The Grown-Up's Guide to Running Away from Home, Second Edition: Making a New Life Abroad (7 page)
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Authors: Rosanne Knorr
One Pennsylvania educator and his wife, who regularly disappear for several months overseas, carry this to the extreme of paying several bills in advance, such as medical insurance, to avoid worrying that it may be canceled if they miss the bill. We learned from them. Not only did we pay off our charge cards, we saved enough to prepay our home mortgage, overseas rent, and health insurance premiums for the first three months we were gone. It was wonderfully liberating to begin the adventure with no bills for the first time in over twenty years.
Finding the cash to run away requires using what you already have intelligently and saving for what you still need. Combine some of the following methods to reach your goal.
If you own your own home, it can help fund your adventure. Renting it for more than your mortgage payment and other costs provides regular monthly income. Consider, however, that you will still be responsible for maintaining the home in case the furnace goes or the roof leaks.
We’re able to live overseas on a New York state teacher’s retirement salary plus Social Security. When we first came down, the cost of living was great. You could go out to dinner for less than $5, but now this country’s going through difficult times. A pound of ham is more than $6 and rents are over $1,000 a month. Thank goodness we have our house!
—Susan, Venezuela
If you sell your home, the equity in it can be invested. Use the interest on the principal to provide income each month. For example, an equity of $100,000, invested at 6 percent simple interest, provides $6,000 a year income. That $500 a month goes far in Mexico, Panama, or Thailand!
Over a half million people living outside the United States receive monthly federal benefits payments. Some people start taking them as early as age sixty-two, to help fund their excursion.
The good news is this extra income can help finance an adventure at sixty-two. The bad news is, taking Social Security early reduces your monthly payment for as long as you live. In some cases, you may figure the difference is worth it, since you’ll enjoy the freedom sooner. Several expats mentioned that their parents died young, and they themselves had decided to retire overseas early to ensure they’d have time to enjoy it.
Calculate the exact difference and determine what it means for your budget. To estimate your Social Security benefit, call the Social Security Administration at (800) 772-1213 and request your benefit status based on early retirement and your full retirement age, which depends on your year of birth. (The full retirement age is 65 and 8 months for someone born in 1941 and 67 for someone born after 1960.) You can then decide if it’s worth it to you to take less sooner, or wait for more later.
It’s no problem to apply and receive your Social Security check while living outside the United States. Social Security considers “outside” to be anywhere not within the fifty states, District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, Northern Mariana Islands, or American Samoa.
If you’re overseas, apply for Social Security at the nearest American consulate. It may take longer to process your application than in the States. Our representative requested three months’ notice.
We had my husband’s check deposited directly into our U.S. checking account. If you do this, it’s easy to take automatic withdrawals overseas, which pop out of the automatic teller machine in the local currency at a favorable exchange rate. The U.S. checking account can also pay stateside expenses, such as credit card bills or your home mortgage.
In some countries U.S. Social Security checks can now be directly deposited in a foreign bank account. As of this writing, countries participating in this international direct deposit service include Argentina, Australia, Canada, France, Germany, Ireland, Italy, Norway, Portugal, Spain, Sweden, and the United Kingdom. Other countries may be soon be added. If you would like this option, check with the Social Security Administration.
Your Social Security check can also be mailed to a foreign bank account. You’ll have to have it exchanged into the local currency, and, of course, you risk having the check lost in its travels. Still another option is to have your check sent to the nearest U.S. consulate, which distributes Social Security checks via the local postal service.
For detailed information, contact the Social Security office before leaving the United States. Request the pamphlet
Your Payments While You Are Outside the United States
. This pamphlet is also available through American consulates and online at
www.ssa.gov/pubs
.
If you’re currently eligible to receive a pension, add this to the money you have available for living expenses. Count yourself lucky since it can enable you to use more of your personal savings than someone who has no corporate pension to cushion their later years. If you plan to use the pension funds while abroad, arrange to have the benefits administrator automatically deposit the pension into the account that you want to access overseas.
The younger you are when you begin your adventure, the more you must consider the possibility of earning some money to supplement retirement savings. Having income from work will help you preserve and add to your retirement stash so it will grow to keep up with inflation and, ideally, surpass it. Working, even part-time, will also help you pay for a longer adventure. However, picking grapes in a French vineyard, romantic as it sounds when you’re twenty, may not agree with your aching back at fifty.
When we began our own sabbatical, we planned for fifteen months away. That was the amount of time we could afford if we didn’t work at all. We would use those fifteen months to explore options. If we found that living costs vastly exceeded our savings, we had a backup plan to move to a less
expensive locale. As things turned out, we discovered an inexpensive area of France to live and a small house we could afford, and some of my writing clients stuck with me via the Internet. So we stayed.
When you run away you won’t need many of the things you’re leaving behind. Selling them helps to pay for the initial outlay of cash to set up somewhere else. Remember, however, that anything you sell you may have to buy back if or when you return! Plan for it in your return budget.
