Press "Enter" to skip to content

Retiring Abroad, Travel, and Purchasing Power Parity

A few weeks ago while in Martinique, we walked by the French equivalent of McDonalds. As we continued to walk the first thing that popped into my head was, “This place looks almost identical to McDonalds”. Right about that time we walked by McDonalds itself, and then my mind drifted to purchasing power parity, travel, and retirement.

What is Purchasing Power Parity?

First off, purchasing power parity is a comparison of income levels and costs across cultures. Essentially, you take similar goods and compare the price across countries. Once adjusted for currency exchange they tell you if items are similarly priced across regions. When you do this with a market of goods it further allows you to compare income levels and other internal health factors of a country.

So, why did I think about this when I walked by McDonalds? The most famous Purchase Power Parity comparison is that of the Big Mac. Comparing the price of the Big Mac across countries is practically a cliche in early economics education. Now before we leave this, I’d be remiss in stating such a comparison is deeply flawed. The Big Mac is not similar across countries. In India, for example, they do not even use beef (for obvious reasons). Not to mention the obviousness of a company setting a price and that a single ingredient may not be indicative of the entire economy. But I digress.

By now you’re asking yourself, “Why FTF are you taking me through this basic economics lesson?” I’m here to talk about personal finance, not be lectured towards about some inane macro economic policy. Well in this case, purchasing power parity has a very real impact on travel and retirement.

International Travel and Purchasing Power Parity

I have done significant travel for work and play over the years. When you do so, you see Purchasing Power Parity in full effect. Furthermore, you feel it where it matters, in your wallet. You see, those countries with a high parity are expensive from a travel perspective. A trip to Norway or Australia is exceptionally expensive compared to travel to say Mexico. On my last trip to Australia for work, I marveled at how even a simple pasta dinner was the equivalent of 20-25 USD dollars on a restaurant menu. The Lobster was $300… Conversely the last all inclusive I went to in Mexico had all you could eat Lobster and liquor, all in with a room the price was less then $300 USD. So if your goal is simply to do cheap travel, you’re better off picking a country lower on the Purchasing Power Parity Scale. This is especially true if eating well is your goal.

Retirement and Purchasing Power Parity

Another area where Purchasing Power Parity comes into play is retirement. It is the latest fad to retire to a lower cost, low Purchasing Power Parity country. The idea is your money stretches further, you can hire a house keeper, eat expensive dinners, and own a nice house all for less than you could live in a modest home in the US. It’s an appealing idea that sounds so simple, go somewhere that your money takes you further, and live it up like the man from Monopoly.

Issues with Retiring and Traveling Abroad Beyond Pricing

The problem with both approaches is that the price of goods is not everything. If it was we’d all move to some war torn country in Africa and live like kings. No the other thing to consider is the quality of the goods themselves and your relative safety. Purchasing power parity can tell you how much cheaper health care is in rural India than the US. What it does not tell you is how likely you are to die from an infection. It also does not tell you how likely you are to be kidnapped and ransomed in one of those war torn countries I referenced. Both can be large discouragements to travel or retirement abroad.

Even beyond raw quality, Purchasing Power Parity does not tell you if the quality will be of the type you value. It’s very common for those who move to a foreign country, Expats, to return to their home country in failure. The basic reason is cultural differences. It can be very difficult to adapt to the values of a different country. For example, if you love steak you’re likely to not last very long in India as a retiree. They have quality in other areas, but due to religion a good steak is about as common as a winning lottery number. There are many other country specific examples, many more subtle than my India example (for example ketchup in Britain). As such you really need to look at these things should you choose to live somewhere else, or even travel there for a decent length of time. If you’re not willing to adapt to them, you’ll end up back home. Even with travel, if you’re not prepared for them they can seriously put a dent in your travel.

Focus on Local Eateries and Hang Outs

Usually there are one or two places in a country that cater to American tastes and values. So even being an expat you are not completely cut off. That being said, my experience with foreign travel indicates these places tend to be way more expensive than their local counterparts. Often times the price difference is to the point where you are looking at US prices or worse. In my example from Australia of a pasta dinner for example, the local Asian restaurants were near affordable and a better choice if you were near Cairns. You just have to be willing to bite the bullet and live like a native. That’s really the point of this post, if you want to retire or travel to a foreign country for cheap, be prepared to travel as if you are from that country.

My family adapts pretty well, as you’d imagine for someone that travels a lot. We tend to eat the local food, shun the touristy locations in favor of local hangouts, and utilize local public transportation. In fact we do usually live like a native while traveling. Still I’m not ashamed to admit after 3-4 weeks out of the country I’m likely to stop at a burger joint or a good steak house when I get home. There is nothing wrong with that, but realize even a seasoned traveler can long for the trappings of home. This is ultimately why I say retirement abroad is likely a fad. Many will succeed at the concept, but I suspect many more will fail.

Are you considering retiring internationally? Is purchase power parity your primary consideration? How are you preparing for cultural issues?

