Expat Case Study: Is USD 2 Million Enough for an Expat to Retire At Age 40 in Bangkok?
Expat Case Study: Is USD 2 Million Enough for an Expat to Retire At Age 40 in Bangkok?
By Peggy Creveling, CFA and
Chad Creveling, CFA
2nd May, 2023.
From time to time we are asked questions like, “Is USD 2 million enough for an expat to retire at 40 in Bangkok?” It’s a sensible question to ask—most of us aren’t likely to want to work longer than we have to, and $2 million in U.S. dollars is a sizeable amount to have set aside for retirement, especially if you’re an expat considering retiring in a relatively low-cost city such as Bangkok. But although USD 2 million is a lot, is it enough if you retire at the relatively young age of 40, with hopefully more than 50 years of retirement ahead of you? The answer is not the same for every expat. For those millionaires living overseas who are wondering if they have saved enough to retire, we provide some considerations to help you in your financial decision-making.
Factors You Need To Consider
To know whether you’re likely to have enough to retire, you need to factor in more than simply how much money you’ve saved. You also need to ask yourself:
1.How much will your intended lifestyle cost (including housing, food, clothing, appliances and furnishings, transportation, entertainment, medical, insurance, travel, and gifts)?
2.How do you expect your costs will inflate over time?
3.How are your savings invested, and are you hedged for currency risk?
4.What real rates of return might you expect, and how much risk is there to those rates of return?
5.What taxes and fees are applied to your investment earnings?
6.How long are you likely to live?
7.What could go wrong with your plans?
Assumptions
To run some scenarios, consider the case of Jack, a 40-year-old expat planning to retire in Thailand on USD 2 million (THB 68 million). Jack uses the following assumptions to consider if USD 2 million is enough for him to retire.
1.All lifestyle costs: USD 60,000 per year (c. THB 2 million per year or THB 170,000 per month), including all expenses: food, clothing, housing, appliances and furnishings, transportation, entertainment, travel, medical, insurance, gifting, etc.
2.Expected inflation of his expenses: Averaging about 3.87% per year in THB
3.How savings are invested: Jack wants to minimize risk and does not trust the stock market, so he plans to hold his savings on fixed deposit earning interest. Currently, he is receiving 4.43% pretax on interest (3.76% after tax). He expects that he will be able to earn a higher rate of return on fixed deposit in the future, about 5.0% pretax or 4.3% after tax.
4.What real rates of return are expected: The after-tax bank deposit rate is currently slightly less than the current rate of inflation, so it represents a negative real rate of return. However, Jack believes this is an unusual situation and expects it to change in the future. He factors in long-term fixed deposit rates to be slightly higher than inflation.
5.Taxes and fees applied to investment earnings: A 15% withholding rate on interest received
6.Life expectancy: 92 years (although 30% of healthy 40-year-old men might live past age 92)
7.What could go wrong: In 52 years of retirement a lot could go wrong, including (but not limited to) overall higher-than-expected living costs (especially medical expenses), higher inflation rates over time, other unexpected costs, bank failure, lower real rates of return, increased tax rates, etc.
Initial Results
Currently, even a simple spreadsheet analysis using Jack’s assumed long-term average annual rate of return (5.0% per year pretax, 4.3% after tax shows that he will very likely run out of money in the future:
Jack’s Net Worth in Retirement
At first, Jack’s net worth rises. However, at some point in the future, the growth in his annual spending will be greater in absolute terms than the growth in his investment portfolio, and his savings will be spent down quickly. Jack could be penniless by age 74.
In the above graph, note that rather deceptively in the early years, Jack’s net worth rises annually, since at first his initial after-tax portfolio earnings exceed his initial retirement spending. However, since he is also reducing his portfolio each year because of his annual spending, at some point his annual spending increases at a greater absolute amount than does his reduced portfolio (since he’s spent a portion of it). The table below illustrates the difference between the early years, the peak years, and the plummet.
Jack’s Earnings Versus Spending Over Time
As shown in the table above, in some future year—in this case, 11 years from now—Jack’s portfolio peaks in size and then begins to plummet in value. He is penniless by age 74. This could be an optimistic outcome; we’re assuming a positive real rate of return on his fixed deposits, which is not always the case for fixed-income investments. Jack would be penniless faster if real rates of return are negative for a period.
