(GCC: Over the years I haven’t been shy about how my favorite part of this little blog is the opportunity to have a positive impact on the lives of others. Now, the only thing even better than _that_ is when somebody takes an idea or concept and just… runs with it. Embrace and Extend! That is exactly what Skip has done… and now maybe you will too.)
One of the many benefits of a location-independent lifestyle is the ability to take advantage of geographic arbitrage. Geographic arbitrage is a valuable tool in our early retirement plan that provides both financial and quality-of-life benefits. It enables us to increase our purchasing power and reduce the burden on our retirement funds while traveling the world.
I first came across the idea of geographic arbitrage while reading a GCC article quite a few years ago: What is Your Retirement Number: The 4% Rule.
The article discussed developing a foundation for long-term success. The general gist was to live better for less in the early years of retirement while traveling through less expensive regions of the world. Spending less in the early years allows more of your money to grow, thereby bolstering the survival of your investment portfolio throughout a lengthy retirement.
This was a bit of a lightbulb moment for me. Although the early retirement gears were already turning, my wife and I had not really considered perpetual international travel as an option. However, the logic made too much sense to ignore. Live well for less and travel the world… all while reducing sequence of return risk on our retirement portfolio? Sign me up. (Reducing risk AND lowering future expenses too! Kickstart Your (Early) Retirement)
But… how has this concept held up under the current environment of investment portfolio losses and increasing inflation? I’m here to tell you, very well.
What is Geographic Arbitrage?
Before we go any further, let’s define arbitrage.
According to Dictionary.com, arbitrage is the simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices. Simply put, it is taking advantage of different prices in different markets.
Geographic arbitrage involves earning income and growing savings in a geographic area with a stronger currency, then utilizing it in an area with a weaker currency. In other words, taking your income or retirement savings and moving to a place with a lower cost of living. This enables you to maintain or enhance your standard of living while spending less to do so.
Geographic Arbitrage Can Be Performed Locally, Domestically, or Internationally
Local geographic arbitrage involves moving from a higher cost-of-living area to a lower cost-of-living area that is close by. For example, as we worked toward our early retirement goals we moved a mere 30 minutes away while maintaining the same jobs and income. This allowed us to significantly lower our cost of living.
As a side note, we also downsized our home during the move to further reduce our costs. This move was a huge factor in our ability to reach our early retirement goal.
Domestic geographic arbitrage involves moving to another state or region within your home country that offers a lower cost of living while maintaining a similar income. This may be due to lower real estate or rent prices, more favorable real estate taxes, or moving to a place with no state income tax.
We considered domestic geographic arbitrage and did some traveling around the U.S. to explore this option. However, as our early retirement plans evolved, we decided slow nomadic international living was the right choice for us. We intended to do large amounts of international travel anyway. So why not take advantage of the lower cost of living and do it full-time?
Can International Travel Really Cost Less in Retirement?
There are plenty of examples of digital nomads traveling the world while they work, ex-pats living abroad to stretch their retirement savings, and early retirees moving slowly around the world for less than the cost to live in their home country. We are not blazing any new trails here. The concept of geographic arbitrage is well established.
Traveling slowly through less expensive regions around the world such as Southeast Asia, Mexico, South America, and Eastern Europe enables us to spend significantly less on our largest living expenses. This includes housing, food, transportation, and health care.
Real-World Examples of Geographic Arbitrage at Work
We travel slowly, usually staying one to two months in each location. This not only reduces housing and transportation costs but reduces the risk of travel burnout by constantly moving. It also enables us to really get to know a place well.
We launched our nomadic travels in June of 2021 and spent our first year of early retirement in Mexico. In a time when travel was difficult in most places of the world, Mexico was easy.
Our total spend in our first year of international travel was $26,200. This includes the purchase of a primary international health insurance plan for two people. This is quite a bit under budget for us and, honestly, it was pretty easy to accomplish. Our second year of international travel appears to be shaping up to be well under budget again.
The following provides examples of our nomadic cost of living with a few other money-saving tips thrown in.
