Today, we take a break from the investing series of articles. I didn’t want to bore you continuously with Excel charts and numbers! We will pick it up next week. Today, we cover a topic of growing interest to many, especially in recent times. Read on…
You see them everywhere. Magazines, news articles, blogs, and newsletters. The essence of the message is this: Move from Country A to Country B for your retirement and you are all set. Country A could be U.S, Canada, U.K., Australia or any other high wage/cost-of-living country. Country B could be Mexico, Thailand, India, Cambodia, Ecuador or any developing country that provides reasonable access to foreigners for long-term stay.
What you find on the cover of a retirement paradise brochure.
The International Living magazine, one of the longest running publications in this space, is a long-time proponent of the above message. It keeps the message current with alluring pictures, stories and testimonials of people living their ‘dream’ retirement (with a maid at home) on less than $2,000 a month!
While some of this may be true, it doesn’t mean you can do the same. So, get real…that’s what I will try do here in this post. This is based on my direct personal experience of having lived over 8 years in many countries in Asia.
Yes, health care costs are cheaper and can be of comparable quality in clinical outcome in some developing countries. With the recent worries about ACA in the new U.S. administration, this has become a top-of-the-mind issue for many early retirees.
Yes, bread and milk can cost half or less than what you pay even at a discount store in your hometown.
Yes, you can rent a river-view or ocean-view house or an apartment for a third or less than what you can in the expensive coastal regions of the western world.
Yes, you can get a nice massage for a fourth or less than what you pay in other countries.
Yes, you can eat local cuisine for a fifth or less than what a basic ‘fish and chips’ in London (or) even a humble ‘burger and fries’ costs you in major cities of the western world.
BUT……….(you knew this was coming, didn’t you?)
YOU MAY NOT BE READY TO LIVE IN THOSE PLACES!
You may be willing, but the question is, are you able and ready?
Geographical Arbitrage is a fancy word but it may not be true arbitrage because you aren’t comparing identical goods and services here. What follows is from my experience during my time in the many developing countries of the world. Remember, they are called ‘developing’ for a reason.
Can you adapt as well?
- Unreliable Power. This is what you notice first. Very few places get uninterrupted power 24 hours per day. You have to deal with power cuts for an hour to even 6 or more hours per day in some places. With the tropical sun and humidity killing you, at 100 F and 90% RH respectively, imagine being without ACs and in some cases, even fans for that long. No back-up power supply on batteries last that long without grid power.
- Spotty Water Supply. Some cities and most smaller towns in developing countries have unreliable piped water supply. Water is often rationed by the municipalities because of limited availability. Even if you invest in a good water purifier to ensure safety of drinking water, that only works if you have water coming in through the pipe. Many of these towns have a thriving small business of selling ‘water cans’ to households, which are 5-10 gallons of supposedly purified water. This is a hassle you must deal with as well.
- Poor Civic Infrastructure. While this can be either passable or poor depending on where you choose to live, many developing countries (China is a notable exception) have either creaking or broken infrastructure. This means roads, railway stations, public buses and even government offices that are supposed to serve citizens. They may also have different attitudes towards cleanliness. This applies to restaurants as well, especially if you want to eat like a local. Having used to a very high standard in your home country, you will need to be prepared for a lot of adjustment.
See the browning files at the back? Your paper in there somewhere. We will find it in a year…maybe (Source)
- Unreliable Services. Local government services, like drivers’ license agencies, paperwork renewal offices, immigration services, currency exchanges etc may not work efficiently. Be prepared to wait in long queues, do multiple visits and/or ‘grease the palm’ of the right people to get basic things done. Knowing you are a foreigner, you will be forced to pay different rates for these ‘expedite’ payments than what locals pay.
- Healthcare – Outcome and Service are different. You may have experienced doctors doing good work in many developing countries, and thus delivering comparable clinical outcomes as in the western world, but that doesn’t mean the service or facilities will be similar. Be prepared for bureaucracy, long waits, unpleasant hospital rooms and other inconveniences. If you expect everything to be neat, comfortable and efficient, you will be disappointed. In healthcare, there is good value to be found outside U.S. but don’t expect identical facilities.
