How to Retire on Less Money Overseas

What's the best way to retire now rather than at some point in the future? Get a handle on how you spend.

Most of us spend the majority of our income on just three things: housing, transportation and taxes. Prove it to yourself. Look at your tax return to see how much money you earned last year. Then break down your spending during those 12 months.

Housing. Your housing costs include your mortgage payments, property taxes, maintenance, cleaning, furniture and insurance. If you're a renter, you have expenses for rent, utilities, cleaning and insurance.

Transportation. Those who own cars need to pay for insurance, gas, parking, licenses, registration fees and repairs. If you have a car loan, you may also be making monthly payments to own your vehicle.

Taxes. Working people pay income tax, Social Security and Medicare payroll taxes and state and local taxes. You also pay sales taxes on most purchases.

Minimizing these costs is much easier than you might think. If you're willing to do it, you might even be able to retire sooner.

Decreasing your tax bill becomes easier after you retire. Once you stop working, you won't have to pay payroll taxes and can also take steps to minimize your income tax.

When you don't need to commute to work, you may also be able to get by without owning a vehicle. A majority of the world's population lives without a car. You could become one of them.

Housing is likely to be your single biggest expense, but also one that you have a lot of control over if you are willing to move. If you relocate to a low-cost destination, and especially a place where you could live without a car, you could retire well with little more than a Social Security payment and a modest amount of savings.

Most of us work and struggle just to pay for housing, vehicle and tax expenses. Some people are satisfied with this grinding approach to life, but there are also alternatives. If you would like to make a change, start by accepting the idea that it is possible to live a life that allows you to spend your days however you'd like, rather than doing what earns you enough to pay the bills. In other words, it is possible for you to retire now, regardless of your age or retirement nest egg.

If you're old enough, you could sign up for Social Security. In some places overseas you can live on as little as $500 or $600 per month. In parts of Mexico, Panama, Nicaragua, Ecuador, Thailand and the Philippines, it's possible to rent a small room for as little as $100 to $200 a month. Your housing and utilities covered, whatever budget you have left over is for eating and entertaining yourself. We all hope to have more than $500 or $600 per month to retire on, but even on that very modest budget, it's possible to live a pretty decent life if you're willing to consider the whole world of possibilities.

Transportation costs can also be significantly reduced by moving overseas. In many places around the world you could get around using public transportation and taxis. For example, seniors in Bangkok enjoy discounts on buses and the metro, and short taxi trips cost a dollar. A slightly longer trip from one neighborhood to another costs only $3 to $5. This is one of dozens of places where transportation costs would be a negligible part of your budget.

It can be easier to pare down your expenses in steps. You could gradually shift from your current budget to a more frugal lifestyle in stages. You can also test your tolerance for a simpler life in a foreign land through a series of trips. Try out destinations as well as accommodations and lifestyle. How basic are you willing to go? The answer to that question will help you to define your budget. In this new life overseas, you'll have less money than you have now, as well as less space and paraphernalia.

What you'll have a whole lot more of is freedom and control. It's a trade-off that you should address directly and honestly. How much stuff are you OK giving up in exchange for absolute control over your time and how you spend your days? For example, in the beginning, many people find it hard to live without a car, but you can gradually reduce your dependence. You could start out with a rental car or rent a motorbike. Then you could downshift to using taxis and maybe riding a bicycle. The next step is public transportation and walking. As you try different transportation strategies on for size, if you find that you just don't like living without a car of your own, you can always develop a budget for owning one in the place where you're living. If your current level of retirement income doesn't support buying a car, you can consider where else in your budget you might make a cut or come up with ideas to generate a little more cash flow each month.

Take stock of your life and consider alternative ways you could be spending your time and money. You could reduce your retirement costs by starting a new life in a low-cost country. Your new retirement lifestyle could be interesting and exotic. Certainly, you'll have an adventure.

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group.