Housing
Most of our housing has been secured through Airbnb, with a few acquired through booking.com and Agoda. As mentioned previously, we stay in most places for at least one month. This typically results in sizeable discounts on Airbnb. The downside to longer-term stays on Airbnb is that the cancellation policy tends to only be 48 hours in most cases.
Our monthly rents throughout Mexico have ranged from $600/month for a one-bedroom Casita in San Miguel de Allende to $1300/month for a one-bedroom beachside apartment in Puerto Morelos.
Apartment – San Miguel de Allende
Apartment – Puerto Morelos
More recent examples include one-bedroom apartments with amenities such as a gym and pool in Chiang Mai, Thailand and Melaka, Malaysia for a little over $700/month. We recently secured a one-bedroom apartment with the same amenities in Danang, Vietnam for just over $400/month.
Dining
In general, dining out has been much less expensive during our international travels than it has been in the U.S.
Some examples in Mexico include:
Street Tacos in Mexico City. 10 tacos for $4 U.S.
Street Tacos – Mexico City
Massive beachside shrimp cocktail in Puerto Escondido for $5-$6 U.S.
Shrimp Cocktail – Puerto Escondido
Dining out in Southeast Asia has been even more cost-effective than in Mexico. Some examples include:
This glorious large bowl of Curry Laksa on the streets of Kuala Lumpur, Malaysia for $1.80 U.S.
Curry Laksa – Kuala Lumpur
This Wan Tan Mee breakfast in a small noodle shop in Penang, Malaysia for $1.50 U.S.
Wan Tan Mee – Penang, Malaysia
So many bowls of Khoa Soi in Chiang Mai Thailand for under $2 U.S. per bowl
Khao Soi – Chiang Mai, Thailand
Delicious earthen jar crispy roast pork belly with a side of stir-fried morning glory and rice for two. Total cost $7 U.S.
Crispy Pork Belly – Chiang Mai, Thailand
Other ways we keep our food budget under control include:
Eating like a local. Depending on where we travel, western dishes can be found. However, compared to local dishes they can be expensive. Although we occasionally indulge in a fancy western meal and enjoy the occasional craft beer, we mostly eat local dishes.
We actually pride ourselves on pounding the pavements and finding the local food gems. This has the additional benefit of enriching our travel experience. I’ve often enjoyed rubbing elbows with the local folks and gossiping aunties while enjoying a delicious bowl of Curry Laksa or Wan Tan Mee.
Buying produce from the street markets. We have found the fruits and vegetables at the street markets in both Mexico and Southeast Asia to be of great quality and very affordable in comparison to the U.S. We also shop at small local stores and tiendas when possible. There are larger chain grocery stores available in most of the places we have traveled. However, they generally have higher prices.
Street Market – Chiang Mai, Thailand
Cooking at home. We almost always rent a place with a kitchen. The main purpose of this is for health reasons and to have some degree of control over our diet. A great side benefit is lowering our costs.
You might think that dining out is so inexpensive it may not be worth it to cook. However, I say it depends on where you shop and where you eat. If you only shop at the large chain-style grocery stores and only eat at street food/hawker stalls, this may be true. However, you can definitely save by shopping at street markets and tiendas, while avoiding eateries that cater to tourists.
Transportation
Travel Between Destinations
As mentioned previously, we prefer to stay in a location for at least a month, sometimes two. This decreases transportation costs between destinations.
In Mexico, we very much preferred bus travel between cities. It not only costs less, but it’s more comfortable and hassle-free. We continue to prefer this mode of transportation in Southeast Asia, but it’s not as readily available when moving between countries.
Our most inexpensive bus ride occurred between Kuala Lumpur and Melaka, Malaysia at $2 U.S. per ticket.
However, moving up to a luxury ride is affordable as well. A pretty swank double-decker bus ride from Kuala Lumpur to Penang, Malaysia cost us $13.50 U.S. per ticket. Included were comfy reclining seats, a TV with a movie, headphones, blankets, pillows, meals, and beverages.
