Stickman Readers' Submissions August 18th, 2010

Retiring early in Thailand

This subject has been raised on occasion on this site and it’s something that I have thought about myself. Not that I have made any plans for retirement or a move to Thailand but I have toyed with the idea and speculated about what it would take to be able to do so. And whether it would / wouldn’t be a good move to do so.

First of all I think one needs to seriously consider why one is looking to retire and retire in Thailand specifically. For me retiring early would be to escape the “hamster wheel” back home where it seems sometimes that what you own indeed ends up owning you. You buy your house because long term, really long term, that’s a great investment unless your timing is really unfortunate. Now you’ve most likely got significant debt. You invest in an education or start a business and work hard so that you can make lots of money. But with the success follows that you are trapped working a lot and having much responsibility. It’s a rare man who can make lots of money doing a job he likes and also have plenty of spare time. Most of us are either short of money or of time. So yeah, it appeals to me the idea of not having to work for a living anymore, and I have made long term plans so that I (I hope) will be able to jump off the conveyor belt at 50 – 55 instead of being stuck on it until 65.

He Clinic Bangkok

But would I want to retire in Thailand? I used to believe so. But I am more and more certain that I would in fact not want to retire there, at least not full time. I think I would be going there for all the wrong reasons. Much of my time in Thailand has been spent as a sex tourist. Now, that’s fun for a while but it’s no way to live. Especially if you retire at a fairly young age there’s plenty of time to drink yourself to death I should think.

Plus I think that if you know Thailand only from being a tourist there, like I do, you have a warped view of what everyday life would be like. A vacation is generally a very positive thing and you walk around happy and full of anticipation every day. Your mood is high and small problems and annoyances are easily overlooked. I think you’d need to look seriously at Thailand without “vacation goggles” on to know whether you’d want to retire there. It might work out great for a few years and then you find that you really do not wish to stay. Now, if you have made the move based on an idea that Thailand is and will remain low-cost then it’s not so easy to reverse it. It’s not easy to move back to the west and secure a good job after spending years idling away in Asia.

I’ve also toyed with the exact same idea that MaiTaiTime ponders in his submission. A business that can be run during half the year and generate enough to live on or to supplement other streams of income. For me it would be a “summer-business” since being able to escape our horrible Scandinavian winters is one of the things that appeal the most to me. The way I’ve thought about maybe one day going about this is to make enough money now, put away what I can, pay offn my mortgage and try to have the ready cash to simply buy an existing business with a proven track record. Say a small kiosk at a beach with a miniature golf course or something. Something that’s easy enough to run and is only open in the summer season. If you own it debt free and put in your hours during the season you should be able to pull in enough to get by on for the rest of the year. Especially if you’ve got a pension coming and some money in the bank. Plus I can see myself sitting in the summer heat under an umbrella keeping an eye on the golf course while my sexy Asian wife scoops up ice cream and sells it to German tourists.

CBD bangkok

Perhaps semi-retirement is the way to go? In that case I’d rather work for real during half the year and have the rest of it off. That has way more appeal to me than working few hours all year round. Hence the ideas about a seasonal business. And a business and/or property back home could also be rented out if you eventually did decide to give Asia a go. You’d have a stream of income and you’d have something to come back to if Asia didn’t work out, or if you just wanted to return home for some other reason. Home to where you have a social safety net and you are a full-worthy citizen, by the way.

For me working in Thailand or running a business there is not an option. My skills are not really applicable there and I’m not a native English speaker so I can’t teach, nor would I want to. Running a business there seems more like running a gauntlet and I believe I would be better off with a seasonal business back home, and much safer. I will never, ever put a serious portion of my available funds into a project in Thailand. The same goes for the rest of Asia.

Onto the money. It’s impossible to really draw the line for how much is enough. It depends on many more things than your net worth in ready cash. Most people from the west and certainly from the more socialist Europe will have a pension one day. Hell, if you’re Greek you might get it shortly after you’ve finished school for all I know. But at 65 basically everyone can look forward to something. Also many employers put aside some pension money for their employees. And in many countries it’s tax deductable to set aside pension savings for yourself. So at some point you’ll get some money from a pension. Will it be enough? Depends on how long you worked for and how much you’ve put in yourself. When can you get it? Depends, again, on the setup of your plan.

