I’m a huge fan of retiring overseas to maximize my retirement dollars. Why not travel to a place where your dollars can allow you to live like a king or queen while still saving and investing?
I wrote an entire series about Living Overseas on Passive Income (101, 102, 103, 104, 105, 106, 107, 108, 109, 110) if you are interested in that type of thing. However, most people want to retire where they spent their lives.
If you live in America, there are other options you can exercise if you want to retire here. How about moving to a small city where you can stretch your U.S. dollars and continue to speak English?
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The benefits of a small city. Small cities can significantly lower your cost of living because of low housing prices, taxes, and utilities. However, most of these places are BYOI or Bring Your Own Income.
BYOI means you must bring in your passive income streams to have a successful life in these towns. One of the reasons these towns remain small is because job opportunities may be lacking.
If you are still in your working years, perhaps remote work may be an option. If you move while employed, you can survey the area before your ultimate retirement leap of faith.
Kiplinger wrote an article on the 12 Cheapest Towns in America. It’s an excellent read for those considering the move to a smaller, quieter place to live.
Use your home equity. One of the best strategies to successfully move to a small city is to TAP your home equity. The above article shows that in Meridian, Mississippi, the average cost of a home is $85,000.
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If you are coming from California, this amount of money is trivial. It’s common for Californians to be sitting on $200,000 – $500,000 in home equity. They could easily buy a home for themselves and their children in cash.
The question becomes if they would give up the California lifestyle for small city living. It depends on your priorities and understanding of wealth concepts (wealth is having excess income versus expenses).
How much passive income do you need? In Meridian, the average household income is roughly $30,000 versus the American average of $64,000.
I would bring at least $100,000 of passive income to any small city. This amount allows you to live to your fullest while traveling. Living in a small town doesn’t mean you can’t travel away from it.
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Don’t move to a small city and live on a small fixed income. You would have the double whammy of no cash flow and small city life. You can experience these cities the best when you have the means (read: money) to maximize your situation.
Making the move. So is it challenging to make a move to a small city? Again, it depends on what you value. Don’t tell anyone, but I am from San Diego, California—I was born and raised there.
My wife and I choose to call Pensacola, Florida, home now. Pensacola is infinitely smaller than San Diego, but we enjoy our quiet home on acreage. The hustle and bustle of big city living no longer affect us.
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In Florida, we have a garden, and the bus picks up our kids from home. We know our neighbors and break bread with them consistently. It’s as close to living overseas as we will get in America.
If you value large downtown events, concerts, sporting events, and fancy restaurants, you already know the answer to the question. Just be prepared to need at least $200,000 in passive income per year in retirement. Yes, it is that expensive.
But what about the schools? You will probably get better schooling in a big city. However, shouldn’t we all be moving to a homeschooling system by now? You may be able to have one parent stay home with the kids in a small city.
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Small city living opens up opportunities that can be difficult to find in big cities. Plus, the internet, content platforms, remote work, and the metaverse will keep you connected no matter where you live.
Preparing for retirement. Don’t just run off to a new city or state, though. You have a lot of research to perform. Taxes can play a massive role in your retirement cash flow.
You will want to consider state taxes, taxes on pensions, and property taxes. Do they have local and municipality taxes?
I just finished “The Bond Book,” which can give you guidance on bonds for retirement. If you buy treasury bonds, they are not taxable at the state and local levels.
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Therefore, if you are moving somewhere with high state taxes, it may be prudent to have a large part of your passive income originate from treasuries or municipal bond funds.
You may also consider using a Roth IRA because of its tax-free withdrawals. The idea is to leverage whatever resources you can get to make life more comfortable.
Income streams throughout retirement. Just because you retired doesn’t mean you can’t still earn an income. An online income stream is the best way to live the laptop life. This way, you never have to worry about moving towns or commuting to work.
However, you can still have a physical side hustle like a gardening business, composting and worms, rental cars, Bed & Breakfast, or vending machines. Bring some of that big city hustle to the small city.
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The value of planning. As you can see, having a plan is essential to long-term success. Here is how I would start the planning process.
- Determine my retirement core values (location, weather, costs).
- Determine the amount of passive income I need (say $7,000/month).
- Vet towns where I can successfully leverage home equity, taxes, and cost of living.
- Create an online income stream (just in case).
- Do a test run at the town (live in an Airbnb for a month or two).
- Make final decisions, preparation, and move.
You may also want to consider where your children will be living. Small towns have small airports, which can drive up costs for both sides of the family traveling.
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Conclusion. How do you want to spend your retirement? If you like the big city lights, then a small town isn’t for you.
If you love peace and quiet, cheap living, and good people, then a small city may be right up your alley. Plus, you can always do a test run to understand better what you desire for your locale.
Whatever you decide, start planning now. Whether you are in your 20s or 70s, the retirement planning process is the most crucial part of this life expedition. Good Luck!
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