Should I stay or should I go?
A reader of The Royal Gazette wrote to me and asked for help. The following life scenario has been changed dramatically to protect the anonymity and identity of the reader. All information given to me is always kept confidential.
Severely stressed and wishing for a change in lifestyle, the reader wrote:
“I am writing to you today because I am at the end of my tether, that I cannot take much more in life challenges due to work stress, marital (now divorced) issues, leaving me with a severe crimp in my cash savings. I do not have any children and have three years to go to a formal retirement.
“My spouse and I divorced about a year ago. The settlement constituted cash only to her — was she wise, or what? I am stuck with:
• A nice condo worth about $500,000.
• A 25-year mortgage with 16 years to go — payments are about $2,000 per month with condo fee of $375. Recently, I have been paying additional on the mortgage principal.
• A lodger who pays $1,200 rent a month for a large room with access to kitchen and living space.
• A taxi and licence (worth about $110,000) that is leased to a driver, basically break-even proposition.
• And an investment portfolio and a pension worth about $200,000.
• I have three years to go to obtain formal retirement pension payments.
“My plan would be to relocate in a lower-cost jurisdiction, and pick up a new job that will be rewarding and provides a sense of purpose, but that will not generate the stress that I feel now. Of course, I recognise that a large part of my wishful thinking (and wish for calm and serenity) is still due to the divorce and subsequent reorganisation of my life going forward.
“Can you help me? Do you think I can make these changes?”
First, a quick estimated summary of this individual’s annual financial profile:
$85,000 — net take home pay
$14,500 — lodger rent
Zero – taxi leasing – by the time you add in maintenance, etc.
Total net income around $100,000.
$30,000 — mortgage and condo fees
$6,000 — mortgage principal reduction
$40,000 – Utilities, vehicle costs, insurance and financing, house insurance, living expenses, contingencies, repairs & maintenance, cable, internet, phone, food, etc.
An estimated $100,000 income minus $76,000 expenses leaves $24,000 available for savings each year for the next three years, if our gentleman decides to retire on time, and even less, if he leaves the workforce early.
Besides his mortgaged condo, he has about $200,000 in a pension and investments.
A satisfactory lifestyle is not going to happen. Even if our wishful retiree saves an additional $75,000 to add to the retirement pot, it will not carry him through the next 25, possibly 35 years of his life without continuing to work full-time at the highest-paying position he can obtain. No fancy retirement calculations needed. He will run out of money.
All right, readers, what can he do?
1. Start researching what a pure minimal lifestyle will cost him elsewhere. Costa Rica,* Panama,** Brazil,*** the Caribbean — there are Bermudian retirees in all of these places that I’ve met over the years. Take extra care to explore the generally lower cost of health insurance elsewhere and other differences, such as tax responsibilities, whether he can receive his Bermuda pension overseas, whether he can reside there on a permanent basis, and every related item he can think of.
2. Use Facebook and other social media to connect to Bermudians living in these countries now. Any fellow compatriots will be incredibly helpful in establishing residency elsewhere.
3. Scratch the accelerated mortgage principal reduction. He has indicated that he has mortgage insurance to cover the remaining debt, in case of premature death. So, why not put that $6,000 a year into savings as well.
4. Save, save, save everything he can for now. In two years, and it may take that long to organise emigration to another country, this will give him a total of an estimated $300,000 for his retirement.
5. Sell the taxi lease. If he isn’t going to use it, and it isn’t generating any profits to speak of, sell it now — while demand is high and Uber-type vehicle services have not usurped the traditional taxicab role. That generates another $40,000 - $110,000 depending upon the current market value of a cab medallion. A banker may be helpful in assigning a good sale price.
6. His total savings will then jump to about $400,000 — enough to make a fresh start in a low-cost jurisdiction.
7. He can, in the meantime, also retrain for a travel-type job that he will enjoy. This will provide additional lifestyle income, along with the Bermuda Government pension that he must certainly apply for — if he is eligible. We don’t know that fact for sure, at this point.
8. Then, rent the condo fully, preferably on a three-year lease, minimum. The rental income should (note I say should) cover the mortgage, condo fees, and some maintenance, keeping the bankers from the door.
9. The crucial decision. Should he stay or should he go? What is keeping him in Bermuda! He needs to be ready to put his adventurous plan in place.
10. Finally, if his emigration to another country, another culture works to his advantage and he is happy, I recommend he sell the condominium. Keep careful track of sale valuations on a routine basis. If they continue in a upturn, selling will release the equity in the home, and liquidate the mortgage. Here’s hoping for another $200,000-plus for the future retirement chest to a grand total of $600,000. Now the serious planning can begin.
11. Be brave and unafraid. Bermudians embrace adventure all the time, just as we have done for centuries, pushing the outermost seafaring boundaries in the pursuit of exploration, commerce, and new lifestyle horizons.
Disclosure: I am not your cross border financial planner or tax practitioner. If you are contemplating such a retirement scenario, it is strongly recommended that you seek qualified international professional assistance, from both countries. This retirement scenario is not intended to be a complete financial plan as it is does not address in any depth: investment, pensions, retirement, insurance, estate, tax compliance, trust, cash flow management, and business succession planning, if applicable.
***Brazil, city of Florianopolis COL – Hint $1 US dollar = 3.07 Brazilian reals – possible retirement spot for any Bermuda resident with Portuguese / Azorean heritage https://www.expatistan.com/cost-of-living/florianopolis
**** Caribbean COL – Bermudians have relatives and resources in many of these islands. Tap into that network! https://internationalliving.com/2016/07/5-affordable-caribbean-islands-to-live-on-and-2-to-avoid/
Martha Harris Myron CPA PFS JSM : Masters of Law - International Tax and Financial Services, Pondstraddler Life™, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: firstname.lastname@example.org .
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