security), it is likely to be more reliable than rents?
Dividends. What if your monthly cash flow is based upon dividends from company stocks? What are the chances the dividends could change each year? Your emergency fund may have to cover a few down years of dividend income.
Passive Income: How likely is passive income you receive likely to continue? If it is reduced, how likely and soon would you be able to replace it? It could take a few years to build a new business. Think about the possible threats to your monthly cash flow and how quickly you could replace them with another source of income if it were to happen. The size of your emergency fund should be large enough to cover for these interruptions to your monthly cash flow until you can adjust and replace them. If your monthly cash flow is less reliable, then your emergency fund must be higher.
Potential emergencies you could face?
Health Care Emergency: Do you have health insurance anywhere in the world to cover treatments that may occur as you age? Or are you self-insured like me? Self-insured means I pay for my medical out of pocket as needed. If you don’t have health insurance, are you aware of what treating various diseases would be in medical tourism countries? I was in the hospital in India for 5 days about 10 years ago and the bill was about $1600 USD. In America, that bill would have been $40k to $80k 10 years ago. If that happened in the USA at the time, my deductible alone in the USA could have cost more than 5 times as much as the entire treatment in India. And that was in an ex-pat hospital in a private room, all super clean with all modern equipment, and a fold-out couch and sitting area where friends could live comfortably near me as I recovered.
Medical Tourism: Did you know that the outrageous medical costs in the USA have spawned an entire industry around the world called medical tourism? Whatever disease you end up with, one of the best doctors in the world for that disease could be a fraction of what it would cost for that same treatment in the USA? If you are lucky like I was, the entire bill could be less than my deductible would have been in the USA?
Expenses Back Home: What emergencies could happen back home? If you are renting your house, what if it needs a new roof, new plumbing, new furnace, or new air conditioning unit?
So after thinking about the reliability of my monthly cash flow and the potential emergencies I could face, I decided I would set my emergency fund equal to three years of my monthly cash flow.
Now I am not telling you 36 months is enough for all the possible emergencies you will face in life. Many of you will need much more than that. I eat healthy food, run 5 days a week, and keep my vices down to a minimum. I stay within 10% of my ideal body weight.
But there is no guarantee that I will even be alive tomorrow. I am just telling you my comfort level after being in foreign hospitals and living all over the world–is 36 months. I am not telling you this will be enough for you. I am also not telling you that 36 months of cash flow is the minimum that everyone needs before they leave their home country.
Heck, I interviewed a guy last week that was comfortable moving to the Philippines on about $2500 USD in his emergency fund (link provided). But that seems too risky to me. I would not personally leave the country with so little in my emergency fund in a US bank. Ultimately, you have to decide for yourself.
There is no safety net once you leave your home country. So think about this carefully. Maybe you would feel comfortable asking family or friends for money, but that isn’t me. I have been independent my whole life.
I feel comfortable with 36 months of cash flow in my emergency fund. Remember, your monthly cash flow should be more than your living expenses. And don’t assume you will be able to live consistently on a low monthly cost of living just because other people do.
We have videos from time to time where people live on under $1500 USD a month in some parts of the world. Once in a while, we have videos where people live on under $1000 USD a month. Do not assume you can do that when you set your monthly living expenses.
Plus, you have to do your exploratory visit on the ground in a target country before you will have a better idea of what your living expenses will be in any particular country.
There is a rare breed of person who can live on so little money and it is not a realistic expectation for someone that is new at living overseas. A few of you may be able to achieve such low numbers after you are experienced, but those kinds of low living cost numbers should not be used to set your emergency fund before you leave your home country.
But there is one more thing I decided to do. I decided to set a safety parachute so I would know when to give up and go home.
Emergency Fund Safety Parachute
I set my emergency fund amount at 36 times my monthly cash flow. That is the minimum amount I am willing to have in my emergency fund to cover any unforeseen emergencies.
I have set my emergency fund amount minimum at 36 times monthly cash flow mainly because I am self-insured for medical. I might set it slightly lower if I decided to buy medical insurance. Did you know that an annual health insurance premium in some countries could be less than two months of USA premiums?
So how does my safety fund parachute work? Remember, the emergency fund is there so I can pay for emergencies. But these are foreseeable emergencies in one way or another. But I also try to grow my emergency fund each month by not spending all of my monthly cash flow.
So the emergency fund is just a start state I set before leaving my country. Remember, this how I think about the two biggest risk factors, money and health, I am not suggesting this is right for you. This is not advice. I am just sharing how I deal with these two issues.
So what is my safety parachute? I figure that if I am going to run out of money at one point or another, I would prefer to run out of money in the USA, where I might have a softer landing. I don’t expect I will ever run out of money, but if I do, I intend on doing so in the USA.
I know the language in the USA, I have family and friends there, and I might even be entitled to social services as I get older in the USA that I would not be entitled to outside the USA because I would be a foreigner there.
So I have set a number in my mind of 24 times my monthly cash flow amount. If my emergency fund ever dips below 24 times my monthly cash flow, I will buy a ticket back to the USA. I figure with 24 times my monthly cash flow still in the emergency fund, I would have a fairly soft landing in the USA.
So that is how I overcome the two biggest risks of retiring overseas. I have a monthly cash flow that I do not completely spend each month. That cash flow comes from some retirement account or pension and I never touch the principal source from which that monthly cash flows.
I also have a completely separate emergency fund I try to grow each month, and I have a safety parachute number that I monitor in my emergency fund. If my emergency fund ever drops below the 24-month number, I will buy a ticket back to the USA, so I know I will have a soft landing.
Since I would rather not become desperate in a foreign country, I will pull my safety parachute if my emergency fund falls below 24 months.
Now, I am not recommending you follow my thinking on this. I think that is a conversation you need to have with your financial planner, lawyer, accountant, or someone that knows what they are talking about. I am just a guy on the Internet with a computer that reads a lot. Most people in the world are more risk-averse than me. So you should think about setting your minimums higher than mine.
If you need to increase your monthly cash flow before you are ready to leave your home country, check out my hobby income course (link provided). The course teaches how I turned my favorite hobby into a monthly cash flow that exceeds my travel expenses.
Or, grab a free copy of my eBook, “How I Fired My Boss and Traveled the World for 14+ Years.”
Okay, I promised to share six other smaller risk factors as a bonus if you listen to the end. Well, here they are. Just click the “More Information” link to come to VagabondBuddha.com to see how I deal with these other risk factors:
How to Travel the World Safely, Do Not Retire Overseas Before Your Exploratory Visit, Who Should Not Retire Cheap Overseas, Why Retired Expats Should Not Buy Real Estate Overseas, Why Many Expats Can Not Live Cheap Overseas, Why You Should Wait Before Getting Your Retirement Visa, Top 10 Mistakes International Retirees Make, Do Not Try to Retire on $1000 Month Before Reading
The is Dan of Vagabond Awake, the YouTube Channel for VagabondBuddha.com. The world is your home, what time will you be home for dinner?