1st Class Bus Ride – Kuala Lumpur to Penang, Malaysia
Fortunately, most flights between Southeast Asian countries are short 2-3 hour trips. Flights can be quite inexpensive If you plan your itinerary strategically. So much so that we don’t bother with using our points with these flights. We tend to save our points for longer intercontinental flights. I’ve seen airfares as low as $12 between Southeast Asian countries. More typically, they run around $25-$50 for budget airlines.
Local Transportation
We are walkers and tend to prefer walkable places. Walking saves money and, more importantly, provides free exercise. Despite my current obsession with noodles, I’ve managed to maintain my weight very well. Walking has played a large role in this.
When walking isn’t an option or we don’t feel like it, we have plenty of inexpensive transportation options at our disposal.
With a few exceptions (I’m looking at you Cancun), taxis are inexpensive compared to the U.S.
In addition, ride-sharing apps such as Grab and Bolt provide affordable and convenient transportation. Other options are available as well, such as songtaews and tuk-tuks for less than a dollar around Chiang Mai, Thailand.
Chiang Mai Taxi
Utilizing the public transportation systems in most of these countries provides the ultimate savings, costing mere cents in most cases. Honestly, those “chicken buses” in Mexico are not as bad as they sound.
Healthcare
The U.S. is the most expensive country in the world for health care. This is one of the biggest roadblocks to early retirement in the U.S. and a large reason we went international. Quality health care can be found in other parts of the world for significantly less. This enables us to easily pay out of pocket for most basic healthcare needs.
After much research, we decided to purchase a primary international health insurance plan to cover us for any catastrophic events such as cancer or other debilitating injuries. We view it more as wealth insurance than health insurance.
Compared to the U.S., our international health insurance plan is very affordable. We have a one-year policy for two that provides $5 million in coverage each. It covers us everywhere in the world excluding more expensive countries such as the U.S., Canada, Singapore, Japan, and Sweden. However, we do get 6 months of coverage in our home country of the U.S. Our premium is just under $2,700 U.S./year with a $5,000 deductible. The deductible is reduced to $2,500 if choosing to receive care outside of the U.S.
The premium could be reduced even further with a larger deductible. However, we felt the $5,000 deductible was the financial sweet spot for our particular plan.
With that said, we pay for all of our routine and small healthcare needs out of pocket. We have received excellent low-cost healthcare wherever we have sought it.
Some examples include:
- A visit with a pharmacy doctor and a one-week course of antibiotics in San Miguel de Allende, Mexico. Total cost $11.50 U.S.
- Dental exam, cleaning, and X-rays in Chiang Mai, Thailand. Total cost $32 U.S.
- An ortho consultation and MRI for my shoulder in Penang, Malaysia. Total cost $260 U.S.
- A thorough routine health screen that included blood work, ultrasound of internal organs, and body scan in Penang, Malaysia $100 U.S.
- A colonoscopy in Penang, Malaysia. Total cost $360 U.S.
Geographic Arbitrage is not Just About Spending Less
Spending less is great insurance against running out of funds in retirement. However, taking advantage of geographic arbitrage through international travel is not just about spending less. It’s also about increasing our standard of living while exploring the world.
Although we maintain a less is more philosophy while traveling, we have no desire to pinch every penny. We plan to enjoy great food, stay in desirable locations, and regularly take excursions that may otherwise be cost-prohibitive in our home country. All this while satisfying our wanderlust, experiencing different cultures, and creating lasting memories.
Geographic arbitrage also provides us with financial peace of mind. Despite the recent losses to our investment portfolio and the current inflationary environment, we have few worries regarding our financial future. Our choice of international travel while harnessing the power of geographic arbitrage has served us well as early retirees. I am confident it will continue to do so.
In fact, I’m thinking it may be time to loosen the purse strings a bit more. It will be a great experiment to see if an increase in spending actually increases our perceived quality of life. But hey, it provides great peace of mind to know we can still live well if we ever need to pull back our spending.
Do you have any great examples of geographic arbitrage working for you? Do you have any resources to share for cost-effective long-term travel? Are you currently developing your slow location-independent travel plans? Please consider sharing in the comments below. We would love to hear from you.
