Jan. 6, 2019
1,134 words long, 6 minute read
For those of us working toward financial independence, it can feel like our path to retirement is going to take forever. The path to financial independence is often a 10-15+ year long journey. Even though 10-15 years is much shorter than most people work, it can still feel like a lifetime. It especially feels long if you are in year 1 out of 15 versus 8 out of 15.
Using our financial independence calculator, it will take someone 17 years to reach financial independence even with a 50% savings rate. Where things start to get interesting is when you get above the 50% rate. That's where your retirement date really starts to accelerate. The problem with getting above 50% is that it often requires a combination of high income and low cost of living. With technology and remote work, you can now move abroad and make the 50%+ savings rate a reality.
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Moving from a high cost of living city to a low cost of living city in the US can save you a ton of money. Moving from Seattle to a small town in Kentucky can save you hundreds, if not thousands of dollars a month. But, not everyone wants to live in a small town. Maybe you still want the amenities (restaurants, transport, etc.) of a high cost of living city without the price tag. This is where considering moving abroad can make your options interesting. The key is finding a place with a lower cost of living, high quality of life, all for an affordable price.
The cities that meet these requirements are often found in Asia or South America, but you can still find some gems in Europe. The site Nomad List is a database of data that has data about the cost of living in cities around the world. It specifically outlines the cost to be a digital nomad in a city. This means the price may be a bit above what a local or full time expat would spend to live, but is really good for remote workers.
If you don't want to move abroad quite yet, but you plan to move abroad for retirement is in your plans use Nomad List's FIRE calculator. They use their data to showcase the cities you could retire to fastest. The example we will run below is assuming our person will want to retire where they currently live, meaning their retirement goal number doesn't change. In the Nomad List calculator, your retirement goal number would change based on the city you choose to retire in.
I should also note that becoming a digital nomad most often requires a remote job. I say it is required because with remote jobs you can get paid in your local currency and often can have a similar salary to being an employee that works in the office. This is key because you can be taking home the same amount of salary, but saving way more by being in another country. There are tons of great job boards out there for finding a remote job. Go to Google and search "current title + remote jobs" and you should find listings for job openings.
I wanted to test if geo-arbitrage works for a possible real life example of someone who is already on their path to becoming financially independent. To simulate someone who is already on their way to FIRE, our example already maxes their 401k every year, but lives in a high cost of living area. This allows them to do little extra investing. Here is what their situation looks like:
Based on the above numbers, it costs our example person $43,500 to live. This works out to $3,625 a month. A pretty average, if not low living cost for a high rent area like Seattle. In case you are wondering how we got to this cost of living number, here is the math:
Using our FIRE calculator, this is what their current path to FIRE looks like:
Now that we have these numbers, I went back to Nomad List and looked for a city to move to. You can find cities all around the world in many different price ranges. For our example, I wanted to meet criteria similar to Seattle. Safe, lots to do, etc. The City I settled on was Seoul, which ticked all the boxes.
According to Nomad List the nomad cost of living in Seoul is $2,399 a month. If you look at the numbers above, our example person has freed up $1,226 a month to be able to invest in the market:
$3,625 (Seattle COL) - $2,399 (Seoul nomad COL) = $1,226
Let's re run the numbers to see how the savings rate and retirement date changes with an extra $1,226 invested post tax. To make sure everything is even, we will still use their expenses in Seattle as the number to target for retirement. We want to keep the numbers at their Seattle cost of living in case they want to move back after they retire early:
Just by moving to Seoul, our person has effectively moved their retirement date up by 8 years. They could move their retirment date up even further if they decide to retire abroad or in a lower cost of living place back home. Investing the extra money they save by geo-arbitraging their income has a massive impact on their road to FIRE.
There are some obvious caveats to doing this. The first being having a remote job. Right now, remote work can be competitive to get a job in. You also have to have some level of flexibility in terms of lifestyle. While not impossible, it is more difficult with kids, owning a house, etc. There are definitely exceptions to this rule! Some parents on their path to retiring early have moved the whole family and are doing just fine. The last caveat is the want to go nomad. You might not want to move somewhere else, even if it means retiring earlier. That's totally ok, we are just laying out some options for getting to FIRE as fast as possible.
Are you thinking about going nomad? Is it for lifestyle, FIRE, or something else? We'd love to hear it!
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