The Expat Cost Advantage

The 4% rule says if you can live off 4% of your portfolio, you’re financially independent. For $100k/year in expenses, that means a $2.5 million portfolio. But if you can lower your expenses, you can retire much sooner — and the easiest lever I’ve found for that is moving somewhere cheaper.

Case in point: our family of three spends around $40k a year in Ecuador. At 4%, that’s a $1 million portfolio instead of $2.5 million. The same lifestyle in a medium cost-of-living US city would run well over $100k. And that $40k isn’t a bare-bones budget — it includes trips to Greece, family trips back to the US, a weekly cleaner, a gardener, and eating out and meeting friends for drinks regularly. We’ve actually expanded our lifestyle here because it’s so much cheaper to do so. If a market drawdown hit, these are also the easiest expenses to cut, which adds a nice buffer that a lot of US-based FIRE budgets don’t have.

If your number is more like $500k, part-time work can close the gap. Earn $20k and draw $20k from the portfolio (2% instead of 4%), and the math works well before you hit “full” FI.

Worth remembering too: 4% is a worst-case-scenario withdrawal rate. Median market returns run closer to 10%, so there’s a good chance that after 10 years of living partly or fully off your portfolio, you’ll have twice as much (or more) than when you started.

How Much Sooner Is $500k Than $2.5 Million?

The math on this is striking. Say you make $100k and save half of it — $50k a year — invested at a 10% average nominal return (about 7% real after inflation). Reaching $500k takes about 7.3 years. Reaching $2.5 million, by contrast, takes about 18.8 years. That’s an 11.5-year head start on freedom, just by aiming for the number that lets you work part-time instead of the number that lets you never work again.

Of course, the $500k path means you’re still earning $20k a year through part-time work, while the $2.5M path means you never have to work again. But if the goal is more time, more flexibility, and less dependence on any one job — 7.3 years beats 18.8 years every time.