22 Comments

  1. Leo T. Ly @ isaved5k.com
    Leo T. Ly @ isaved5k.com April 12, 2017

    I am so used to the North American lifestyle, I don’t think that I will survive in another continent. For me, retirement means that I have the freedom to do whatever I want in the current area that I live in. With that being said, I wouldn’t mind to visit a tropical resort during the winter for a week or two.

    In terms of cultural differences, it’s fun to learn about other cultures, but to adapt to it, is a whole different ballgame. So I will just settle for the occasional trip aboard when I retire. I am staying put at where I am now.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 12, 2017

      We plan on doing longer trips in retirement (say six months at a time) but something we’ve always been clear about is home is still home, it doesn’t change. Just enough to understand the culture, but short enough that we don’t adapt to the culture.

  2. I’ve been thinking about this as I look to buy another property. I live in Minneapolis and prices here for a 4 bedroom, 3,000 sq ft place are probably in the $400k range. For a similar place way up north by Lake Superior is about $150k… Crazy!

    • fulltimefinance@fulltimefinance.com
      [email protected] April 12, 2017

      We have similar prices here. I’ve fancied a house on a lake in the wilds of Georgia or North Carolina for a while. I’m sure it would be way cheaper then here. I’m not sure though how that would fit culturally even being in the US and having previously lived in the south.

  3. The Magic Bean Counter
    The Magic Bean Counter April 12, 2017

    we are considering geographic arbitrage when we retire for part of the year. It just makes so much sense to me and with options like airbnb available pretty much everywhere it can be very affordable.

  4. Mustard Seed Money
    Mustard Seed Money April 12, 2017

    I love articles about Geo Arbitrage 🙂

    My wife and I loved Costa Rica!!! We would definitely move down there in a heart beat if we didn’t love being so close to family. Plus I’m sure we could retire now and there wouldn’t be any issues with money.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 12, 2017

      I loved Costa Rica as well. It would certainly make your money go further. But as you mentioned there is that pesky thing called family…

  5. Wall Street Physician
    Wall Street Physician April 13, 2017

    I’m not interested in retiring in another country, although I do understand the rationale. It’s kind of like taking geographic arbitrage to an extreme. For most people, it would make more sense to move to an area with lower cost-of-living and lower taxes, but still within the US.

  6. Mrs. Groovy
    Mrs. Groovy April 13, 2017

    We will definitely consider living abroad, probably South America, especially if the healthcare system blows up further. Thailand or Korea seem like great places to stretch your money. We’ll check them out but they’re too far from family to consider living full time.

  7. Ramona
    Ramona April 14, 2017

    Right now we settle for traveling and staying abroad for months, when opportunity presents itself. I don’t know if we’d retire abroad, but you never know where life takes you. There are at least 2-3 places we’d retire to immediately, though.

  8. Making Your Money Matter
    Making Your Money Matter April 15, 2017

    I think you hit on a key point when you said that you need to learn to live like a native if you want to save money. We were expats in Shanghai and Seoul and that ended up being the key, not only to saving money, but also to being happy in our environments.
    You really need to have an open mind about different ways of doing and thinking about things, something which I think would be more difficult for a lot of older couples that haven’t lived outside the U.S. before. Culture shock is real for sure!
    I personally doubt that we would ever retire full-time to another country, solely because we know the challenges of being so far from family. I wouldn’t completely rule it out though. Some great considerations here.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 17, 2017

      Thanks for the well thought out comment Making your Money Matter. Any recommendations on things to do locally in Shanghai? I keep going to Shanghai for work.

  9. Troy @ Market History
    Troy @ Market History April 15, 2017

    I’m currently residing in Australia but my money is in USD (thank god for the almight dollar: $1.3 exchange rate).
    Australia is definitely a very expensive country because most of our manufactured goods get shipped in. And since our population is much smaller than the States’, there are no economies of scale (no Wal-Mart)

    • fulltimefinance@fulltimefinance.com
      [email protected] April 17, 2017

      Hi Troy, Where are you located in Australia? I’m glad the exchange rate is working to your advantage. On my last trip to Melbourne in 2012 the rate was close to 1:1. Buying things was painful. Then again on my first trip in 2005 the rate was 1:.8 in favor of USD.

  10. Mr Defined Sight
    Mr Defined Sight April 15, 2017

    If I am being honest with myself, I don’t think I would adapt very well to life outside the US. Hell, I’d be happy with just retiring somewhere warm in the south. That is the goal for now. We haven’t traveled outside the US with the exceptions of all inclusive resorts in Mexico and Jamaica. Haven’t really experienced the power of exchange rates like you have.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 17, 2017

      My guess is our home base will also be in the south. In Mexico you get great deals the minute you step away from the resorts. The resort deals are ok relative to their equivalents elsewhere, but it’s not really locally living. We have not been to Jamaica.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 19, 2017

      I remember reading that one. It’s a good commentary on retiring abroad as well.

Leave a Reply

Your email address will not be published. Required fields are marked *