Geoarbitrage: Can it Actually Help You Retire Sooner?

The term geoarbitrage has been floating around FIRE blogs for a little while now, and if you’ve ever wondered about it, I have a little secret for you… it’s not some sexy, glamorous lifestyle. Geoarbitrage is simply relocating to take advantage of a lower cost of living to make the money you earn go further.

Yep, that’s really it.

Now, making geoarbitrage work isn’t that simple. Moving can be really freaking hard for some people. You also need to know why you’re doing it because there are some sacrifices that you’d need to make along the way. But, if you’re trying to work towards FIRE (Financial Independence, Retire Early), then geoarbitrage might be a strategy you use to stretch your dollar and grow your retirement savings.

To help you understand what geoarbitrage is and whether it’s a realistic option for you, I’m going to break it all down for you. This post is going to cover:

• What is geoarbitrage?
• Pursuing FIRE with geoarbitrage
• Geoarbitrage calculators
• Your geoarbitrage strategy
• Domestic vs. international geoarbitrage
• The reality of geoarbitrage

What is geoarbitrage?

We all know that there are certain cities in the U.S. where the cost of living is significantly higher or lower than average. When you live in an area with a higher cost of living, you spend significantly more of your income on your mortgage or rent among other things. Now, you may be paid more because of the cost of living adjustments, but that isn’t always the case.

With geoarbitrage, you are almost hacking your lifestyle, designing it to make your dollar go farther.

Here’s a simple example of domestic geoarbitrage:

Say, you currently live in San Francisco, and to live comfortably, you’ll need to make a little over $120,000 per year. That salary estimate is calculated by allocating 50% of your income towards your necessary expenses, 30% to non-necessities, and 20% to savings.

For the sake of making this example a little easier, let’s assume you work remotely, whether that’s as a freelancer, for a large company, etc. And, you’re already earning enough to live comfortably in San Francisco.

If you were willing to move to Memphis (they have great BBQ!), you would only need around $48,000 to live comfortably.

By moving from San Francisco to Memphis, your dollar would go more than twice as far. You would be saving at a higher rate – closer to 75%! And, a higher savings rate means you can increase what you put towards retirement.

Here’s the other big benefit of geoarbitrage and retirement: because you’re living in a city with a lower cost of living, you will need to save less for retirement than you would if you planned on retiring in a city with a higher cost of living. That can exponentially speed up your retirement date… yaasssss.

Pursuing FIRE with geoarbitrage

One of the principles of FIRE is that you need to do one or both of the following: lower your expenses and/or earn more money. Earning more money – side hustling, finding a higher paying job, or negotiating for a higher salary at your current job – can take some work.

I’m not going to say that moving is easy, but moving to an area with a lower cost of living, like you saw in that example, can be a huge boost in your FIRE strategy. Geoarbitrage lets you drastically lower your expenses in one big move.

Lowering your expenses is one way to increase your savings rate, which is what you’ll need to do to retire early. Hard truth here… saving at a rate of 20% is not enough to retire early.

Geoarbitrage calculators

If you’re reading this article and starting to think “hey, geoarbitrage sounds cool, but I need to crunch the numbers,” don’t worry, I’ve got you.

Thanks to the power of the internet and all of its technology, there are several calculators that help you see how and if moving across country or world can help you retire early.

• Freedom is Groovy Geoarbitrage Calculator. This geoarbitrage calculator has you input your income, housing expenses, non-housing expenses, and current and prospective city to show you your savings rate and income gap.
• Nomad List Financial Independence Calculator. After you input your information (age, monthly income, debt, and monthly expenses) into this geoarbitrage calculator, it generates a list of cities around the world that will make FIRE happen sooner.
• NerdWallet’s Cost of Living Calculator. This isn’t strictly a geoarbitrage calculator, but it’s another fun one to play around with. You enter the city you live in, your prospective city, and your income. You can see how much you’ll need to earn in a prospective city to maintain the same quality of living.

Your geoarbitrage strategy can be small

For most people, deciding to move across the country or even farther, like international geoarbitrage, can be a hard pill to swallow. You might live near family or friends. You might not work remotely. You might just love the city you’re currently living in.