Blending in nicely with the environment, eh?
- Foreigner Tax. This refers to all the additional costs that you will pay that locals won’t because of how you look, how you speak and how little you know about that environment. A housemaid will charge you more than what your local neighbor pays for same services, a taxi driver will expect more tips from you, a plumber or carpenter will demand more (all of them will think you are loaded) etc. In countries with strong patriarchal cultures, foreign women will stand out and attract unnecessary attention of the wrong kind. To avoid this, some expat women I know dress very conservatively, so that’s another adjustment to make. I don’t want to over-emphasize this as most expats don’t face harassment, but we do hear of occasional cases, so be warned. Values (like honesty) depend on context and culture, so check your compatibility there as well.
- Emergency Support. While you may not have a great relationship with your sister, brother, aunt or uncle back home, at least if there is an emergency, you can count on them driving over to your place and getting you sorted out. As a foreigner living in a developing country, you will not have the same family network. So, you must develop strong friendships with local neighbors. I have seen some retirees thrive and become well-established in their community. For older retirees, however, forming dependable friendships with locals is a challenge, especially if they haven’t lived abroad earlier.
What about better places?
The points above were written largely from an Asian local living perspective, in countries where I spent a sizable part of my work life. I am told countries like Panama offer great amenities with yet, developing world costs. If so, your retirement experience may be better. Many Western European countries where quality of life is good are ruled out for value-seeking retired Americans from a healthcare perspective unless you qualify to become part of their national social health care system. Eastern Europe still offers decent value, and can be manageable for some.
A 4-bedroom ‘villa’ in a gated community nestled away in a ‘cheap’ Asian city, where average income is $400 a month. This is as close to American suburban life you can get.
Even within the most impoverished countries in Asia and Africa, there are many oases (gated communities, many with guards and gatekeepers) where you can experience ‘first world’ living without any of the above issues. I haven’t covered those because those places are filled with senior industry leaders, successful local entrepreneurs, top government bureaucrats and similar people ‘in the know’. You could live there on a full-expat package if your company sends you there, but their living costs are so extravagant that no retiree can reasonably aspire to. Especially retirees looking to spend $2000 a month or less. Those are cocoons of world class living (homes with $0.5-1+ million price tag or $3000+ in rent!) with a sea of poverty around them. Now you see why they need guards?
If you are prepared to pay more than $1500 a month in rent alone (as you easily can in many Asian cities), you may ask yourself why you can’t stay in your own country and move someplace cheaper within. Many Asian cities have apartments ranging from $200 a month to $3000+ a month rent! For seekers of geographical arbitrage, you have to live like a local, which means the issues covered above would apply.
A way forward
This article is not intended to scare you but to present some realistic issues to consider. The earth awaits, but it doesn’t mean you are ready for it. Always test-drive your retirement in a place that catches your fancy. How long should you stay before you can commit? My suggestion is at least one full year (so you can experience all seasonal issues) before making a long-term decision on retirement location. In that full year, even if you don’t experience any emergency, have an elective medical procedure done locally so you have first-hand experience of this as well. Next time, you will know what to expect. It is not a good idea to experience the first foreign medical care when faced with a true emergency.
The world offers many great and affordable places for your retirement, but there is no garden path waiting for you. Discover your own path that you can live with. Your move may be geographical but not necessarily an arbitrage. Travel safely, my 10! friends.
Raman Venkatesh is the founder of Ten Factorial Rocks. Raman is a ‘Gen X’ corporate executive in his mid 40’s. In addition to having a Ph.D. in engineering, he has worked in almost all continents of the world. Ten Factorial Rocks (TFR) was created to chronicle his journey towards retirement while sharing his views on the absurdities and pitfalls along the way. The name was taken from the mathematical function 10! (ten factorial) which is equal to 10 x 9 x 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1 = 3,628,800.
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