Sell your cars if you won’t be needing them in the near future. And a garage sale can bring in amazing amounts of cash, depending on how much you determine to get rid of. This is a wonderful opportunity to unclutter your life.
Any investments are grist for use on your adventure. Determine which ones you could use as income—that is, interest or dividends, or even a limited amount of capital—for the length of time you intend to be gone. If you’re under retirement age, however, don’t use your IRA or other tax-advantaged investments that will cost you steep penalties for early withdrawal or that you’ll later need for retirement.
How Much Investment Income Will You Have?
Check with your accountant or investment counselor to find out your average rate of return on your investments. If you add the equity from a home, you may be surprised how much this adds up to. Let’s say, for example, that you deposit the equity from selling your house and that comes to $100,000. You add the cash from selling a car for $10,000. And you have income-producing investments worth $90,000. (Right, I cheated to make this a round number of $200,000. We’re just showing an example here.) See how that $200,000 will provide cash to add to your Social Security, pension or other income:
You may not be able to live entirely on the interest, but added to other income, it helps make life more comfortable in that sunny Caribbean bungalow.
There’s one danger in living on your investments while you’re under sixty years old: inflation. Even at a relatively minor 3 percent a year, inflation will cut your
purchasing power considerably in just a few years. And there’s no guarantee that inflation will stay low. At an inflation rate of 6 percent, in five years it would take $134 to buy what $100 will buy today. The younger you are, the greater the threat.
We did a fairly major sell-off of furniture and belongings in the U.S. to raise money for a year without income. If I were to do it again, I’d do the same. Starting over in a foreign country forces you to adapt quicker. You have to go shopping, negotiate delivery of furniture, etc. You come to terms with different ways of doing things
.
—Doug, Basel, Switzerland
The earlier you start your adventure, the more you must allow your money to grow to cover inflation. If you’re running away at forty-five without a juicy early retirement package, you must pay for your adventure and contend with inflation for many more years than a person who is sixty-five and has fewer years to stretch the savings.
It’s safer to avoid relying on the full income from your investments. If, for example, your investments are earning 7 percent and you judge the rate of inflation to be 3 percent, then try living on 4 percent. The untouched 3 percent will continue to grow, increasing your capital to allow for inflation in years to come.
(Without Going Broke)
Money
magazine published a chart showing that the amount of your savings you can spend depends on your expected return on investment, inflation, and how long you need the principal to last.
For example, your hypothetical $200,000 nest egg could last you twenty years if your portfolio returns an average of 7 percent and you take out 6.5 percent of it the first year—that is, $13,000 from your $200,000. The following table assumes you will increase your withdrawals 4 percent a year to keep pace with inflation.
Naturally, the “averages” may not apply, so do some number-crunching yourself and discuss your options with a professional before you make any major decisions.
An adventure on a shoestring when you’re twenty is one thing. You’ve got parents to bail you out, you can live on beans, and you’ve got a lifetime to get back to the “real” world and save for retirement. At midlife no one should blow their retirement stash. You don’t have a lot of years to make up for a major financial mistake. So err on the conservative side when planning how much money to take from your savings to finance your runaway plans. Be sure you have enough to allow your money to grow, to counteract inflation years later, and to handle an unexpected emergency. For safety’s sake:
• Estimate your initial costs and daily living expenses overseas—then add 20 percent. No matter what, your expenses will go over your estimate. I guarantee it. Better to have estimated high than have your adventure spoiled by panic when an unexpected bill arrives or the exchange rate heads in the wrong direction.
• If you’re running away in your forties or fifties, don’t touch your retirement funds. These are your protection for old age, and they’re tax-deferred. Invest them and let them grow while you use other means to fund your adventure.
• Plan in advance what you will do if you’ve underestimated costs and start depleting your runaway funds faster than expected. Will you move to a cheaper location? Take a part-time job? Head back to the States and work as a consultant? Knowing before you leave what your fallback position is will give you more confidence in undertaking this move and insulate you if unexpected problems occur.
• If you can’t live entirely on your investments or income overseas, be prepared to supplement your income with a transferable skill and know whether or not there’s a use for that skill at your destination. With the help of a broadband connection, you may be able to telecommute as a consultant in your current field or provide writing, research, graphic design, marketing, or other services from your location abroad. If you’re less technologically inclined, perhaps you could teach English as a foreign language. Can you sew? Make furniture or refinish antiques? Repair computers? Any or all these skills might provide an interesting way to meet people and supplement your adventure fund.
• Finally, maintain an emergency fund to cover a minimum of six months of expenses abroad and airline tickets home. In addition, maintain the funds needed to re-establish yourself back in the States if and when you choose to return. You’ll need cash for housing security deposits or down payments as well as money to purchase a car or furnishings you may have sold before you left.