It’s for sure real! My go to places have been Eastern Europe and South America. Plus, it’s just so cool exploring other cultures.
Hi Thomas
Exploring other cultures is one of the things I love about our lifestyle. I just woke to the sounds of Malaysia this morning and was thinking this very thing. Safe travels to you.
Enjoy Malaysia :)
I don’t think I could swing international G.A, but learning about it motivated me to move to Tennessee and then nomad a few other cities after remote work began. It’s crazy how a lower cost of living area can increase your lifestyle yet still help you save/invest more!
Though it’s hard now because so many remote workers have made affordable places expensive, so who will discover the next great Boulder or Huntsville?
Nomadic international travel may not be for everyone. Taking advantage of domestic geo-arbitrage is a great alternative. I can tell you that the increased cost of living you mention in more popular places happens all over the world. You got to find that happy medium that that provides the best quality of life to cost ratio that works for you. I plan to keep paying attention and keep exploring those opportunities.
Why not international?
LOL Boulder was crazy expensive when we lived in Denver 10-15 years ago. I can only imagine how expensive it has gotten since then.
We’re in Japan now, and it can definitely be cheap depending on where you live and how much Japanese you know.
Great example and thank you for sharing the details. That helps with practical application.
We moved from the Pacific Northwest to the Southwest desert and have definitely reaped the financial benefits. We are close to our goal but really miss the amenities of a larger metro area and the nature explorations (beach, food culture, museums, cultural activities). If we stay here for 3 more years we will be set. However, we are shifting our goal now to “designing a life you don’t want to retire from”. So we are looking to relocate in the spring to hopefully a longer-term place.
We have done slow travel in our 20s and we found that 3 months per year is all we want. We shall see as that might change as we get close to FIRE.
I would love to hear your thoughts on how tourists and/or digital nomads / early retirees disrupt or help the local economies and general environmental impact of it. I have mixed feelings about this myself. I try to reduce my local impact by blending in as much as possible. On the other hand, tourism helps the locals as well.
Hi Charlotte
Thank you for such a thoughtful response and question.
The question regarding the impact of travel, tourism, and expats is a valid one. I actually touched on this a bit in my journal entry for Puerto Escondido, Mexico: https://travelrefocused.com/beach-scenes-puerto-escondido-ooaxaca-mexico/
With that said it’s tough to answer. Despite trying my best to leave as little impact as possible on the places I visit, my perspective is still coming from the place of a foreigner in these countries. As a result, is it really my place to say if it is right or wrong when places change? Or, is it more valuable to have the perspective of the citizens of the places I visit?
I often come across this topic in expat Facebook groups, where a bunch of expats are bickering with each other over how other expats are ruining the culture of a place or driving up the costs. Unfortunately, many of these arguments are coming from a mindset of, “Now that I’ve found my place, I don’t want anyone else to come.” Honestly, it is pretty annoying and embarrassing. These discussions have little value without the input of the citizens of these places.
Change, gentrification, whatever you want to call it happens all over the world. This includes my home country of the U.S.A. Should expats and nomads expect less developed countries to stop striving to become more developed so their “authentic” culture experience doesn’t get impacted? It’s not really our decision to make. It’s up to the citizens and governments of these countries to preserve what it is they want to preserve and develop what they want to develop.
I get more valuable information regarding this topic from engaging in conversations with the citizens of the places I visit. Even then, it depends on who you ask. Small businesses who rely on tourist dollars may give you one opinion, while those who have been driven out by rising prices may give you another.
As far as environmental impacts, this is definitely a concern of mine. However, from what I’ve witnessed, this is not just a tourism problem and goes much deeper.
With all of that said, change is inevitable. I think the best we can hope for is that these changes are managed in a responsible way that is to the benefit of the countries we visit and the world in general.
The best we can do as individual travelers is to educate ourselves and be sensitive to the cultural impacts we have on the places we visit. Engage with the citizens of the places we visit with respect and genuine curiosity about their perspectives.
I’ve rambled on a bit here, but this is a complicated topic that I’ve thought very deeply about.
