Today I want to talk about something that I have never written about but has been on my mind a lot lately: FIRE, which stands for “financially independent, retire early”.
In layman’s terms, you achieve FIRE when your investable assets could generate enough income to cover your expenses.
At that stage, early retirement becomes entirely possible, albeit optional.
FIRE is appealing for obvious reasons: having total control over how you live your life, spend your money and time. You no longer need to hold a job you don’t love, and can choose to dedicate your life pursuing passion projects without worrying about money.
I like to fantasize about slowly traveling around the world, exploring new cultures, and documenting my journey in writing. To me, that is the dream lifestyle.
Although it sounds cool, it’s not a surefire way to make a decent living for me.
But if I’m financially independent, then I could travel and write to my heart’s content, knowing that, at the end of the day, I have enough to pay my bills.
Doesn’t that sound wonderful?
You achieve #FIRE when your investable assets could generate enough income to cover your expenses.
With that in mind, I thought it would be interesting to find out what would happen if my husband and I decide to “become” financially independent and retire today.
Obviously, with the assets we currently have, we cannot FIRE in Toronto. The high cost of living makes it pretty much unfeasible. Trust me, if we could, this would be my shortest blog post ever.
But retirement could be on the table if we, hypothetically speaking, live in other parts of the world where rent doesn’t cost more than $1,000 per month.
So where could we move to in this hypothetical retirement scenario?
NomadList’s Financial Independence Calculator comes to the rescue!
I don’t recommend a lot of things on this blog (though you should check out my personal finance book recommendations), but this tool is worth taking a look at – it can help you figure out how early you can retire if you move to another city, and where you can retire right now.
If you’re open to living in other parts of the world and have a positive net worth, more likely than not, calculating your early retirement readiness will bring a smile to your face, as it did for me.
Before I reveal the list of cities where we could retire, let’s go over the numbers.
First things first.
If we were to retire, we need to maximize the value of our investment portfolio so that it would generate enough passive income to fund our lifestyle.
With that goal in mind, selling off illiquid assets becomes necessary. Here’s how I’d handle them:
- House: Although we have a healthy amount of equity in our house, that equity isn’t directly earning us any income. We’re better off freeing up the equity by selling the house, and investing that money.
- Car: Regardless of where we retire, we need to get rid of our car now to minimize future expenses. The best way to do that is to buy out the car lease and then sell the vehicle. It’s cheaper than ending the lease and paying the penalties. Sayonara, car!
- Life insurance cash value: For the sake of this exercise, we would also convert our life insurance cash value into cash.
- P2P lending, cryptocurrency and other assets: Sell, sell, sell!
After all is said and done, we would have $618,705.24 in investible assets.
How I arrived at this number:
Our current net worth ($672,665.24)
MINUS the cost of selling the house ($42,500 for realtor’s commission, $1,000 for lawyer fees, and $10,000 for mortgage discharge penalty)
MINUS the cost of getting rid of the car ($5,000 for the difference between the payoff amount and the sell price)
PLUS the remaining balance on our car lease ($4,540)
The assumption is that we will then invest all of it in dividend-paying stocks and ETFs, and withdraw 4% each year.
Based on our 4% withdrawal rate, we could afford to spend up to $2,062 per month.
To make calculations easy, I’ll ignore inflation and assume that we will be perpetually renting in retirement, and that our future expenses will be similar to our current expenses.
We currently have no kids and no pets, and live frugally. I imagine that our retirement budget would resemble something like this:
Food: $350 per month
$350 is plenty for groceries and dining out. We cook most of our meals at home, and we try to limit our food intake.
Shelter: $1,000 per month
Although $1,000 doesn’t give you too many options when it comes to renting in Toronto, as a retired couple with plenty of time on our hands to handle longer commutes, we’d be willing to move outside the city core where rent is cheaper per square foot.
Household expenses: $350 per month
This $350 includes utilities (if not included in rent), phone bills, Internet and household disposables like toilet papers, toothpaste, cleaning products, etc.
