Many FIRE plans call for some type of geographic arbitrage – moving to an area of the world with lower cost of living so that you need to withdraw less from your nest egg to make ends meet.

Our interviewee today more or less found herself and her family in a mini-arbitrage situation, moving from the USA to South America for a period of time and finding lifestyle inflation in a lower cost of living area to be hard to resist.

I can relate, having just returned from a week in Colombia myself. The U.S. Dollar certainly goes further in much of South America.

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Getting to Know You

Where are you on your financial independence journey? Have you crossed the halfway point in terms of net worth and/or passive income?

We are certainly past the halfway point to financial independence and could qualify as Lean FIRE or Coast FIRE. Based on the 4% rule as of the end of 2021, we have enough passive income from investments to support a lifestyle that costs $46,000 per year.

Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home? Where do you live?

I’m in my late 30s, my husband is in his 40s, and we have 2 pre-schoolers. We don’t support anyone outside of our home. We spent most of our lives in medium-sized cities in the Midwest, but in 2021 moved to a medium-sized city in the mountains of South America.

You could call it a mini-retirement as we are definitely here for 2 years, but we may stay longer as the cost of living here is significantly less than in the US for a higher quality of life. Therefore, it’s much easier to live on our investments here.

To give you a sense of the cost of living here as I’m sure folks are curious, we live in a lovely 3 bedroom, 2.5 bath top floor furnished apartment in a secure building (24-hour guard) with a view of the mountains from all our windows.

Including rent, HOA, utilities, and internet, we spend about $580 per month on housing to live in a safe, family-friendly area with many parks nearby. Our full-time nanny/housekeeper costs just under $7,000 per year, and she is fantastic.

Public transportation is plentiful here, and the 4 of us get around in buses and taxis for about $80 per month. And I would be remiss not to mention to this crowd that we have private health insurance ($5,000 deductible per incident) for $90 per month. It’s based on our ages, and the $90 per month includes all four of us.

Once you add all our expenses up, we’ve been spending around $3,000 per month lately now that we’ve settled in, but estimate somewhere in the $40,000-$45,000 as annual spend since we haven’t been traveling much.

That may not sound like much for a family of 4 in the US, but thanks to Geographic Arbitrage, we can live a lifestyle of the top few percent. The median family of 4 in our current city spends $780 per month total, so we are definitely high rollers.

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

I’ve spent the bulk of my career doing project management within healthcare. My highest salary was about $130,000 per year, so I always had to pay into social security on all my income.

Right now, I’m exploring the increase in remote work opportunities combined with the growth of the gig economy to do short-term project management consulting. By exploring, I mean that I haven’t landed any gigs yet, but am hoping this will give me the chance to pick and choose which work is most enjoyable while also keeping my skills up for the future.

My husband is not currently working nor looking for work. He was a stay-at-home parent in the US since our eldest was born and a student before that, so the bulk of our savings came from 1 salary.

With me not working and having a full-time nanny/housekeeper, we have some spare time for things like language learning, socializing with new friends here, and plenty of relaxed time with the kids.

I feel very fortunate to no longer be in the super busy stage so common in the US for employed parents of young children.

Do you feel you’ve come to a crossroads of sorts? If so, tell us about it. What options are you contemplating?

We will need to decide in the next year if we’d like to stay here, return to the US, or go elsewhere. Each path carries significant financial and lifestyle implications. Tied in with that decision, I also need to decide how much, if any, work I want to take on going forward.

Investing

How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

Our nest egg is invested this way:

• 50% in US stocks

○      90% US Total Stock Market

○      10% US Small Cap Value

• 30% in International stocks

○      90% Non-US Total Stock Market

○      10% Emerging Markets

• 20% in Bonds*

○      50% Total Bond Market

○      30% International Bonds (BNDX)

○      20% GNMAs

• $40,000 in Cash (Checking, Savings, and similar highly liquid investments)

○      Note that this is not included in the percentages above

* We’re currently working on moving some of our bond allocation into CDs in our country of residence here in South America. CDs at a credit union here return about 8-9% annually, and we plan to have $60,000 in CDs here and have it fully insured through this country’s equivalent of the FDIC.