Improving Jack’s Chances Of Not Running Out Of Money
One thing Jack might do is diversify some of his savings into asset classes besides just fixed deposits. Few people are able to save enough to retire on a portfolio that is invested entirely in either cash or cash-like investments such as bank short-term fixed deposits. This is especially the case if the investment horizon (retirement period) is as long as Jack’s, who could spend 50 years or more in retirement. The expected long-term real rate (after inflation) of return of cash or fixed deposits is simply too low. The earnings, even on millions of dollars, may not be enough to cover living expenses and inflation.
Therefore, Jack could seek to increase his expected long-term real rate of return by including some higher expected return investments in his portfolio, such as global equities (stocks), real estate, and specialty bonds. If properly diversified, these asset classes can provide a hedge against inflation and thereby boost Jack’s long-term expected real rate of return. While adding these asset classes to the mix will also increase the portfolio’s short-term volatility (risk), it will increase his chances of not outliving his money. Putting up with short-term volatility is the price that must be paid in order to get a chance at earning a better long-term return. However, he may still wish to keep a reasonable portion of his savings in Thai baht fixed income.
What Else Can Jack Do?
While diversifying his portfolio will help improve Jack’s chances of not outliving his savings, it may not be enough. Even if a simple Excel spreadsheet analysis indicates that with a higher expected rate of return his savings could last for 50 years, Jack still should consider what could go wrong with his assumptions. For example, a globally diversified portfolio may not do as well as expected. His costs could be higher than anticipated for any number of reasons, including higher than- expected inflation, currency depreciation, failing health or disaster, or even if he simply wishes to provide financial help to someone near to him. Jack might also live longer than he expects.
With a very long potential retirement period (in this case 50 years or more), planning for a number of different scenarios— including some worst-case ones—only makes sense. If the numbers do not add up, Jack could consider either reducing his spending now or perhaps working part-time for a period. In 10 or 15 years he may be very glad he did.
Summary
While USD 2 million is a lot to have saved for retirement, due to higher cost of living it does not go as far as it used to—even for expats seeking to retire in a relatively low-cost country such as Thailand. Going forward, inflation will continue to whittle away spending power. This is especially the case for relatively young expats who may have many years of retirement ahead. To lessen the chance of running out of money in retirement, those seeking to retire on their savings should consider all aspects of their financial situation, considering not only how much they have saved, but also their actual spending habits, inflation, currency risk, how they are investing their savings, and finally what could go wrong. Depending on the situation, keeping all your savings on fixed deposit may not make sense. Holding a more diversified portfolio, seeking to cut spending, or working part-time could all go a long way to making your retirement savings last.
This article is a revised and updated version of an article that originally appeared on www.crevelingandcreveling.com.
https://www.crevelingandcreveling.com/blog/retire-at-40
"That was probably Londo...He is always shitty." - Marvin
Recommended read, The Lotus Eater by Somerset Maugham
Plot summary
The story begins in 1913 with the narrator's visit to a friend on the island of Capri in Italy. The friend introduces the narrator to Thomas Wilson, who had come to the island for a holiday sixteen years earlier. A year after that holiday, Wilson had given up his job in London as a bank manager to live a life of simplicity and enjoyment in a small cottage on Capri. Enchanted by the island during his visit, he had made the decision during the intervening year to forgo working another twelve or thirteen years for his pension and instead to take his accumulated savings and purchase at once an annuity that would allow him to live simply on Capri for twenty-five years. And what will happen at the end of that twenty-five years, fifteen of which have already passed, asks the narrator; many men die by sixty, but many do not. Wilson does not directly answer the question, but he implies that if nature does not carry him off by the age of sixty, he will be content to dispatch himself, having lived a life of his own choosing in the meantime. The narrator of the story is stunned by such a bold plan, all the more because Wilson has the appearance and manner of an unremarkable, ordinary man – very much that of the bank manager he once was.
Full text of story
Plot summary
The story begins in 1913 with the narrator's visit to a friend on the island of Capri in Italy. The friend introduces the narrator to Thomas Wilson, who had come to the island for a holiday sixteen years earlier. A year after that holiday, Wilson had given up his job in London as a bank manager to live a life of simplicity and enjoyment in a small cottage on Capri. Enchanted by the island during his visit, he had made the decision during the intervening year to forgo working another twelve or thirteen years for his pension and instead to take his accumulated savings and purchase at once an annuity that would allow him to live simply on Capri for twenty-five years. And what will happen at the end of that twenty-five years, fifteen of which have already passed, asks the narrator; many men die by sixty, but many do not. Wilson does not directly answer the question, but he implies that if nature does not carry him off by the age of sixty, he will be content to dispatch himself, having lived a life of his own choosing in the meantime. The narrator of the story is stunned by such a bold plan, all the more because Wilson has the appearance and manner of an unremarkable, ordinary man – very much that of the bank manager he once was.