Transportation: $100 per month
Taking buses, wheee!
Entertainment: $80 per month
Most of our hobbies are free or very inexpensive, like reading, hiking, and blogging (ahem), so $80 is more than enough for both of us, even if it doesn’t seem like a lot.
Miscellaneous: $150 per month
This would account for all the other expenses. As much as we’d like to stick to our budget, surprises happen.
Total monthly budget: $2,030
$2,030 is under our $2,062 spending constraint, so we’re all good to go.
We assume the annual return on investment to be 5%, and our tax rate to be 9.15%.
Our debt interest rate will remain 0% as we will carry zero debt.
Here comes the exciting part!
After I put in our numbers, the FIRE calculator showed that we could retire in 104 cities. Wow! That’s amazing.
Quick note: the cost of living estimates below are based on our budget, they’re not universal.
|Rank||City||Budget||Cost of Living|
|1||El Jadida, Morocco||$2,062/mo||$922/mo|
|5||Ho Chi Minh City, Vietnam||$2,062/mo||$943/mo|
|26||Da Nang, Vietnam||$2,062/mo||$1,050/mo|
|32||Mexico City, Mexico||$2,062/mo||$1,145/mo|
|35||Buenos Aires, Argentina||$2,062/mo||$1,178/mo|
|36||Pretoria, South Africa||$2,062/mo||$1,183/mo|
|37||Daegu, South Korea||$2,062/mo||$1,236/mo|
|40||Kuala Lumpur, Malaysia||$2,062/mo||$1,290/mo|
|42||São Paulo, Brazil||$2,062/mo||$1,292/mo|
|45||Saint Petersburg, Russia||$2,062/mo||$1,313/mo|
|46||Daejeon, South Korea||$2,062/mo||$1,331/mo|
|47||Kuwait City, Kuwait||$2,062/mo||$1,331/mo|
|49||Ashland, United States||$2,062/mo||$1,372/mo|
|50||Quebec City, Canada||$2,062/mo||$1,376/mo|
|51||Port Louis, Mauritius||$2,062/mo||$1,382/mo|
|52||Jeju Island, South Korea||$2,062/mo||$1,404/mo|
|55||Cape Town, South Africa||$2,062/mo||$1,445/mo|
|63||Busan, South Korea||$2,062/mo||$1,542/mo|
|76||Gwangju, South Korea||$2,062/mo||$1,663/mo|
|79||Battle Creek, United States||$2,062/mo||$1,705/mo|
|86||Sharjah, United Arab Emirates||$2,062/mo||$1,835/mo|
|96||Tucson, United States||$2,062/mo||$1,992/mo|
|98||Cincinnati, United States||$2,062/mo||$1,997/mo|
|103||Nottingham, United Kingdom||$2,062/mo||$2,030/mo|
I honestly could see myself living, at least temporarily, in most of these cities, especially Kaohsiung, Jeju Island, Taipei, Busan, Valencia, Prague, Montpellier, Nottingham, and the 6 Canadian cities that made the list.
Seriously, any city that is safe, friendly, culturally diverse, has a vibrant foodie scene, beautiful hiking trails and at least 3 libraries would do.
Seeing Shanghai, Taipei and Shenzhen on this list did make me raise an eyebrow though ― all 3 cities are pretty much known for their notoriously expensive housing costs. The difference in currency values is probably the reason why they appear “cheap” on this list.
Although this whole process was predicated on imperfect assumptions and numbers, and I’m taking the results with a small grain of salt, it was still a huge morale booster.
I feel more motivated than ever to work on achieving FIRE.
Just imagining all the amazing places we could retire to gets me all “FIREd” up!
Please excuse the bad pun.
The best time to start investing is yesterday. The second best time is now.
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In case you were looking for a joke, I found this comedy gem via Google:
What do you call it when one cow spies on another? A steak out!