When I finally decided to take a job abroad in 2014, I thought I had figured out something no one else had: I could extend my career by at least five years. My wife stayed behind and was besieged by people who wanted to see if I could also help them find work overseas.
So, this secret is definitely out.
What I ultimately realized is that retiring overseas was even smarter. This is due entirely to what I call the New Economy.
Retirement in The New Economy
In the old economy, you might work for just one company before you retired. You could have your nest egg invested in fixed-income investments that would safely return 6-8%. You hardly had to worry about funding longer term health care costs, since pension plans often covered a good portion. But it’s all very different today.
This problem is reported every day in financial publications and it’s not news that baby boomers haven’t saved enough to fund retirement. With interest rates so low, it’s hard to imagine saving up enough to travel regularly after your day job ends. On Wall Street, they now say, “$5 million is the new $1 million.” While it’s good news we will all live longer, how can we afford to?
Since the Great Financial Crisis, the stock market has rebounded, but most professionals I know haven’t seen this in their paychecks. Most careers end much sooner than people want as companies replace older workers with less expensive younger ones. Doctors, lawyers, and other professionals are also experiencing pressure on their incomes just at the time when they also want to salt away more for the golden years.
What has developed is a messy period of career transition between full time work and pay to the leisure years. If folks can work in their chosen field at all in their 50s and 60s, it will often be at some reduced rate. They need some additional cash flow just to stay even. They may even want a whole new strategy.
This is the dark side of the New Economy. A new income gap has developed, which many people are now trying to solve.
This gap between a long productive career and fully-funded leisure years all started with some big changes in the 1980s.
Policy and Technology
In the early 80s, two huge developments took place that would forever alter retirement math. First, savvy CFOs convinced their CEOs that the newly (1978) introduced 401(k) could replace corporate funded pensions. Companies could save a boatload of money and headaches if the retirement income responsibility was shifted from employer to employee.
This one development has easily had the single largest negative impact on the ability of the general population to retire with a basic income.
Even the “Father of the 401(k),” Ted Benna, now laments that he effectively allowed Wall Street to make even more money. According to Marketplace, this is how it was portrayed to workers: “His concoction was effectively a bribe for workers: they got extra money from the boss and a tax break if they took some of their own paycheck and set it aside for retirement”.
The result is that about 38% of workers were included in defined-benefit (pension) plans in 1978 in the U.S. Today that number is around 13%. In Canada, there has also been a steady decline in corporate pension plan participation, but it’s still generally in greater than one-third of the workforce, and even higher in larger companies.
Secondly, I remember well that there were also many generous opportunities in the early 80s to put away savings, pre-tax, for retirement. Unfortunately, the politicians put an end to this too and raised tax receipts to spend on their own priorities.
We were left with the opportunity to only invest a measly amount of money every year. Employers would give you some kind of match and a bunch of expensive mutual funds to invest in. Miss a year and your retirement would take a hit. Not such a great deal in my mind.
This double-whammy (a shift away from pensions and lowering the pre-tax income contributions one could make) made it extremely difficult for many to have a secure income at retirement.
In the 80s, technology also started to affect enormous changes to job security.
In 1980, AT&T hired the prestigious consulting firm McKinsey to estimate the number of mobile phones there would be in 2000. Their answer was 900,000, and the real number ended up being 100 million. They were off by a factor of 120 times. This exemplifies the breathtaking pace of technological change that took place over the next 20 years.
The result is that today we have a globally connected population using the internet and smartphones. The predictions are that over 5 billion people will have smart phones in the next decade, and they will all be connected to the internet.
Foreign universities now pump out college graduates to compete for professional jobs. It’s estimated that India alone produces around 1 million engineering grads per year, and they are willing to work U.S. hours.
I just interviewed a dozen firms for a large tech project and a Polish firm was easily the best candidate. The Americans were way too expensive.
These new graduates will be online all day and every day, available to work for someone looking for their skills. Jobs that were once local are now open to the most qualified remote worker. They are also willing and able to work for less than U.S. workers and during U.S. hours. You can contact them through a job posting service like Upwork and interview them over Skype.
While this is a career threat for some professionals in the U.S., it’s a godsend for older entrepreneurs, especially if you live overseas.
Technology Enables Older Entrepreneurs
All the great technological advances now work in your favor if you’re an older entrepreneur. The best part is that you can travel or live overseas while earning U.S. dollars and spending a cheaper currency. You can also be in almost constant contact with friends and family wherever they are.
My strategy is living overseas and building additional income streams in online businesses.
For example, I could easily retire early and write for other publications in my industry, instead of my own blog. I’m a “relative expert,” just like most of the professionals I know. Many others have passionate hobbies where this is also true. Writing for others could easily be worth a few thousand dollars a month and be a nice retirement supplement.
I have also invested in online businesses, with my wife being the real operator. She left a good corporate job and there was no real opportunity where we moved. I studied different e-commerce business models and started by buying some drop shipping sites. There are many other e-commerce models where this is also true.
We sell a variety of goods online in the U.S. as the middleman between the consumers and suppliers, using a team of outsourced workers. This team includes customer service from the Philippines, developers in Bangladesh, and advertising help from a girl in Mexico. So, the clear majority of our expenses are in very cheap currencies to workers with specific skills we contract when needed.
The real wisdom here is not about knowing the technology, that’s easy knowledge to acquire. Knowing how to exploit and manage these opportunities and resources is the key to unlocking their potential. My plan is to capitalize on my strengths and leverage abundant cheap resources. My family and I can enjoy the lifestyle this provides almost anywhere.
As a senior executive in the wealth management industry, I have seen a lot of financial plans go wrong. The most common reason is assumptions that do not prepare for inevitable change. Make sure you have alternative strategies.
I have also seen wealthy people unhappy with their lives. Start by designing this first:
Living in the U.S., I felt like I had little control over both my expenses and my income. I could only cut expenses so far and live where I needed for my job. When you plan using your current expenses in the U.S., you may not see the inherent leverage in living overseas. Look at the cost and quality of living abroad and it becomes crystal clear.
Since my employer and age have capped my income, I developed additional income streams. With the ability to earn cash flow over the internet in dollars, I can continue to earn good money after my corporate career ends, or if I retire early.
Living and retiring overseas, I can stretch this cash flow way beyond what I could do in the United States. My retirement travel dream is now ready when I am.
Today the world is more connected than ever. That’s a very good thing if you’re looking to retire overseas. While many people may lament how technology has changed their career for the worse, give some thought on how that same technology can improve your life in the future.
Ian Bond is a private banking senior executive with over three decades of experience in wealth and asset management with Goldman Sachs, Credit Suisse, and Citigroup. He has built major businesses on four continents. Ian is also the founder of MyRetirementRehab.me, created to help other executives and professionals rehabilitate their finances and make a prosperous, enduring retirement a reality.