We have only low cost index funds. No individual stocks, no real estate, crypto, no gold, no alternatives, and no physical assets at all with no house and no car.

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

We have money in a variety of accounts with different tax treatments, as listed below.

Traditional IRAs including rollovers from prior 401(k)s: $350,000

Roth IRAs: $490,000

Taxable Brokerage: $130,000

Health Savings Account: $102,000

529 Accounts: $47,000

Donor-Advised Fund: $29,000

As you might have guessed from the breakdown above, tax planning is a hobby of mine. We moved to Florida before departing for South America which helps us not have to deal with state income tax. (For those interested, Escapees RV Club has a mail forwarding/scanning service that allows you to have a permanent address to use for residency in states such as Texas or Florida if you don’t have a permanent brick and mortar home in the US.)

Since our income is low, we are moving money from our traditional IRAs to Roth IRAs each year to use up the standard deduction and child tax credits. Even though we’re in the 12% tax bracket, our child tax credits mean we pay 0% and we have 0% capital gains tax.

I also structure our investments to have the allocation with the highest expected growth in the Roth accounts and lowest in the pre-tax accounts, again to minimize taxes. After all, money is fungible.

So our traditional IRAs have mostly bonds and some international, our Roths have all US stocks, our taxable brokerage has all international stocks but soon to add CDs, and our HSA has a mix of US and international stocks.

Do you have investments in an HSA? How about 529 Plans and a Donor-Advised Fund?

Yes, we have all 3! We are now in the Six-Figure HSA Club, but have over $35,000 of medical receipts on hand from past medical expenses that we can withdraw without penalty at any time.

I’m thinking our HSA might actually be too big if we continue to live here long-term. We can’t use it for health insurance premiums, and the healthcare we pay out of pocket here is so much cheaper than in the US.

My annual physical last week was $30 for 45 minutes with the doctor, a routine blood test is $10, and a dental cleaning for our preschooler is $25.

Our drawdown strategy, assuming I continue working minimally or not at all, is to tap our brokerage account first, then withdraw from our HSA up to the amount of our receipts before touching anything in our Roths.

Technically, we do have a Roth Conversion Ladder going, but shouldn’t need to touch those funds for more than the 5 year holding period.

For 529s, we actually haven’t added any money to them since our kids were born. Random tidbit that you can set up a 529 for yourself and your spouse and later change it to be for your child once that child has a social security number. So you can have even more than 18 years to save for a child’s college.

Giving has always been part of our lifestyle with us giving around 10-11% of our gross incomes to various charities for close to all of our working lives. Contributing to a donor-advised fund back in 2017, back when itemizing deductions was more common, front-loaded our contributions.

We now do most of our giving from the donor-advised fund, although unfortunately have found that many charities and churches here in South America are not registered charities in the US so money from our donor-advised fund cannot be used.

What has been your best investment?

Probably skipping 7th and 8th grade. This enabled me to graduate high school at 16 and finish my bachelor’s at 20, giving me a head start on paying off my student debt and building a solid career.

Due to getting a jump on the typical timeline, I was able to pay off all my student loans ($34,000) and have a stable job before the Great Recession hit and upended many lives of those my age.

Being debt-free and ready to ramp up investing right around the time of such a long bull market beginning was a huge win for us.

Your worst investment?

We haven’t had a terrible investment, but I’d say a less good one was probably our family home that my husband bought in 2006 and we ultimately sold in 2018. It was a good home for us and we ended up getting 20% more when we sold it than we paid for it despite it dropping in value for a number of years during the Great Recession, but in hindsight, stock market returns for that period would have earned us a lot more.

We were ready to be done being homeowners with all the upkeep required for a house with a large yard, and haven’t regretted that decision.

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Into the FIRE

Numerically, what is your FI goal?

In the US, probably $2,500,000 in today’s dollars. That would be for a FI lifestyle at a close to 3% withdrawal rate that doesn’t include some of the perks we experience here like the full-time nanny/housekeeper, fresh-cut flowers all the time, and dining out weekly. Yes, we’ve had some lifestyle inflation here which is very easy to get used to.

Here in South America, $1,500,000 would definitely do the trick at a more fatFIRE lifestyle. Right now, we are at nearly $1,200,000 in net worth if you include our donor-advised fund.

