Lake Atitlan, Guatemala
Hi Jeremy, thanks for all you do. I really appreciate everything you share on GCC. You guys are really living the dream. The thing is, we really love our life here in the US. Traveling the world and having grand adventures might be fun for a year or so, but we ultimately want to just enjoy a simple life in a (TBD) nice place in the US. I know this is different than what you guys are doing. What do you think?
Well… I have to say…
… that sounds great! And I certainly hope your goals are different. Financial Independence only provides options, and it would be a little creepy if someone didn’t have their own dreams so they just decided to copy ours. ;)
Seriously though, do what you will like best. That’s the whole point.
But, if a bit of travel sounds fun, there are some tremendous advantages to incorporating a year or more of international travel to kickstart your (early) retirement.
Kickstart Your (Early) Retirement
The psychological transition from saving/accumulating to spending/withdrawing is challenging for many. “How did it feel to stop saving and start spending?” is one of the more common questions I’ve heard in the 100s of coffee talks I’ve had with GCC readers.
One of the tricks we used to ease the transition was to continue to LBYM (live beneath your means), and an epic round-the-world trip is a great way to do just that while providing mental stimulation and severed ties to the old habits and mental patterns of the working world.
You can thank of it as your own grand Eat Pray Love adventure, just without the need to first lie on your bathroom floor in the fetal position and cry yourself to sleep. (That is purely optional.)
Travel on a budget
One of the biggest risks to any early retirement plan is sequence-of-returns risk. Specifically, that your investments dive in the first several years of drawdown.
A good way to minimize sequence-of-returns risk is to save a crapload of money – just work an extra 10 or 15 years until you can easily support your desired lifestyle on less than 2% of your portfolio value. If you want to spend $40k per year, save $2 million instead of $1 million. Easy, right?
An alternative method, and the one we chose to incorporate, was to spend less than 2% of our portfolio value by living large where it costs less to live large.
Instead of traveling to Paris or Tokyo, try Mexico, Lake Atitlan, or Thailand (for example.)
“But television told me that the only safe place on the planet is where I am currently living!”
That’s nice. Might I suggest not watching television? (Suggested reading: They Will Kill You For Your Shoes!)
“But I don’t speak the language!”
Me neither.
“But airfare is expensive!”
Not really. Just book all of your flights using miles and points. (Example: $7,000 worth of airfare for $200.)
Build up a bunch of points before you retire, and then get yourself some nice business class seats (cuz you deserve it.)
(Points don’t pay interest and airlines and hotels are always depreciating their benefits programs, and you can always get more, so there is no point in saving them for some undetermined point in the future.)
If you are going to apply for some new credit cards to get some great bonus points, it is always appreciated if you use our credit card portal (affiliate links, no cost to you.)
Taxes
Spending half of what you might “back home” to live like royalty is nice (I can attest to this from personal experience) but what is even nicer is when Uncle Sam covers much (or all) of the cost of the trip.
Stepping outside the Federal/State*/Health Insurance tax triumvirate is a fun way to live even further beneath your means.
Example:
The year is 2018, and a family of 3 travels the world with a budget of $20,000, provided in total via dividends on their $1 million portfolio (2% withdrawal rate / 2% dividend rate.)
In addition, they do a Roth conversion of $24,000 and harvest long-term capital gains in the amount of $57,200.
Total tax due: $0.
If they were back “home” in California, attempting a similar bit of tax management would result in a CA tax bill of $3,000 and a loss in ACA subsidy of $12,000.
Stepping outside the US for a year saved them $15,000.
The tax savings don’t stop there though. The $24,000 in Roth conversion will grow tax-free for life, and the $57,200 in stepped-up basis will mean lower taxes and higher ACA subsidies in the coming years.
* Leaving the tax jurisdiction of an aggressive state like California or NY requires ruthlessly severing ties to the state. This is easier for renters.
Medical Care
While you are out traipsing about the globe without a care, perhaps consider some medical tourism.
US medical insurance doesn’t cover care abroad (usually) but you ditched that policy anyway on your way to the airport. The loss of subsidy helps with that decision. Instead, you’ll just pay cash for any care you might need or get a global health policy at a fraction of US prices (it’s probably best to at least carry a travel policy (one possibility), if not full-blown international health insurance.)
Example 1:
We paid about $1,000 each for a root canal and gold crown, cash price. I heard this would cost about $5k-$6k each in the US.
Savings: $10,000.
Example 2:
We went to a dentist in Mexico for our annual cleaning at a cost of ~$30/person. My cost in the US was about $160.