The truth, though, there is no one-size-fits-all geoarbitrage strategy. You don’t need to make a big move to make your dollar go farther. You can hack your lifestyle a bit by making smaller moves in the area where you’re already living to try geoarbitrage on a smaller scale.

If you live in a big city with a high cost of living…

Consider moving just outside of the city where the cost of living is a little less expensive. It’s going to be a smaller saving, and you will need to factor in things like your commute, but this can be a way to test the waters before making a big move.

If you live in a big fancy house…

Consider downsizing or moving to a less desirable neighborhood. For full transparency, I live in a pretty big house for just my wife and I, but we live here because we are earning enough to still make FIRE happen if that’s what we wanted… I’d say I fall into more of the “Financial Independence, Retire Never” category, ha! Still, I get wanting a big house, but big houses do cost more.

The part of the city you live in can also make a huge difference in your cost of living. You literally might only need to move just a couple of miles away to save money. It’s easy to feel the pressure to live somewhere nice, but cut out that noise and focus on what you want. If you want to retire early, then you might need to move to realize your goals.

Domestic vs. international geoarbitrage

I’ve mostly focused on domestic geoarbitrage because it’s probably more feasible for most people. Moving from somewhere in the U.S. to, say, Thailand is going to be a HUGE adjustment. Thailand is known as one of the best countries in the world for geoarbitrage, but there is going to be a major culture shock for most Americans who have never lived abroad or have even traveled for any real length of time.

It’s also going to be really hard to make it home quickly if something comes up. Flying back and forth between where my family lives in Texas to Thailand is around a 24-hour flight at a cost of ~$1,500.

Even though international geoarbitrage can expedite your FIRE dreams (check out that Nomad List geoarbitrage calculator I linked above to see what I mean), your big financial gains may come with just as large personal sacrifices.

The reality of geoarbitrage

Here’s the thing, if you have big goals, like retiring early, you will probably need to make some big changes to realize them. Despite all of the blogs that tell you it is, FIRE isn’t easy for the vast majority of people. You either need to be making a ton of money in the first place or make a huge lifestyle change.

Geoarbitrage is one way of making FIRE happen, but it will be hard for a number of reasons. Here are a few more factors to think about to see if geoarbitrage is a realistic possibility for you.

What about your job?

Working remotely gives you a major advantage, but if you don’t, then what will you do for work?

There are some jobs that require state licenses, and moving internationally can be even more challenging for some professions. Are you willing to change your career if needed? Can you find remote work?

Geoarbitrage and kids

If you have kids, thinking about the impact of a move might take even more careful consideration. On one hand, exposing your children to new experiences can offer some incredible benefits. And, being able to retire early means you will have created financial stability for your children.

On the other hand, what will schooling look like for your kids? Are you prepared to homeschool? Areas with lower costs of living sometimes have lower performing schools. How would private school work with your FIRE goals?

This would be a big one for me: how will you continue a close relationship with your children’s grandparents, aunts, uncles, and cousins?

Geoarbitrage is more than just picking a cheaper city and moving

Those geoarbitrage calculators make other cities and countries look really sweet. You mean I can retire in La Paz, Bolivia in two years with nearly $250,000 in the bank!? But, what about visas, work, healthcare, etc., etc., etc…

I’d say the reality of geoarbitrage is pretty similar to what it’s like to be a digital nomad – it can offer you a faster route to your financial goals, but it comes with a ton of sacrifices.

My final word on geoarbitrage

If I’m being completely honest with you, I don’t see geoarbitrage as being something that my wife and I would ever do, and there are a couple of reasons for that.

One, we like being close to our family. My wife lost her dad a few years ago and that made us realize that we want to spend as much time with our family as possible. Facetiming and flying home on occasion just isn’t enough for us.

Two, if FIRE was something we wanted, we are already earning enough to make it happen without moving. This one is big, and your ability to earn what it takes to save for early retirement is what drives many to consider geoarbitrage. I get and respect that.

If geoarbitrage is part of your FIRE strategy, that’s awesome. More power to you. You can try it out on a smaller scale first and move to something larger if you like the financial gains you’re seeing.

I guess my biggest concern is that when we read terms like “geoarbitrage” or “digital nomad,” they seem sexy or hip when in reality they aren’t easy or for everyone. Don’t dive headfirst into a major life change without understanding what it really means.

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Posted in: Budgeting Tips