Finance

Geoarbitrage: Turbocharge Your Early Retirement

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Photo Credit: Diego Jimenez

Geoarbitrage

The word “geoarbitrage” gets used frequently in financial independence / early retirement circles. What does it mean, exactly?

The Greek word “Geo” means “Earth”. In this instance, it’s a truncated form of “geographic” “Arbitrage” has French roots and is defined as:

the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.

Most people who have traveled to other countries have experienced geoarbitrage firsthand and realize this:

stuff has different prices in different places. 

Geoarbitrage simply means going to different parts of the globe to take advantage of better prices for the same things.

My Intro to Geoarbitrage

I was born in France, lived in Germany, Mexico, the U.K., and the United States. Within the United States, I’ve lived in seven different states with wildly fluctuating prices for expenses like rent, food, and taxes.

As a child, I was always amazed at how inexpensive food and Coca-Cola were in Mexico. A meal that would easily cost $10 to $15 USD would cost only the equivalent of $2-3 USD in Mexico.

I’d go to Mexico with the little bit of money I’d managed to earn in the U.S. and feel rich. So, I’ve had this vague notion that geoarbitrage exists my entire life.

I do not like vague notions. Vague notions are often misleading and don’t amount to much. Therefore, I’ve quantified the effect of geoarbitrage on my early retirement process.

Highly Personal

Before I lay out the best places for early retirement, I must start with a caveat: my best locations for retirement are not yours. We are different people with different preferences and we find different traits desirable.

Maybe you don’t want to speak in a foreign language but I’m ok with it. Maybe I prefer a cooler climate and you love beaches and/or the tropics.

I have a child so the quality of her education factors into to the decision-making process. If you’re single and the education of a child is not a factor for you, your options are different than mine.

Method

To determine the best places for my family and I to retire, I took into account four different factors:

  1. Relative Cost of Living: the most obvious factor; how expensive or inexpensive is it to live there?
  2. Quality of Education: given that I want Mini Moose to be well-educated, this is important to me.
  3. Safety: a cheap cost of living doesn’t matter much if the second part of that (living) is at risk.
  4. Level of Corruption: this is a good proxy for ease of carrying on with your daily life. If you want to start a business or own real estate, corruption is something you should carefully consider.

In the table below, Ratio is the ratio of the cost of living in that city relative to Los Angeles. For example, if I need $1,000 per month to retire in Los Angeles, I only need $400 per month to retire in Valparaiso, Chile. Geoarbitrage works best if you move from a high cost of living area to one with a low cost of living…assuming, of course, that you’re saving your money each month.

Education, Safety, and Corruption are all based on well-respected global ranking lists. The higher the number, the worse the country is in that category relative to others. Low numbers are good.

Geoarbitrage Rankings

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MSoLife.com

While not a complete surprise to me, the top three cities I chose are all in Chile. Chile is one of the least corrupt countries in South America, has a great standard of living, has a good educational system, and is safe. These factors all mix to make Chile my top destination for early retirement.

In case you’re more of a visual person, I’ve created this map below. The color scheme is a green-amber-red gradated scale, with green being best and red being worst. The color shows the country’s overall ranking on the list above.

geoarbitrage, map, china, chile, USA, Argentina, Europe, Southeast Asia, Thailand, Australia, Early retirement, financial independence
MSoLife.com

Despite getting a bad rap due to the cartels and issues with drug trafficking, the map shows that Mexico is another attractive destination to retire. Conveniently, it’s very close to the U.S.

The U.S. looks mediocre to poor overall, on a global scale, in terms of places to retire. Lisbon, Portugal was a surprise to me. I didn’t have any negative notions about Portugal but I didn’t think the country would rank so highly. Moscow, while cheap and with a good educational system, ranks horrendously in safety and corruption.

Which places on the map would you be most comfortable living in? If you already speak a foreign language, that is a huge factor in acclimating to a new locale. If you have heritage from a country, that also goes a long way in your comfort.

Why Geoarbitrage is a Big Deal

Ok, now that you’ve thought of some potential countries to retire to, now what? Why exactly is geoarbitrage so powerful?

Geoarbitrage enables you to cut years off your time to retirement, retire with a much higher standard of living for the same price, or a combination of both.

Let’s test this out.

Measure the Impact

Go to http://ficalculator.org/

If I put in my info (as of October 2017), I get this:

financial independence, calculator, early retirement, fire, retire wealthy

If I need $2,500 per month to retire comfortably in Los Angeles (number is low, I’ll be moving), how soon can I retire in Chile?

Since Chile has a ratio of 0.4, I only need $1,000 to live the same lifestyle there. According to this table, I could technically retire there now. Geoarbitrage cuts over six years of work out of my life !

Conversely, if I wait to retire until I have a passive income of $2,500 per month and then relocate to Chile, I will be living the equivalent of a $2,500/.4 ($6,250) per month lifestyle down there!

Parting Thoughts

The ranking by country is somewhat simplified. There are a lot of other factors to consider when chosing your new location for retired life. Maybe the quality of medical care is something of vital importance to you now.

Maybe you really want to start a business and the ease of entrepreneurship is a factor for you.

Maybe your idea of a good time is the tropics and you want to live in a place that allows you to grow monster papayas like this in your garden:

mexico, papayas, early retirement
Papayas growing in my grandparent’s back yard in Mexico.

This info is not meant to be dictate where you should live but rather give you some good ideas on where to start looking.

If you’d like to get full info on my sources for the info above, subscribe to my email list on the right! I’ll send out my spreadsheet, full sources, and additional information so you can customize your country ranking for yourself!

I’m still putting this together but expect this info within the next two weeks.

Now that you’ve learned of the power of geoarbitrage, are you going to use it?

Where would you like to retire? Are you going to use geoarb to retire earlier, better, or both? Which other factors do you think are important to consider?

 

 

 

 

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