Savings: $130 each.
Example 3:
We pay $75/month for health insurance at the moment, and occasionally pay $3 – $10 to see a Doctor. We once paid $30 for an emergency room visit. The entire cost of childbirth was about $1,000.
Savings: Unlimited
“But I heard the US has the best health system in the world!”
Again, might I suggest not watching television? (data)
Some ideas for planned medical care: dental work (root canal, crowns, implants), eye care (LASIK, etc…), outpatient surgeries, IVF, excessive exams, things that require expensive equipment (CAT scan, MRI, etc…)
Summary
Stepping outside the US for a year or more is a great way to kickstart your (early) retirement. It is a clean break from normal life that provides substantial mental and financial benefits.
By targeting some lower cost-of-living destinations and using points and miles for free airfare, it is possible to continue to live well beneath your means. This is a good way to reduce sequence-of-returns risk.
Additionally, by being outside the US tax and medical system, it is possible to benefit from some aggressive tax minimization options (Roth conversions, capital gain harvesting) as well as some strategic medical tourism. The savings from these 2 things alone can pay for most (or even all) of the trip. And the tax benefits continue upon the return “home.”
Perhaps the biggest risk is that one year abroad just won’t be enough.
Check out more examples of traveling for free through the use of points and miles.
One of the classic arguments against people who FIRE is “What about healthcare? Don’t you know premiums for old people are $30k per year you dumb idiot? I can’t wait to see you crash and burn youngblood!”
Well…maybe if you live in the US. Most countries have (reasonably) figured it out and getting treated for a mild headcache won’t cost you your mortgage payment.
Location arbitrage is a VERY fun way to minimize SoRR.
When even crappy insurance costs more than the median household income something is broken.
It’s always telling when people who have heavily subsidized healthcare complain about subsidizing healthcare. So basically everyone on Medicare, Medicaid, and those who get insurance through their employer.
I plan to live outside the US about half time when our kid is done with school. Now that I think about it more, it’s probably better to live outside for a year and then come back to the US for a year. That way we can take advantage of the FEIE. A 6-month split wouldn’t work as well in that regard.
You would probably still have OR state taxes either way.
You thinking you’ll still have RB40 income after graduation?
Really? I thought if we don’t live in OR, then we don’t have to pay. Maybe we’ll move across the river to WA for a bit first. I don’t know about the RB40 income. Maybe some residual?
Joe – The trick that you have to establish residency somewhere else not just move out of OR. Move to WA and get a drivers license, reregister car, get local bank account, change address on all bills and IRS fillings, etc.
I like the idea of an extended trip to kick off early retirement to help decompress and balance sequence of return risk. Once my wife applies for US citizenship in August, I think she will try to move us to Canada a few years from now! If we did that, it should help with the healthcare part of the equation. She would also theoretically have Medicare Part A locked in if we ever needed it here in the states. I love the granular look at cost comparisons. Have a good Monday.
Max OOP
Max OOP: Moving to Canada will help with healthcare costs while you live in Canada. Most provinces, however, cover only 6-7 months out of province, and then only at the rate of reimbursement offered by the province. Without travel medical insurance, you’ll need to pay cash out of pocket for overseas medical care and then seek reimbursement when you return. That said, it’s a HUGE improvement & savings over US healthcare costs, with better outcomes overall.
Interesting! I didn’t realize Canadians could seek reimbursement directly from the province if they had an issue while overseas/(land). Obviously it wouldn’t come close to covering our inflated prices here, but still interesting! I know my mother in law gets some kind of travel insurance when she comes to visits, I will find out which company she uses the next time I see her. Take care.
Isn’t sequence of return risk an issue for longer than the first few years after retirement? Really interested in how long we should be considering for this risk….. And how much / how long of a market downturn is cause to decrease one’s withdrawal rate? Thanks for your thoughts.
Yes. Research shows there is a strong and consistent relationship between SWRs for a 60/40 portfolio and the real returns of equities during the first decade of retirement (0.8 correlation). The first ~10 years is key. For the first five years, the correlation is about 0.65.
What if you don’t have a 60/40 portfolio? Or if you start spending less than 4% as prescribed above? Or you want a terminal value >> 0 in all cases?
(Not really looking for answers to that, but more highlighting that there is no precise answer.)
Per the original question, look at the different Spending Plan options on cFIREsim and seek to understand pros/cons.
Depends on how you define “few.”
The answer to if/when to reduce expenses is also, “it depends.” Pick any one of the numerous withdrawal plans that best fits your personality.
Thanks as always for your wonderfully informative blog!
