Our friend recently quit her job and moved to northern Thailand.
It’s not that her job isn’t stable or enjoyable, it’s that her Canadian cost of living is so high, she needs a second job just to survive. When it costs $2,500 a month for housing alone, adding food, transportation, clothing, personal care and entertainment pushes her into the red every month.
By normal Financial Independence Retire Early standards, she’s not financially independent. In order to calculate whether she can safely quit her job and live off her portfolio, the FIRE community uses something called the 4-per-cent rule, developed by financial adviser Bill Bengen in 1994 by analyzing stock and bond returns over 30 years.
This rule states that if you start withdrawing 4 per cent from your portfolio every year (adjusted for inflation), you will never deplete your portfolio. Since dividing by 4 per cent is the same as multiplying by 25, to figure out the portfolio size you need, multiply your yearly expenses by 25. Using this rule and yearly expenses of $48,000, our friend would need a portfolio size of $1.2-million to quit her job and live off the gains, dividends and interest of her portfolio.
But according to Numbeo, the cost of living in Chiang Mai – including rent – is 67 per cent lower compared to Toronto. That means her $48,000 a year living expenses suddenly plummets to $16,000 a year, without sacrificing her quality of life.
And instead of needing $1.2-million to retire, in Thailand she only needs $400,000. Through diligent saving and investing and working 20 years at the same job, she’s amassed half a million, which means she’s reached “Thailand FIRE.”
Usually when people think about FIRE, they think about retiring in the city they currently live and work in. But the neat trick of FIRE is that once you are retired, you no longer need to live in an expensive city for the job opportunities. You’re free to live wherever you like because your job is now optional. (You can choose to retire if you want to, but you don’t have to. You can start your own business online, follow your passion or teach English part-time.) Your portfolio takes care of your expenses by generating capital gains, dividends and interest that you can live on forever.
The FIRE cheat code that our friend figured out is this: why stay in Canada and struggle when you can vote with your feet and automatically be ahead?
Having travelled to Thailand many times over the years, we’ve experienced the benefits of paying only $600 a month to rent a brand-new condo with a pool and eating out regularly for under $2 to $3 a meal per person.
We can see why fighting inflation with geographic arbitrage – moving to a low-cost area to spend money you earned in a high-cost area – is a no brainer.
Here’s an example of how it can work. Let’s say you live and work in Toronto, where the average gross salary is $57,549 a year, according to ZipRecruiter. The average cost of living in Toronto for an individual, at this time of writing, according to Numbeo, is $1,496.30 a month, excluding rent, plus $2,528.95 a month for a one bedroom rental in the city centre. That adds up to $4,025.25 a month or $48,303 a year.
After taxes, you would make $44,982 a year, which means you’d be left in the red and never able to retire.
However, if you were to work your job remotely and live in Chiang Mai, at the time of writing, the cost of living would drop dramatically to $753.20 a month, excluding rent, plus $566.45 a month for a one bedroom in the city centre, for a total of $1,319.65 a month or $15,835.80 a year, according to Numbeo.
This would enable you to save $29,146.20 a year after taxes. Your FIRE number (retirement portfolio size) would need to be $15,835.80 multiplied by 25 ($398,395), which means you’d be able to retire in 10.5 years. Here’s the math on that:
So, by getting a digital nomad visa, moving to Thailand and working remotely, you’ve gone from never being able to retire to retiring in just over a decade.
That’s how powerful geographic arbitrage is. An average person making an average salary can retire relatively quickly, without needing a high-paying job or cutting their expenses to the bone. By moving, the FIRE dream becomes a reality.
Suddenly, you go from unattainable Toronto FIRE or Vancouver FIRE to Chiang Mai FIRE or Bali FIRE, which are achievable after working for just 10 to 20 years for an average salary, like our friend’s.
There’s no reason why your retirement portfolio size needs to be based on your current expenses. Play around with numbeo.com and look at the low cost of living in places that appeal to you. Then revise your retirement calculations to reflect that new cost of living.
Beat the housing crisis by voting with your feet. By using the power of geographic arbitrage, you can retire earlier than you ever thought possible.
Kristy Shen and Bryce Leung retired in their 30s and are authors of the bestselling book Quit Like a Millionaire.
