How much do you think you need to retire? A million dollars? 3 million? What is I told you that you could own a home in one of the most expensive cities on the planet another home in an exotic foreign country, and live little or tax free? You may not believe this is possible unless you have sums like those but you can do it with much less than you may expect. They key is to changing your expectations.
Change Your Expectation- Where You Will Live In an Expensive City: When I tell people it’s possible to live in just about any expensive city cheaply they don’t believe me. In terms of cities I can really only speak of a couple places where I have lived but the most recent one is New York so let’s use that as our example.
I usually ask these same people in what part of New York they live in. If they are from out of town (like I am) they usually mention some expensive part of Manhattan, Brooklyn or Queens. It may be with roommates but it’s almost always in a cool, hip or “up and coming” part of New York that makes it super convenient for them to get to their jobs in Manhattan or nearby.
If that’s what you want, that’s great, but if your stipulations are you have to have the easiest possible commute for your budget and you want to live in the most highly sought after area you can afford where homes are millions of dollars, then enjoy the next 40 years working to pay for that place.
If you are willing to change your mindset and don’t give a shit what people think or say about you, then you can move to a place much more affordable which may have a worse commute and doesn’t have the hip bar around the corner. But this place will pay you dividends down the road.
The pic below is a screen shot of a listing on Trulia that I took this morning.
Source: trulia.com
This is a studio apartment in a co-op building in the Bronx. There are no tricks here and the neighborhood is not a war zone. The maintenance is likely around $400-600 a month based on information I have gathered about other buildings in the area. It’s 1 block away from a train stop and if you hate the train, express bus stop that can have you to midtown Manhattan in about an hour.
If you have enough money to buy it outright congratulations, you can now live in one of the most expensive cities in the world for about $500 bucks a month.
Change Your Perception of Where You Will Live – an Exotic Foreign Country: Before I tell you about this place, I have to admit I came about it by happenstance. I worked for 9 years with a colleague from this country so I was fortunate enough to get the ins and outs of life there and will have a chance to visit this month to experience it in person. For this reason and due to my extensive first hand knowledge of Latin America, I am willing to recommend it to others.
When people think of exotic foreign countries they may think of Italy or an island in the Caribbean. Those places may be great and again, if you want to go where everyone else is looking, you will end up paying dearly for it. If you want somewhere just as nice but not on many people’s radar, then you can try Nicaragua.
Not to be confused with its gringo saturated more expensive neighbor Costa Rica to the south, Nicaragua is a quiet gem which has the trifecta of safety, affordability and a great climate. Foreigners are treated the same as locals when it comes to owning property and there are a number of great towns and cities to choose from. From the colonial city of Granada to the beach resort town on San Juan del Sur to the capital Managua, you can take your pick based on your preferences.
Below is a screen shot of a new home in a gated community in the small town of Jinotepe. About an hour outside of the capital and at a higher elevation that dissipates some of the stifling humidity.
Source: encuentra24.com
The price you see at $68,000 is in US dollars. The home is located in a gated community with 24 hour security. Ongoing costs you will have to consider are electricity, gas and taxes. Property taxes are 1% of the purchase price, in this case $680 dollars a year or about $57 a month.
How to Pay for It All: Big deal you may say. I still need food, electricity, maybe gas and healthcare. Let’s break that down. If we assume you have around $140,000 to buy both homes shown above. We already know you have ongoing costs of around $560 a month. Throw in about $100 for electricity and gas at both properties, $50 for some insurance and $500 for food (likely more than this in New York and less in Nicaragua but let’s just average it out) and internet at $50 you come to around $1,260 in costs per month as per the table below.
These annual costs add up to $15,120 a year. Let’s also assume you spend 6 months in each place which will require a $500 round trip ticket to get to $15,620 in spending per year.
What about healthcare? Well lucky for you, based on your income you qualify for Medicaid even as a single person:
Source: health.ny.gov
If we take the figure of $15,620 as income from municipal bond interest (which isn’t taxed) and long term capital gains, then according to the 2019 tax brackets summarized below, you won’t pay any federal taxes either:
Source: fool.com
The final piece to the puzzle is to figure out how much in investments you would need to generate that Income sustainably.
If we take the rule of thumb that a 4% withdrawal rate on your savings is enough to maintain your principal, even with inflation, then $15,620 is 4% of $390,500. Just as in any retirement you would want to invest this principal in a mix of equity and bonds to provide you income with an equity upside for inflation. Let’s say for simplicity’s sake that is a 50/50 mix and you invest it all in two pretty boring funds, Vanguard New York Tax Long Term Exempt Bind Fund VNYTX and the Total Stock Market ETF VTI. VNYTX currently yields 2.77% tax free which will give you $5,408 in dividends. VTI yields 2.13% which will give you $4,159 for a total of $9,567 annually in dividends. The difference of $6,053 can come from selling principal. The summary of these is below.
Now we have an income that can pay for our simple lifestyle, 2 homes, and nothing but time to do whatever you want. To summarize all that you need see below.
So there you have it! If you are single and have around $500k sitting around you can retire any day you like with income, healthcare 2 homes and not giving a damn of what people think. If you had this money today would you retire?
Note: Some may point out I have left out New York State and New York City taxes. Due to the very low income, there would still be taxes to pay at year end but these would be minimal at less than $1,000, but something to consider nonetheless!
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