Cool Post Jeremy. I was talking with a nomad traveller friend and he claims people have an expiration date on being able to travel open minded vs just vacation. Like if you don’t bum around hostels in your 20s or early 30s you are doomed to only take tours and stay at Marriotts. Whats your take? You make many great points in this post. I’ve saved money on international health insurance versus staying in the US in the past so it can be a nice cost savings. Also, perhaps that fear of safety while traveling is really fear of the unknown? a war zone can be safe if you know what your doing (people do live in warzones after all) and at the same time people get murdered in most big citys every day. Chicago is probably worlds more dangerous than 95% of Vietnam as one random example
I never bummed around hostels in my 20s and 30s so I couldn’t say.
I’ve met people of all ages in interesting places around the globe.
More telling I think is that something like 15% of Americans have never left their home state, and maybe 65% have never left the US. I imagine of the 35%, at least half have only been to a walled resort in Mexico or on a cruise, so basically places that are designed to be just like home.
I’m doing the GCC thing, but spending only about a month outside the U.S. traveling per year. It is super doable. And I want to add that there are tons of spots in the U.S. that rock and are low-cost places to live. Cheers!
Anywhere within biking distance of a Wal-mart can be pretty inexpensive.
I guess I owe you (and several other FIRE bloggers) a big Thank You! I retired at 50 least year after asking to be laid off so I’d receive a big severance package. This allowed me to be at home for my son’s last year of high-school, and now we’re moving to the UK (leveraging my wife’s EU dual citizenship) so that we can be near our son and travel through Europe while he attends university in the UK where he’ll earn a bachelor’s degree in 3 years instead of 4 in a field of study not offered in most US schools.
While FIRE has made all this possible, I’m finding the challenges to becoming an expat a bit more daunting than the impression one gets from blogs. Besides navigating the maze of immigration rules in the UK, figuring out how to quickly get a bank account and buy and insure a car (yes, we want one) with no permanent UK address is proving to be quite a challenge. I’d love to see more tips and tricks for new expats in the blog.
Keep up the great work; you are helping people achieve these exciting options for living!
Trials and Tribulations of a UK Expat sounds like a good blog you could write.
I’d probably get a car in the UK too. We did a great road trip through the south a few years ago (London, Bristol, Bath, Stonehenge, New Forest, Brighton, Dover, London.)
Be careful with the NHS. Things that are standard in the US (emergent caths for heart attacks, hip and other joint replacements, cataract surgery, ACL repairs, standard care for bladder cancer, routine screening for colon and breast cancer) are just not funded there. The lifestyle is healthier, but their health system simply does not care for the very sick very well. I look at the care my parents get in the US compared to what my other relatives get in the UK, and it’s not even comparable.
It’s a great system on a population level, but pretty awful on an individual level.
This is so true and I am always amazed at the number of folks who never travel outside of the developed countries. Once you travel; you will realize that the world is not as scary a place as portrayed in the media and we are all humans at heart.
Jeremy, your blog inspired me to retire early and I took the plunge and have been retired since last July on my 53rd birthday in 2018. I spent most of the second half of last year traveling back and forth between Kuala Lumpur and Seattle. This year I spent 86 days in Kuala Lumpur and have just got back 2 weeks ago.
I have a Cigna Global Health Silver Plan that covers me for all in-patient visits anywhere in the world including the US for up to a million dollars with a 10K deductible. I had opted out of out-patient coverage to keep my premiums ultra low. I get all my dental care done in KL and I even had two visits to the heart specialist while I was there to look into a minor issue. The total cost for the visits to the heart specialists was barely USD120. I had two sets of custom acrylic night guards made for the total cost of only USD120. It would have cost me over 1.2K USD had I opted to have those made in Seattle.
I’m back in Seattle now and am about to start applying for citizenship, but I am a bit undecided. Should I do it? My reasoning is that with citizenship I won’t have to come back here every 6 months to maintain my permanent residency. What do you guys think?
I would love to learn more on how you keep your taxes low to non-existent. I have been able to do that so far with zero earned income, but I’m still trying to figure out the ROTH conversion and capital gains issue when I sell my investments for income. Any input would be much appreciated. I’m single with no dependents.
What is your motivation to keep a connection to the only country in the world that taxes its citizens on worldwide income even when they are non-residents?
A million won’t go very far if you get really ill in the US…
An ambulance ride and 2 aspirin.
