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When we first left Canada in 2015, we thought travelling internationally was a luxury that we could only afford to do for a short time. Little did we know that it would become our unfair FIRE advantage since it can be used to control your living expenses using geographic arbitrage (in non-pandemic times, at least).
So this subject line immediately piqued our interest. Spain is one of the Europe’s favourite retirement destinations because of the sunny weather, friendly locals, and surprisingly affordable cost of living.
So can geographic arbitrage rescue our reader? Let’s find out!
I have read your book Quit Like a Millionaire and I have been inspired. But I’ve met with 2 financial advisors and they both tell me I need to keep making my current salary until I am 50- but based on what I’ve learned in your books I think I should be able to cover my expenses for the next 7 years of so and my current investments should cover me until I retire. The big difference between what I’ve read and my financial advisors advice is they have $10k/ year for health insurance between the age of 50-62 when I can get on Medicare in the US. And then they have budgeted $60k/ year for end of life care for the last 3 years of my life.
I feel like they are being too cautious. Here is what I hope to do. I hate my job. They have continuously been cutting people for the last few years as they are hit with round after round of layoffs. And I just lost my best friend- my dog. In the last 6 years I have lost every major relationship in my life and had a health scare while working in a hostile work environment complete with sexual harassment. I feel like I deserve a break. I love biking- I biked 10,000 miles last year while working full time. I very rarely drive my car that my financial advisor tells me to keep. So- I want to take a year off and move to Spain on the non-lucrative visa and spend some time biking around Europe. I should mention I am a US citizen living in Minneapolis and I am 33 years old.
I am looking to give up my income for a year- and I don’t think when I return I need to continue making the same income. If I start working towards Spanish citizenship I could significantly reduce the health care costs in retirement- do you agree with my assessment? I believe I can at least maintain my monthly spending in Spain- I can spend less on rent, but more for insurance- I think it’ll work out. And food will be much cheaper. And selling my car would reduce some other expenses.
Here are my finances:
- Your gross/net annual family income: $135,000
- Your monthly family spending- ~$40,000
- For any debts you have, please include: No debts
- The interest rate
- Your minimum monthly payment
- The outstanding balance
- Any fixed assets you have (house, car, etc.): 2014 Ford Fusion Hybrid (can sell for ~$6k last I checked)
- And investments or savings you have (cash, bonds, stocks, etc.)
- 401k: $302,000
- HSA: $12,158
- Roth IRA: $30,100
- Company Stock: $31,000
- Taxable Brokerage Account: $183,000
- Cash: $30k
First of all, I’m not at all surprised that the financial advisors told you that you need to work until you’re 50. Financial advisors hate the FIRE movement because a) we give away all our investment advice for free and b) we advocate for low-cost ETF-based investing, which doesn’t require a financial advisor. So we basically argue that financial advisors are useless. Understandable why they would hate us.
They also tend to be advocate that their clients save up way more money than necessary. Sometimes it’s because the financial advisor is more risk averse than the client, but I think most of the time it’s greed. Fee-based financial advisors are paid a percentage fee of their client’s assets, so the bigger their client’s bank accounts are, the more money they get paid every year.
So looking at the same numbers, what do we see? How far is DreamingOfSpain from her dream?
Let’s MATH SHIT UP to find out!
|Income||$135,000 (gross), $100,000 (net, assuming single filer and maxed-out 401k)|
|Assets||$302,000 (401k) + $12,158 (HSA) + $30,100 (Roth) + $31,000 (Company stock) + $183,000 (taxable) + $30,000 (cash) = $588,258|
Right off the top of the bat, we can see that DreamingofSpain has options here. $588k in savings at the age of 33 as a single person? That’s pretty damned impressive right there. She’s done a great job of converting her high salary into an impressive net worth at such a young age. Great job!
However, is it enough to retire? At her current spending level, no.
Expenses of $40k require a FIRE portfolio of $40k x 25 = $1M to finance. At $588k, she’s more than halfway there, but not at the level she needs to be to fully retire.