Thank you for your thought-provoking response. I appreciate that you keep these issues in mind so that we as travelers continue to be aware of how our actions impact others.
You are right that even within the local population, you will have varying degrees of positive and negative opinions. Also, that change is inevitable.
Ultimately, you have to find a balance between what is right for you and how it affects others.
Great post. I live in Indonesia and have seen more and more U.S. expats in this region.
It’s only a matter of time before people start to realize how much further a dollar goes in Southeast Asia and the crushing price of health insurance in the U.S. is often what keeps people from retiring.
People who are facing an impoverished retirement in the U.S. ( maybe scrapping by with a only income from Social Security), can live really comfortably in South East Asia for the same amount.
As a expat educator, I’ve been able to see a lot of the benefits of living overseas (including raising my kids overseas!) so the idea of retiring overseas becomes more and more attractive every year!
Hi John
I’d like to hear more about your role as an expat educator. Is this a paid profession?
We have been doing this for 4 years now and we are in Europe. France for a couple of years, then we went to Spain and Portugal. We are now in Italy and we do the same as you, booking mainly through Airbnb and Booking.com We get discounts for monthly stays and if we really like a place, but the cost is higher than our budget we reach out to,the host and ask of they will lower the price. It’s a little trickier now with inflation, but we have stayed within budget of $1,400 a month tops for rent and 1,000 euros a month for food, gas, fun…luckily the dollar has been strong so we transferred dollars into euros at the right time using our Wise account and using their debit card. We pay the Airbnb’s in dollars with our Capital One card for points. The summer months in Europe become very expensive so we head inland into the mountains away from the coast as Europeans all go on holiday during July and August which drives up prices. We do have dual citizenship so we don’t have to get out of the Schengen zone after 90 days. We have also used the local doctors and paid out of pocket. Spain was very good for check ups and dental work and also Portugal. It would be too expensive for us if we did this in the states as the rentals are so high. Loving the adventure.
Sounds like you have been having a great adventure in Europe. We will get there eventually. However, our current plan is to travel through places with a lower cost of living for the first several years. We actually plan to be in Asia for the next couple of years. However, we all know how things can change. Not only does this lifestyle cost less, but it also makes us more nimble and prepared to pivot no matter what life throws at us. Safe travels to you.
We did this successfully in our first year of early retirement. But one word of warning: international health care policies rarely cover pre-existing conditions, and become harder to get as you age. Be sure to have a backup plan (e.g. move back to LCOL area in US and use a special enrollment period to enroll in an ACA policy).
Hi Lauren
My thirty or so pages of international healthcare research would agree with you regarding pre-existing conditions. Some plans will cover pre existing conditions, however, our does not. Fortunately for us, we only have one pre existing condition. Otherwise, we are quite healthy. My research indicates that even in the worst case scenario regarding this condition, we can afford to pay out of pocket for any care that may be required. Also, I think U.S. citizens can sometimes be a bit uptight regarding health insurance. The expectation is that “good” insurance should pay for everything. I don’t agree with this. Our personal experiences with the health care systems in other countries, as well as the experiences of other nomads we have talked to has me confident we can get the quality care we need outside of the U.S. at affordable (for us) prices. With that said, you are correct. A backup plan is always prudent.
Would you mind sharing which company you purchased your international health insurance from. Or any other thoughts on what to look for when looking for a policy. Thanks!
Yes, please!
I agree – knowing the name of the international healthcare plan company that you’ve used successfully would be a very helpful start! Thanks in advance…
Hi Tiffany
Disclaimer: I haven’t filed any claims with it insurance company, so I cannot couch for their customer service on a personal level. In fact, one of the frustrating things about researching insurance companies is locating reliable reviews on customer service after the sale. Most of the reviews refer to the initial experience of obtaining the insurance. In addition, you need to do your own research to identify the best insurance for your personal needs.
With that said…
We went with a company called IMG. After tons of research, we felt they offered the best cost to benefit ratio for us. Plus, we know a couple of other nomads that used them and were satisfied with them when when they filled a claim.