My Canadian husband could have had US citizenship; instead, he surrendered his green card one year after returning to Canada. As a dual US-Canadian citizen, dealing with US tax reporting requirements is a true PITA. It sounds like you have enough assets to qualify for permanent residence in many places; why not go that route? We have permanent residency in Mexico and there are no restrictions on how long we must stay or when we come & go. But as birthright US citizen, I don’t know that I’d recommend citizenship to anyone not planning to live there.
Thank you for your blog and sharing your story! Sorry for a silly question, but how do you access your money when you live abroad (especially if you change countries rather often). In the US it is something like this: Mutual Fund => My Bank => My Checking Account => Me. However my bank may not be available in the foreign country. I suppose, I could open an account at a local bank and link it to, say, Vanguard account where I keep the investments. Am I thinking in the right direction?
It works exactly the same. We pay for everything on our US credit cards and withdraw local currency at any ATM from our US bank.
Four our upcoming move to the UK, I’m planning on getting an American Chip & PIN rewards card (with no foreign transaction fee) for convince since our American Chip & Signature cards cause some confusion there and may not work at some transit ticket vending machines and self checkout kiosks.
I’m also planning to get a local UK bank account (probably through Monzo) since we’ll be buying a car, renting a flat, and paying utilities and will need to be able to set up direct debits (for utilities) and standing orders (for rent) as well as make a bank transfer for the car. They do a lot of bank transfers in the UK and think paper checks are archaic. (Their transfers are faster than our ACH) I’ll use Transferwise to move and convert money between my US accounts and the UK account. I may also use it for some initial bank transfers to individual Airbnb hosts that don’t accept credit cards since I can’t get the UK bank account until I’m actually there.
I’ve seen stories about American expats having their US bank and investment accounts closed when the provider determines they’re resident overseas. People say it’s best to use a friend or relative’s US home address for those and some go so far as to use a VPN with an American server when accessing their accounts online from abroad.
Last thought: On GCC’s recommendation, I got the Fidelity Cash Management Account for the ATM reimbursements and like it a lot. I should have had that years ago, not for the ATM fees but to get money market fund rates on my checking account. I almost never use my old bank account now.
Makes sense. However, don’t you incur significant ATM fees while doing the withdrawals?
Fidelity and Schwab ATM cards reimburse fees, including international.
https://www.gocurrycracker.com/international-atm-bonanza/
Yes, easy to get free ATM withdrawals.
But even if you pay for them… say $5 on a $500 withdrawal or 1%. How much cash do you spend every month? $2k? $4k? So $20-$40/month… it’s not zero, but I probably wouldn’t call it significant.
I know this is likely a stupid question that you’ve already answered.
If you were single and not traveling with Winnie, what would you do differently to be involved and find friends while traveling. I love to travel, but as a single person, I worry I’d be lonely.
I’m hoping to do my first year of early retirement abroad. In my travels, I’ve realized how different the cost is compared to the US.
Try googling “backpacking introvert”
There are a lot of people who have written about their experiences of finding friends, travel companions, true love, etc…
Take a class, any class with daily meetings. Language classes work very well (though you’ll get to know other foreigners rather than locals). If you know the language sign up to learn how to cook/rock climb/dance etc.
Frequent interaction with other in a shared enterprise = almost automatic friends.
I’ve been thinking I could kick start an international retirement lifestyle with a part-time job. Find a country and region I want to travel in (say Asia – Japan, Taiwan or Korea) and try to get an English teaching job for 6 months – 1 year. It would provide the Expat experience on a trial basis. The part time schedule would be a gradual transition instead of a sudden shift. And most expenses would be covered while working, so the retirement funds continue to grow.
It could also be a fall-back plan if the stock market drops too much.
I’m sure there are lots problems that I haven’t thought of yet.
We performed location arbitrage as J described it above without even leaving the US. We moved from the Northeast to the South nine years ago and have saved a boatload of money while increasing our SOL in areas such as housing. Sometimes one doesn’t even have to leave the country to see significant returns, although international living is not off the table for us either.
Just returned from a cruise for the first time in 30 years after the wife suffered horribly from seasickness on the first one (she weathered things beautifully this time). We stopped in Roatan, Belize, and Cozumel. Never got off the ship since that is a great time to stay on. No interest in seeing tourist traps near the docks that were built in many cases by the cruise lines themselves to get more of your money than they already are onboard. Besides, if we want to see those countries we will go on our own to visit them longer than the few hours you have on a cruise.
Sounds like a great move. I like the southern weather a whole lot more too.
When we did the cruise through Alaska, the dock tourist traps were honestly soul-sucking. The Bumfuzzle family is currently in the Roatan area, living the dream.