Geoarbitrage
Earning in a high-cost location and spending in a lower-cost one, which changes the target rather than the savings.
Because the independence target is expenses multiplied by 25, lowering expenses lowers the target by 25 times the reduction. A $2,000 monthly saving on housing reduces the required portfolio by roughly $600,000, which is why location moves the arithmetic more than almost any other single variable.
The domestic version combines cost of living with state tax, since nine states levy no income tax. The two effects are separate and do not always point the same way, as some no-income-tax states carry high property or sales taxes that recover part of the difference.
The international version carries costs the headline comparison omits. Residency and visa requirements, healthcare access, currency risk against a dollar-denominated portfolio, and continuing US tax filing obligations all apply, since the US taxes citizens on worldwide income regardless of residence.
Worked through
Same portfolio, two cost bases
A $1.2M portfolio measured against two monthly spending levels, before any investment return.
- New York, monthly
- $8,500
- Lisbon, monthly
- $3,200
- Years covered, New York
- 11.8
- Years covered, Lisbon
- 31.2
The same $1.2M covers 11.8 years at one cost base and 31.2 at the other. Nothing about the portfolio changed.
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