One of the things I need to consider when retiring is where do I want to do it. I could retire my current city of Seattle. However, the cost of living here is pretty high, even by United States standards. It generally works out in that I make more working here than I would make elsewhere, and I can use a chunk of that to fund my early retirement, so long as my other expenses remain under control.
However, once I do retire, my Seattle income would obviously stop, as I have no pension, and I would need to live off of investment income, and, perhaps, later, Social Security. Further, since I am going to be retiring before age 67, I would receive less in Social Security than I would otherwise if I continued working to a more typical age. Ideally, I would get around this reducing my living expenses by relocating to a lower cost location.
Obviously a lot of this is planning ahead for what may be 9 years or so before actually achieving this. A lot can change, so it’s still rather fluid.
Geoarbitrage is the idea of maximizing your spending power by locating in a lower cost location. There are multiple ways to do this. For instance, the area of Seattle I currently live in is one of the more affordable neighborhoods of the city, and is conveniently close to public transportation, eliminating the need to own a car. I could also, for instance, relocate back to my home state in the midwest, and save money that way after I’m done working. Once I’ve stopped depending on a job for income, I can pretty much go wherever I want. However, to really drive down the costs, one could leave the country entirely.
Consider that as an American, my two biggest expenses post retirement will likely be housing and healthcare, both of which can be acquired for significantly less outside the United States. If I am living off of investment income post retirement, when I can be location independent, it would make sense to minimize those two big expenses by relocating outside the country.
With Portugal, it is possible for a couple to get by comfortably with $30K per year or less coming in, including rent and healthcare. Although it is also possible to do that in the United States, it can’t really be done comfortably, particularly if I’m paying rent for housing and for my own health insurance.
There are also other places I could go which are even less, for instance, a couple could retire in Thailand for $1,700 a month. However, after discussing with my wife, we have decided that it is too hot for our liking. There’s no point in retiring early if you’re going to be miserable.
Portugal however is where we got engaged, so it will always be a special place for us. We also plan to travel extensively in our retirement, and Portugal features visa free travel across the Schengen Area, as well as cheep flights to the rest of Europe.
Currently, my biggest expense is housing, which is paid for via a mortgage. Housing was quite a bit cheeper when I first moved to Seattle over a decade ago, since then it has gotten significantly more expensive, and that trend doesn’t appear to be stoping any time soon. Fortunately, by buying several years ago, I locked my housing expenses for the most part, even if that does mean additional expenses for property taxes, home upkeep, etc, as well as my monthly mortgage payment, which essentially replaces rent for non-homeowners.
However, by paying a mortgage instead of renting, a portion of that would go to equity, which I would unlock when I sell this place. When that happens, I could use that equity, perhaps combined with some of the savings out of my early retirement accounts to purchase a place outright in Portugal, debt free, hence eliminating what is now my largest expense. The $30K a year number for Portugal is now quite a bit less.
Most of my health insurance expenses are currently handled by my corporate job, which would go away when I retire. The total cost of my plan in 2020, including my employers share was over $6,000, which was for a fairly high deductible plan, and only covered myself, not my wife. It also excludes out of pocket costs such as copays and deductibles.
In Portugal, I would most likely need to purchase private insurance, as it doesn’t appear I would initially be eligible for the Public insurance at least as long as I remain a US citizen. Costs for private health insurance in Portugal cap out at $1,100 for a good plan, $440 for a more basic plan, quite a discount from my current plan.
Learning the Language
This is one part of the plan that stresses me out a bit. Fortunately, my retirement plan is still a few years off at this point, and I have time to try to learn Portuguese. Currently, I am taking online courses through Babbel in Portuguese. Additionally, I am planning to spend more time in the country over the next few years to give me the opportunity to gauge my skills.
Although many people in Portugal do know English, and there is also quite a large English speaking expat community. I don’t really want to show up in the country being the one rude American who thinks everything should be in English.
Additionally, if I am going to be purchasing property in Portugal, it would likely involve contracts, titles, taxes, and other things are generally involved with purchasing property. I would like to be able to know what I’m signing without relying on translation.
Currently, I am carless, and I have no desire to start driving around in my retirement years. Not having a car also allows me to save on expenses such as car payment, maintenance, gas and insurance, which I can save towards my early retirement goals.
I plan on doing this also in Portugal post retirement as well. Lisbon has an extensive public transportation and Subway system, and there is also an extensive rail system to get you around the country without a car. Additionally, Portuguese cities tend to be a lot more walkable than their American counterparts.
One way of getting permanent residency in Portugal is the Golden Visa Program. This can be acquired by investing in real estate worth at least 500,000 euros and passing a basic Portuguese language exam. The amount may be even less if we buy in some more rural parts of the country. This would be my residence in the country, and would also reduce my overall expenses as the need for rent would be eleminated. Additionally, after 5 years, I would be able to apply for citizenship, potentially allowing me access to the public health care system.
The other way to do this would be to get a 90 day visa on demand when entering the country. This would involve leaving the Schengen Area every 90 days for a time to reestablish the visa coming back in. One possible way to do this could be visiting relatives back in the US, or a quick jaunt over to the UK or Ireland. If I am retired, I would have more time for those types of trips, and by living in Portugal, I would be better able to afford them.
If there is one word to describe February in Seattle, it’s wet. Pretty much constant rain from Mid October up until the July 4th weekend. It doesn’t rain that much in terms of quantity, but more just a constant drizzle or mist with occasional heavy patches of rain. If I were back in my midwestern hometown, I would right now be trying to dig myself out of a foot of snow in 14 degree Fahrenheit weather.
Lisbon, however, right now is a rather pleasant 54 degrees and clear. Much more pleasant.
I still have another up to 9 years until I need to pull the trigger on retirement, perhaps a bit less if the financial numbers work in my favor. Between then and now, I need to spend more time in the country, immerse myself more in the language and culture of Portugal.
One thought I have is to take a 6 week sabbatical to go out and explore the country using Airbnb’s. This would let me explore the country outside of Lisbon as well, and could help me decide on a location in the country where I want to end up. Once I’ve done that, it might be time to look at the real estate market and potentially buy something.