How much longer does she need to work? Given that she’s able to save $100k – $40k = $60k per year, it will take her…
Her financial advisors also advise building in $10k a year in insurance costs into her budget. That seems a bit pessimistic since the ACA would kick in if she were to leave her job, but let’s just take this at face value and add it to her FI target. $10k a year x 25 = $250k more she would need to save, and she would get to this number in…
The last point her financial advisors made, which is to budget more money for end-of-life long-term care, is probably not necessary since by the time she’ll need this, her portfolio will have grown so large that she can draw down on her principal when that happens.
In any other scenario, I would write that 4-6 years isn’t that bad, and that our reader should consider sticking it out in her job until she hits full FI.
Except for this line:
In the last 6 years I have lost every major relationship in my life and had a health scare while working in a hostile work environment complete with sexual harassment. I feel like I deserve a break.
Uh…yes. You most certainly do.
Nobody, and I mean nobody, should ever have to put up with sexual harassment in the workplace, and fortunately, you have options.
60% of the way to Financial Independence might still seem like a long way off, but financial freedom isn’t an all-or-nothing deal. You gain progressively more freedom and more ability to stand up for yourself at work as you make progress towards your goal.
If our reader was in massive amounts of mortgage debt, then that choice becomes extremely difficult. But DreamingOfSpain has nearly $600k in the bank. Even if she doesn’t retire, that’s more than enough runway to look for another job, one that, you know, won’t treat her like a piece of meat. She can tell her workplace to go F themselves tomorrow and she’ll be fine. She doesn’t have to put up with that shit treatment for a single second longer.
Can She Afford the Spanish Lifestyle?
But what about her dream of moving to Spain? She may not be able to retire in the US, but will geographic arbitrage save the day?
From personal experience, $40k of spending in the US seems a bit on the high side for a single person, but it seems downright excessive in Spain. According to Numbeo, if our reader were to move to Madrid, the average cost of rent for a 1 bedroom apartment close to the city centre is about €1000, and the estimated cost of food/transportation/entertainment for a single person is an additional €700, for a total monthly cost of €1700.
This translates to about $1860 USD, or $22,320. That’s a little over half of DreamingOfSpain’s current budget!
At that spend level, she will only need $22,320 x 25 = $558k in her portfolio. She has $588k now, so she’s there now!
And that’s living in Madrid. If she were to move south to a smaller city like Malaga, her cost of living would drop even more. There, total cost of living drops to €1469 a month. That’s about $1600 USD, or $19,200 a year. That amount would only require a $19,200 x 25 = $480k portfolio to support.
So does her plan seem plausible? Absolutely.
But what about the part about working towards Spanish citizenship? What was that about?
OK so here’s the part where I re-emphasize that I am in no way an immigration lawyer, and in no way qualified to give legal advice.
That being said…
Spain has something called a non-lucrative visa (which we wrote about here) that can be used to live in the country for up to 1 year. You have to prove sufficient means, meaning a bank statement with a big enough balance. And it’s called a non-lucrative visa because you’re not allowed to work.
At the end of 1 year, you have two options: renew it, or convert it into a work permit. This lasts for 2 years.
After that, you renew it for another 2 year period.
And after that, you’ve now been in the country of Spain for 5 consecutive years, which permits you to apply for permanent residency.
This flow actually works out pretty well for DreamingOfSpain, because she can quit her toxic workplace now, take a year off cycling through Europe. After that year, she will have a 3-way decision to make:
- She decides she hates it in Spain, and goes back to the US. She gets a new job, and works towards full FI.
- She decides she likes it in Spain, and continues living there, in which case she renews her non-lucrative visa.
- She decides she likes it in Spain, but wants to go back to work. Apply for a job, then convert your non-lucrative visa into a work permit.
Whichever she chooses will be the right choice for her, but at the very least she will have taken a year off cycling through Europe.
That sounds exactly like the kind of break she deserves.
Toxic work situations are, unfortunately, increasingly common these days. And that’s when the power FU money really comes into play.
Having that much saved in the bank gives our reader the ability to plausibly say “I don’t have to take this shit anymore,” storm out the door, not look back, and her financial life won’t fall to pieces. If anything, she gets to take a 1-year cycling trip around Europe. That ain’t bad!
How our reader chooses to handle this situation is her decision and hers alone. But she’s marching into battle with the best weapon of all:
Oh, and again, EVERYONE CONSULT AN IMMIGRATION LAWYER BEFORE YOU DO ANYTHING STUPID.
Thank you and good night.
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