Have We Reached Financial Independence Abroad?

As you may know from reading this blog, I track my income, expenses, and net worth at the end of every month. The process is rather simple: login to Personal Capital (free financial software) and input relevant data on my own spreadsheet. The end result looks something like this:

2018 vs 2017 expenses. Output from my tracking spreadsheet.

Back in 2017, as a last step in the process of tracking my finances, I started using the Mad FIentist laboratory. The laboratory is a cool tool to graph your numbers, track your progress to financial independence (FI), and play with your assumptions. Most months, I just input my data, look at the graph and call it a day.

But for this last month, something was different. Elisa did most of the tracking by herself so when we got to the Mad FIentist lab and she saw the numbers, many questions followed.

Our progress to FI on the Mad FIentist Lab

Do we only have 3 years of mandatory work left?

Could we safely withdraw $1,100 from our portfolio every month?

Isn’t $1,100 per month enough to live a good life in Colombia?

Why are we still here?

“Slow down honey!” I said, and proceeded to address her questions

Do we only have 3 years of mandatory work left?

Maybe, yes, no? As with all financial projections, the outcome depends heavily on assumptions. Here are ours in terms of safe withdrawal rates, market returns and future expenses.

My current assumptions on the Mad FIentist Lab

Withdrawal Rate: for now, we have set our safe withdrawal rate at 3.5%. What a proper safe withdrawal rate should be is an ongoing debate in the FI world. The classic number for the trinity study is 4%, and people in the FI community argue constantly on whether this is conservative enough or too conservative. 3.5% is conservative enough for me, though if I were to retire right now (stock market near all time high after a 10-year bull run), I’d like to be closer to 3%. But then again, I’m not retiring right now 🙂 and will re-evaluate periodically. Earlyretirementnow.com has some excellent content on safe withdrawal rates if you want to go down that rabbit hole.

Growth Rate: this is the long-term average rate of return you would expect from your investments. Historically, the U.S. stock market has returned 10% on average. Keep in mind this is a nominal return (i.e. before inflation). So, the real return is closer to 7% to 8% when you factor in 2% to 3% of inflation. Many of the finance experts of the world predict that long-term returns won’t quite match those of the past, so a 5.5% average return seems reasonable to me. Now, keep in mind this is long-term (15 years+) average. I’d be surprised if we average a 5.5% return in the next 3 years, which is the time when we could retire according to the Mad FIentist lab.

Future Expenses: if you project your future expenses to be different for your current ones, this is where you’ll enter them. If you don’t enter anything, the calculator will just assume your future expenses will be equal to the last 12 months of actual expenses. As you can see, I’m assuming my future expenses will equal my past expenses. If we live our FI life here in the U.S., I might revisit that assumption to account for contingencies. If we live abroad, there should already be plenty of cushion with the current expenses. As with everything else, we just try to keep an open mind and revisit assumptions as necessary.

Could we safely withdraw $1,100 from our portfolio every month?

This one is a little tricky. You see, the $1,103.51 number you see in the graph is derived from our total net worth, which includes about $85,000 of home equity. This $85,000 of home equity doesn’t generate any significant returns besides keeping up with inflation and perhaps a little more since the Raleigh housing market continues to climb, for now at least.

So, why include the home equity on the net worth?

For two reasons. One, if we were to move abroad we’d probably sell or rent our current house. At that point, we would either collect rent or have sale proceeds we can then re-invest into other assets (e.g. stock market). Second, if we were to stay in this house, we could pay it off aggressively and eliminate the mortgage. This doesn’t generate income per se, but it does reduce expenses, which means we don’t need as large of a portfolio. In summary, the home equity will be put to good use when we reach FI.

Isn’t $1,100 per month enough to live a good life in Colombia?

$1,100 USD to COP

As of this writing (early July, 2019), $1,100 USD equals 3,533,420 Colombian Pesos (COP). That sounds like a lot, but let’s dig deeper. According to The Earth Awaits, a similar lifestyle to the one we live here, costs $1,300 per month in Bogota. So looks like we are a bit short. Luckily, generating $200 extra per month wouldn’t require too much work. Also, we don’t really want to live in Bogota (air pollution and bad traffic are the main reasons if you are curious). Since Bogota is the most expensive city in Colombia, let’s look elsewhere.