Then onto your cash reserves. The $120.000 mentioned by Dima for his friend who is 42 years old is too little by far I would say. A 42 y/o is unlikely to get a pension for many years and the pension will be the bare minimum because he had so few years of earnings. Plus, with the state finances and demographics of many countries I’m not at all sure there will even be much in the way of pensions for future generations. No, we all need to look out for number one, which is perhaps as it should be.

wonderland clinic

Since this guy won't have a pension for many years he would need to rely on interest from his cash deposit. Two problems with the calculation in Dima’s submission is that #1 it’s not a given that you get a 5% interest on a 100% safe investment. And since your entire livelihood is based on that interest it has to be 100% safe. So the stock market and funds are out. I figure two separate savings accounts in different banks, each covered by EU’s 50.000 Euro savings guarantee is about the only way to go. That will not earn 5% at present rates. Government bonds might be an option in theory but you need a steady access to the cash so it’s not doable in practice. Plus 10 year US Treasuries only yield about 2.5% today. <In Australia you can get 6% on a term deposit in the bank and it is government guaranteed. You currently get about half a percentage point less in New Zealand where bank deposits are also government guaranteed. I would expect both countries interest rates to increase in the next year or two and return somewhat to their "normal" levelsStick>

Problem #2 is inflation. The interest you calculate with needs to be adjusted for inflation. You just cannot allow yourself to disregard inflation. You can’t let the same amount in principal sit in your account and expect to live on the interest for a long time. The principal must grow with inflation over time or you continuously lose buying power. To get 5% on a bank account might be possible in better times. But 5% above inflation on a 100% secure investment? Show me that and I’ll put my money there myself.

The problem is that when interest rates are high you generally have higher inflation. Say you manage to secure 5% interest but inflation is 3%, you then only have 2% to live on or your capital decrease in value. And if you allow that to happen you will find that compound negative interest works against you just as much as compound positive interest works for you.

At 3% inflation a fixed amount loses half the value in 20 years time. And if you retire at 42 you need to look decades ahead. Or you wake up at 62 and have to get by on half of what you got by on 20 years ago. Pattaya Flying club, anyone?

Then as Stick comments we might see different currency exchange rates and some places with fast growth such as sectors of Asia might have higher salary-driven inflation than the low growth developed nations in the west. In essence: the pesky Asians might catch up on our formerly huge earnings advantage. As I see it Thailand has a lot of folks to lift up from poverty and to educate before it can compete with the west on an equal footing, so in the short term I don’t think we have to be too concerned. But longer term I think our historical economic advantage will slowly but surely diminish.

I think that to offset the currency risk that if I were to live in Thailand I would have liked to have a large portion of my money in Thai baht. The more sure I was that I really wanted to stay there the larger this portion would be. But I do not really trust Thai banks. I have read horror stories about lost money. Sure, you need a Thai bank account to get around and to park a few months worth of expenses in but to keep all money there? No thank you. I’d like to look into whether you could have a currency account in a western bank and keep your deposits in baht. I’m not sure any bank offers this though.

My belief about retirement is that you should not retire until you know you can afford to do so at home, in your own country. And you need a safety margin so you are really sure. And the younger you are the bigger that margin would have to be because so much unforeseen can happen over time. But you really do need to afford to live at home. What if you get kicked out of Thailand? What if Thailand becomes unstable so you can’t live there? What if it becomes almost as expensive as back home and you can’t afford that? What if, as you get older, your health insurance costs increase and you need dental work and a new hip yet you are on the margins already?

To Dima’s friend I would give the advice to forget all about quitting work at 42. Get realistic about interest rates and factor in inflation. He will not earn 5% above inflation over time on a 100% safe investment. People often think this or that scheme is safe when it isn’t. Parking money in Iceland seemed smart to many. It wasn’t. In reality nothing is 100% secure but a bank account in a big and stable bank covered by a deposits guarantee of a stable government is almost foolproof. But that doesn’t earn 5% above inflation.

No, better this guy tries to get that career going and make more money. He’s in a high-earning field and makes good money without, it seems, putting too much of an effort into it. Get yourself together and jumpstart that career and set your sights at retiring at 50 or 55 instead. At least that’s a possibility. Going to Thailand at 42 with too little in cash reserves and no real prospects on the Thai job market is to seriously endanger your future.

Lastly: Do not retire until you can afford to comfortably do so at home. That way you do not lock yourself in with the permanent need to keep living in low-cost, impoverished nations; but always retain the option to return back to where you came from, where you have a safety net, where you hopefully have friends and family, and grow old with dignity.


Stickman's thoughts:

Heaps of excellent advice!

nana plaza