Full text of story
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If you’re smart enough to have accumulated 2m by forty, you’re certainly smart enough to not waste it in a relatively low yielding term deposit, frittering it away well before you die penniless.
Well he could chose to move to Cambodia and put the 2M with a couple of MFIs that currently bring at least 7% in USD. No currency depreciation and that's an easy 140k/year for the next few years.
That's over 10k/month without touching the capital.
Of course he could do even much better should he chose to invest some of the amount in Tesla stock at current values
That's over 10k/month without touching the capital.
Of course he could do even much better should he chose to invest some of the amount in Tesla stock at current values
logos wrote: ↑Fri Jun 02, 2023 11:34 amWell he could chose to move to Cambodia and put the 2M with a couple of MFIs that currently bring at least 7% in USD. No currency depreciation and that's an easy 140k/year for the next few years.
That's over 10k/month without touching the capital.
Of course he could do even much better should he chose to invest some of the amount in Tesla stock at current values
Let me develop the theme more young man. If you’re smart enough to have knocked up a 2m pile by the time you’re 40 you’re smart enough to know it would be crazy to put 2m in tiny MFIs in a banking backwater like Cambodia, and definitely not all of it in one stock, especially a particularly volatile one.
Both may have a place in balanced portfolio for sure, but we are talking here about capital preservation and income generation for the rest of your life, and ideally leaving most of it to someone else.
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You could invest in Thai condos. What is the expression about a fool and his money again?
Ownership nightmare: British buyer’s 15 million baht condo purchase in Koh Samui hits legal roadblock
A British man filed a complaint with the Thai authorities after he bought a 15 million baht condominium in Koh Samui from a real estate company in the southern province of Surat Thani but could not obtain legal ownership. Many foreigners fell victim to this company, resulting in estimated damages of 100 million baht.
A representative of the Thailand Consumers Council, Phattakorn Teepaboonrat, accompanied the British victim, 70 year old David Edward Chapel, to the Central Suppression Division to file a complaint against the real estate company, whose name was not revealed.
Phattakorn spoke to the media about the issue explaining that Chapel bought a luxury condo in Koh Samui in 2016 and stayed there only three times a year. He has been trying to pursue official ownership but has been unsuccessful.
According to Phattakorn, Chapel discovered on May 19 that the condo did not gain construction permission. As if this was not disheartening enough, it came to light that certain portions of the land on which the property stood had been illicitly mortgaged and subsequently sold.
https://thethaiger.com/news/national/ow ... -roadblock
Ownership nightmare: British buyer’s 15 million baht condo purchase in Koh Samui hits legal roadblock
A British man filed a complaint with the Thai authorities after he bought a 15 million baht condominium in Koh Samui from a real estate company in the southern province of Surat Thani but could not obtain legal ownership. Many foreigners fell victim to this company, resulting in estimated damages of 100 million baht.
A representative of the Thailand Consumers Council, Phattakorn Teepaboonrat, accompanied the British victim, 70 year old David Edward Chapel, to the Central Suppression Division to file a complaint against the real estate company, whose name was not revealed.
Phattakorn spoke to the media about the issue explaining that Chapel bought a luxury condo in Koh Samui in 2016 and stayed there only three times a year. He has been trying to pursue official ownership but has been unsuccessful.
According to Phattakorn, Chapel discovered on May 19 that the condo did not gain construction permission. As if this was not disheartening enough, it came to light that certain portions of the land on which the property stood had been illicitly mortgaged and subsequently sold.
https://thethaiger.com/news/national/ow ... -roadblock
Bringing the news. You stay classy, nas, Cambodia.
- ផោមក្លិនស្អុយ
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That’s a pretty stupid article.
Yes, it’s enough, providing you aren’t as stupid as we are led to believe Jack is. If you are wise then 50% of it is probably enough too.
Yes, it’s enough, providing you aren’t as stupid as we are led to believe Jack is. If you are wise then 50% of it is probably enough too.