When do you suspect you will achieve financial independence? Will you retire from your career once you’re comfortably FI?

It really comes down to how our investment returns do and how much gig work I pick up, so it’s hard to say right now. Hopefully, we’ll achieve the US FI number in 10 years.

I’m prepared to pick up more work if our investments hit a rough patch, but it’s hard to predict what other decisions we’ll make in the future since we’re trying to live in the moment more than we used to.

I’m a planner by nature, but in the past when I tried to predict what “Future Me” would want, I always turned out to be wrong, so now try to build in flexibility and options.

We would like to have another child if Advanced Maternal Age allows, and that would certainly increase both our FI number and our expenses while lengthening our timeline.

I like to always be learning something, and language learning scratches that itch right now. If I decide to fully retire from my career, I could certainly find other forums for learning outside of work in the future too such as volunteering, taking classes, etc.

Planning travel and seeing the world is fun for me, and it would be nice to travel more when we no longer have to work around things like daily nap time to avoid toddler meltdowns.

What are your post-FI plans? How will your life change? What do you look forward to the most?

It feels like we already have a lot of the benefits of FI since we’re using geographic arbitrage to be on a mini retirement. One adjustment for me has been my identity change during this mini-retirement since for years I was an ambitious person working hard to grow my career; figuring out who I am when not working has been a growing experience for me.

Another has been a growing awareness of how privileged we truly are since that can be hard to see in the US.

Have you made any major changes in your lifestyle or investments to accelerate your FI path?

We saved about 40% of our gross income each year since we got married in 2010, and there were a number of choices during that period that accelerated our FI path.

• Living in a smaller house than we could likely “afford” and not choosing the nicest neighborhood
• Traveling nationally for work for years generated travel rewards and saved on food, transportation, and the like due to the expense account
• Biking and taking public transportation to work when possible
• Driving older cars for many years and having only 1 vehicle for several years. Our minivan had over 200,000 miles when we sold it to move overseas.
• Travel hacking for vacations
• Keeping our discretionary spending like restaurants, clothes, etc. in check
• Tax optimization

At present, we are no longer taking steps to accelerate our path to FI, and have actually gone the opposite direction to slow things down.

Are you facing any unique challenges making FI or RE more difficult?

We got into travel hacking back in the US which helped a lot with reducing vacation expenses. And now a month-long trip to the US for all 4 of us about once per year uses a lot of points. Since we still have a permanent US address, we can get US credit cards, but have found it harder to meet minimum spends for 3 reasons:

1. We live in a cash society here. Many of the businesses that do accept credit cards will tack on a surcharge which can be 5% of the total bill or higher.
2. There is no mail service in our country of residence, and it is expensive shipping things (including small stuff like credit cards) down here via FedEx, DHL, or similar. We have had some success having friends bring us mail, but of course this is subject to their timing and not necessarily optimal when you have 3 months to meet a minimum spend. Fortunately, we can have our mail scanning service scan cards so we can use them online prior to having the physical card in our possession.
3. We are spending less money here, so $3,000 or $4,000 minimum spend in 3 months is a higher percentage of our total spending now. I know, first world problems. Or can I even say first world problems anymore since we’re now living in a developing country?

What advice do you have for others who are seeking financial independence?

Live below your means (Live Like a Resident). Saving and building in flexibility within your finances is key as what you want now will likely change in the next 5-10 years. If you’re like me and are always planning for the future, ease up and focus on the journey.

Reader, you are in such a privileged position to even be on this FIRE journey as it’s not possible for so many people on this planet. Practice gratitude and try to avoid the “keeping up with the Joneses” mentality that is so pervasive.

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

• What are your thoughts on our asset allocation?

• Any input on whether to stay put, move back to the US, or move elsewhere at the end of our 2 years here?

PoF: Catch all the future interviews from those just getting started, at a crossroads, or at the end of their FI journey with a free subscription to Physician on FIRE.

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I thank today’s interviewee for sharing their story, and I’ve shared my feedback privately with them. I wouldn’t want my opinions to influence yours. Please give your take and answer any questions they have had in the space below!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.