View of Bogota from Monserrate

Medellin is Colombia’s second biggest city, and the estimated monthly costs there are $1,080, so it looks like it could work! Also, the overall quality of life in Medellin is a lot better in my opinion. The weather is fantastic year round, and air pollution and traffic are much less of a problem. Since Medellin is the second biggest city in Colombia, looks like we can live a solid life on $1,100 per month anywhere in the country except for Bogota. Fine with me 🙂

Enjoying the Christmas lights along the Medellin river a few years ago.

Why are we still here?

As you can see, a solid life in a city like Medellin is possible but a little tight. There are other things we might need or want in our FI life, so we’d like to see some more margin before we pull the trigger. Some of those needs/wants include:

  • Travel (domestic and international).
  • Emergency fund for whatever life might throw at us (caring for ageing parents, health issues, accidents, etc.).
  • Charitable giving / helping others.
  • Daughter. She is only 2.5 years old right now. We don’t know what interests she might have as she grows up. Whatever they are, we would like to be able to support those interests without having to worry too much about money.

Closing Thoughts

While I’m not quite ready to declare myself financially independent just yet, it is great to know that if we really wanted or needed to, we could retire to a country like Colombia and have all of our basic needs provided for by our portfolio. For all the reasons mentioned above, we’ll continue to work and build our nest egg. We are fortunate to live a pretty good life as it is so there is no need to rush.

I think it’s important to have milestones like this on the path to FI. It can be pretty discouraging to think of FI as an all or nothing proposition (FI, not FI). The truth is, financial independence is a spectrum. As your nest egg grows, so do your options in life.

Let us know about your journey! Could you retire in a different city/country with a low cost of living? Is this part of your FIRE plan?

11 thoughts on “Have We Reached Financial Independence Abroad?”

    • Haha of course you’d say that 🙂
      Check out this website: https://www.theearthawaits.com/
      With a free account you can check almost any city in the world and tweak variables to adjust for whatever lifestyle you want to live.

      On an unrelated note, I just looked at your Seeking Alpha profile, you are killing it! Congrats and keep it up!

  1. Finance Clever,

    This is a great post. Many dream of travel and the potential of moving abroad for large chunks of time, or permanently. Thank you for sharing this deliberation with us.

  2. with children I dont think you could retire in Colombia yet. Good private bilingual schools are expensive, the cost of the school can easy take half or all your $1100 budget.

    • Good point. Though, since we grew up in Colombia and I went to public school there we would be comfortable with sending her to one of those, or even homeschooling.
      But you right, having options, such as sending her to a bilingual school if we so choose, is one of the reasons we are not pulling the trigger yet.

  3. Great post, geo-arbitrage is definitely a great to expedite FI and something we’ve looked at, considering we live in one of the most expensive cities in the world. Colombia sounds very cool, a friend of mine from university came from there and moved back to Colombia after graduation.

    • Colombia is great! Of course, I’m biased since I grew up there 🙂
      But looks like I’m not alone as there seems to be a growing population of expats, especially in places like Medellin.
      What other places have you considered moving to to expedite IF?

      • Well I’m originally from Taiwan and my wife’s from Denmark. We have thought about moving to Taiwan for an extended period of time. SE Asia is definitely an option too. South America would be a great option too.

  4. Colombia is a wonderful place and I’m itching to visit South America again. I’m currently doing the geographical arbitrage thing in SE Asia and I have set a budget under $1,000 per month. You can live for even cheaper but I like staying in a nice condo and eating out every now and then. I also have a newborn to take care of so costs have been increasing a bit.

    If you are thinking about leaving Colombia, Panama or Costa Rica are some nice alternatives. In fact, Panama is a very popular retirement destination for Americans.

    • Thanks for stopping by. That’s a very impressive budget.
      Where exactly in SE Asia are you located?
      I naturally gravitate towards Latin America since my wife and I speak Spanish, but SE Asia it’s also on my radar.

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