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What jumped out at me was the $60,000/year spend. That’s $5000/month of actual spending - so broadly the lifestyle of someone making $150k, if they were paying tax and putting a reasonable amount into a pension or savings.
In other words it can easily be done as long as you’re willing to live like someone who’s “only” in the top 2% of Thai earners, instead of the top 1%.
In other words it can easily be done as long as you’re willing to live like someone who’s “only” in the top 2% of Thai earners, instead of the top 1%.
- Phuket2006
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100% YES
easy to live a great lifestyle, even on phuket as a single, ( provided of course ur not out bar fining everynight) on $2,000/month
$24,000/year
after u've brought the car, all ur toys and electronics
even add on 20% misc. expenses/year
leave it in a fixed account earning 4%+
even with 5% inflation/year
what a stupid article
easy to live a great lifestyle, even on phuket as a single, ( provided of course ur not out bar fining everynight) on $2,000/month
$24,000/year
after u've brought the car, all ur toys and electronics
even add on 20% misc. expenses/year
leave it in a fixed account earning 4%+
even with 5% inflation/year
what a stupid article
"We are turning into a nation of whimpering slaves to Fear—fear of war, fear of poverty, fear of random terrorism, or suddenly getting locked up in a military detention camp on vague charges of being a Terrorist sympathizer." HST
If you shack up with a Thai bargirl it should last you around 2 months?
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- spitthedog
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Will have to read that one.MaxB wrote: ↑Fri Jun 02, 2023 7:50 amRecommended read, The Lotus Eater by Somerset Maugham
Plot summary
The story begins in 1913 with the narrator's visit to a friend on the island of Capri in Italy. The friend introduces the narrator to Thomas Wilson, who had come to the island for a holiday sixteen years earlier. A year after that holiday, Wilson had given up his job in London as a bank manager to live a life of simplicity and enjoyment in a small cottage on Capri. Enchanted by the island during his visit, he had made the decision during the intervening year to forgo working another twelve or thirteen years for his pension and instead to take his accumulated savings and purchase at once an annuity that would allow him to live simply on Capri for twenty-five years. And what will happen at the end of that twenty-five years, fifteen of which have already passed, asks the narrator; many men die by sixty, but many do not. Wilson does not directly answer the question, but he implies that if nature does not carry him off by the age of sixty, he will be content to dispatch himself, having lived a life of his own choosing in the meantime. The narrator of the story is stunned by such a bold plan, all the more because Wilson has the appearance and manner of an unremarkable, ordinary man – very much that of the bank manager he once was.
Full text of story
My dream for retirement would be to buy a campervan and tour around Europe.
"I don't care what the people are thinking, i ain't drunk i'm just drinking"
It should be noted of course that this is produced by a private wealth advisory firm, so they have a vested interest in targeting richer expats and making the numbers look worse than reality.
Imagine you have $2m at age forty. Let's say you wanted take 5% as cash to set yourself up in SEA (that's $100k) for a car, expenses, household appliances etc.
Then you invest that in a moderate risk portfolio, comprising a bit of cash, a chunk in fixed interest and the rest in a portfolio of medium risk equities. Given your relative youth, there is no reason not to do that. It's a prudent investment strategy. Some years might go down; but history shows the returns are always positive over that sort of period.
You decide to take an income of $5000 a month, or $60k a year. And you increase that by 2% each year to take account of inflation. Your money will literally never run out. In fact, based on those calculations and average historic returns, you will end up with double your initial pot after 40 years.
However, push your annual increase to 4% each year, and your pot will be reduced to around $700k by the time you hit 80.
Imagine you have $2m at age forty. Let's say you wanted take 5% as cash to set yourself up in SEA (that's $100k) for a car, expenses, household appliances etc.
Then you invest that in a moderate risk portfolio, comprising a bit of cash, a chunk in fixed interest and the rest in a portfolio of medium risk equities. Given your relative youth, there is no reason not to do that. It's a prudent investment strategy. Some years might go down; but history shows the returns are always positive over that sort of period.
You decide to take an income of $5000 a month, or $60k a year. And you increase that by 2% each year to take account of inflation. Your money will literally never run out. In fact, based on those calculations and average historic returns, you will end up with double your initial pot after 40 years.
However, push your annual increase to 4% each year, and your pot will be reduced to around $700k by the time you hit 80.
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