I’ll try to save you a bunch of time by offering this piece of advice… Go through a broker. Despite all of the research I did in my own, in the end I went through a broker. We used a company called Good Neighbor Insurance based in Arizona. They can break everything down for you to help your make a decision with no pressure. I know they are knowledgeable because of all the research I did prior to contacting them. Another advantage of going the broker route is they will help you out if you have any difficulties with claims. I haven’t had to test this out, but if it’s true it’s a nice benefit. BTW, it doesn’t cost any more to go through the broker, so why not? I hope this was helpful.
Awesome experiences shared like this are so helpful to people who have worked hard but may need a nudge to take the leap! Leading by example – wootwoot!
Life is Now!
Hi Ellen
Thanks for your comment. It is appreciated. Happy to share and to know others find it useful and inspiring.
Hey Jeremy, we used your advice living in Taiwan for the first 3 years of early retirement. Now the international thing doesn’t really work as well, airfare and accommodation is just crazy expensive! Hopefully the good old days will return in a couple years.
Anyone doing this with older kids? We just FIRE’ed and our only is in 10th grade with plans for college after. It’s hard for us to imagine taking him out of high school and/or being out of the country when he first goes off to college. Anyone in a similar situation living overseas successfully? Thanks for the great article!
Hi Dave!
We’re in a similar boat, with 2 little ones and our oldest is 17. Our solution was to find a border town in AZ, not far from major airports, where he loves it and wants to go to community college.
We’re still house hunting but he has a little place, and we’re less than an hour from Mexico. This way we all have flexibility for the next few years!
My advice, depending on your circumstances, is to start lightening the load now – maybe sell your house or find an investor who will buy it and rent it to you for 2 years, and begin exploring other locales during winter and summer breaks. It goes fast, and you can use these 2 years to ease in to whatever adventure is next!
My family is from Taiwan and we also experienced this, even before covid!
We chose to go to South America after Taiwan. The NT is just too strong – for better or worse the hyperinflation in Argentina made for an amazing 6 months of living for us.
I’m sure it’s all changed since then but there are always more great places with a beneficial exchange rate!
Hi Skip, Great article. This is something I have been doing for many years in Mexico. So, I will share some specific details for other readers of GCC’s blog.
If someone is interested in staying longer term in Mexico, you will need to either leave the country about every 6 months, OR become resident (without giving up your US or other citizenship) to keep everything on the up and up.
Being a resident entails paying MX taxes on income (and then taking a credit for what you paid in MX taxes on your US taxes Form 1116). One good thing for people that mostly live on US Social Security benefits is that these benefits are not taxed by MX due to a treaty signed in ~1992 between MX and US. So, if most of your income is US Social Security benefits then you will have very low MX income and so a very low MX income tax burden that can then be credited against your US income taxes.
There is also a workaround for bond (or bond fund) interest that brings it down to $0 for MX taxes.
Dividend income is taxed under MX regulations. And the MX rate is of the order of 30% of dividends. (So, on 1.5% dividends * 30% MX tax = 0.5% on your dividends.) Skillful use by you with support from a knowledgeable US tax preparer (CPA or other), can use this MX tax burden to credit against US income tax with Form 1116.
This kind of knowledge about a country’s immigration laws and tax laws is the best way to stay legal (no worries) and save money if staying longer term in a foreign country. Having said that, a shorter term stay in a country can be an opportunity to connect with other ex-pats who are already doing this to learn how to do it successfully.
GCC has described this in articles about his years in Taiwan. So, this is also very valuable since it gives an example of how to do this another country.
Hi Dennis. Thanks for those details on Mexican residency.
An angle not discussed is off season travel. We have saved money by avoiding high season in SE Asia and Europe (currently in Athens). Often the weather is less than ideal, and some attractions are on reduced hours or closed. But along with the savings, we enjoy less crowding.
For sure… It’s like saving money on your money saving lifestyle 😉
I hope to geo arbitrage one day, but I’m not there yet, so I will live vicariously through you guys until then. Thanks for sharing this, safe travels and happy holidays!!
You are very Welcome. Thanks for checking out out. Happy holidays to you as well.