The Global Expatriate's Guide to Investing. Hallam Andrew

doesn't live like a monk. He lives simply, but doesn't mind paying a premium for quality. In a country where you can survive on a relative shoestring, he claims you can live well on $3,000 per month ($36,000 annually). “I love exploring. It's inexpensive to travel locally in Southeast Asia or in Vietnam, and you can splash out quite affordably and have a comfortable life.” He plans to retire in central Vietnam, Laos, Cambodia, or Chile. But he'll be keeping his hands in the hospitality business. “I’ll probably set up a restaurant or guesthouse to run. To be financially free at 60 would rock, but retiring at age 65 is more likely.”13

      If Shane wants to retire with an income of $36,000 a year, he'll need to make adjustments. Inflation is greedy, sometimes frighteningly so.

      Inflation.eu compiles country inflation figures. In 1981, Canada's inflation rate recorded 12.12 percent; in 1975 Great Britain's peaked at 24.89 percent; and in 1979 the cost of living in the United States rose 13.29 percent.14 Those lamenting the good old days of the late 1970s and early 1980s, when savings accounts paid 10 percent a year, may have forgotten inflation's gluttony.

      Lately, inflation's appetite has slowed. The decade ending 2012 saw Canada's annual inflation average 1.83 percent, Great Britain recorded 2.64 percent, and the United States averaged 2.41 percent per year.15

      But past decade levels are rarely repeated in the future. Caution is prudent. In this case, let's assume inflation will average 3.5 percent each year – which is slightly higher than the developed world's 100-year average.

      Shane plans to retire in 17 years, when he turns 65. If inflation averages 3.5 percent, he'll spend $64,608 annually 17 years from now to give himself and his wife the same buying power that $36,000 would provide today. In other words, if $36,000 can buy a certain number of goods and services now, it would require $64,608 to purchase those same goods and services in 17 years.

To make the postinflation adjustment, Shane went to www.moneychimp.com and clicked Calculator. Figure 1.1 shows how he used the website to estimate his postinflation income equivalency.

Figure 1.1 Shane Brierly's Postinflation Adjustment

      SOURCE: www.moneychimp.com.

      The Earthquake and the Epiphany

      When figuring out how much money you'll need, focus on your own lifestyle and needs, not somebody else's. Thirty-five-year-old Ben Shearon, a British professor living in Sendai, Japan, shares his retirement expense projections.

      He and his wife, Chiho, lost their home to the Japanese earthquake in 2011. “That turned me into a pretty hardcore minimalist,” Ben says. “I have seen how fragile life can be.” The experience strengthened his desire for earlier financial freedom. Rather than working, he'd rather travel, read, keep fit, and spend time with his wife.

      Ben and Chiho seek financial freedom when Ben turns 45. They save 50 percent of their household income, now that their three children are “mostly grown up and more or less independent.” Ben hopes that he and Chiho can live off dividend and interest income from their stock and bond market portfolio. They're considering retiring in Malaysia or Thailand where the weather is better and the costs of living lower.

      Working full-time as a teacher trainer at a university in Sendai, Ben also consults on English as a foreign language (EFL) textbooks and writes a blog. Chiho runs a small private school, which also absorbs a lot of Ben's time. “Right now it's all work, work, work, but we are hoping to gradually scale that back as we hire more people to help us with the school.”16

      Currently, they don't own property.

      Ben and Chiho estimate their annual retirement costs at $47,100 (U.S. dollars). Because they're hoping to retire in 10 years, this sum will need to be adjusted for inflation. If inflation averages 3.5 percent, they'll require $66,439 each year (a decade from now) to give them the equivalent buying power of $47,100 today.

Figure 1.2 illustrates how their numbers look when plugged into the compound interest calculator at www.moneychimp.com.

Figure 1.2 Ben and Chiho's Postinflation Adjustment

      SOURCE: www.moneychimp.com.

      Jujitsu Junkie Taps Out for Home

      Despite his 44 years, school psychologist Jeff Devens strikes an imposing figure against younger fighters on the jujitsu mat. A wrestler in college, he took a break from grappling until he was 40, when the Brazilian jujitsu bug bit him. Today, he battles opponents half his age. But that doesn't mean the Singapore-based American lives in a youthful Neverland. Jeff and his wife Nanette know the years creep up. Consequently, they are prepared for their retirement. They plan to be based in the United States.

      The typical American retiree spent $31,365 in 2012. But Jeff and Nanette don't want to be average. By sidestepping expatitis, the Devenses are realistically poised to retire on $93,300 per year.

      They started their expat careers in 1995, teaching at the International School of Beijing, China. “We came overseas after two years of marriage,” says Jeff, “with $25,000 of student loan debt. During our first year, we paid off our school loans and had enough money left over to put a down payment on a home in North Dakota.”

      Jeff and Nanette are now mortgage free. Each June, they fly from Singapore to the United States to spend time at their lakeside home with their two children. “Purchasing the house was a lifestyle decision,” says Jeff. “It gives our family a place to spend seven weeks each summer. Paying off the mortgage also gave us peace of mind.”

      The Devenses figure they'll spend most of their retirement time in North Dakota. “When we get closer to retirement, we'll likely buy or rent a second home in a warmer climate, giving us an escape from North Dakota's winter months.”

      After researching medical insurance, Jeff realized it will cost them much more than it will for most stateside Americans. “We would have a high deductible because we haven't had enough years vested in any stateside school district, nor have we paid enough into Social Security to qualify for Medicare.”17

      Americans are required to pay 10 years or 40 quarters in Medicare taxes to qualify.18 Career expatriates, like the Devenses, will pay higher insurance premiums if they can't accumulate the minimum requirements toward Social Security while living overseas.

Jeff and Nanette figure they can retire in 17 years. But if they want the equivalent buying power of $93,300 today, they'll need more money. If inflation averages 3.5 percent over the next 17 years, the Devenses will require $167,443 per year (see Figure 1.3).

Figure 1.3 Jeff and Nanette's Postinflation Adjustment

      SOURCE: www.moneychimp.com.

      Now It's Your Turn

      The first step toward planning your retirement is realizing what you spend today. Every healthy business documents its income and expenditures. Those not doing so head for bankruptcy. Government assistance doesn't intervene to save the grocery store or restaurant with the unbalanced budget. But many expatriate family households come to expect just that. Unfortunately,

13

Interview with Shane Brierly. E-mail interview by author, June 30, 2013.

14

“Inflation – Current and Historic Inflation by Country,” Inflation.eu. Accessed April 30, 2014. www.inflation.eu/.

15

Ibid.

18

Medicare.gov: Official U.S. Government Site for Medicare. Accessed April 28, 2014. www.medicare.gov/.