How To Retire in the Philippines with $200,000 of Savings?
- 1 How To Retire in the Philippines With No Money
- 2 Retire in the Philippines with $200,000 of Savings?
- 3 Well, pretty much true.
- 4 Low Cost of Living
- 5 OK, fine arithmetic there.
- 6 What’s My Alternative Suggestion?
- 7 Social Security
- 8 All Correct But a Few Warnings Are In Order.
- 9 What’s My Solution?
- 10 Rent or Buy?
- 11 This Is Basically Correct, except for One Glaring Error:
- 12 Spending Less
- 13 Excellent advice.
- 14 The Bottom Line
- 15 Taxes Will Always Be With Us
(Updated 17 October 2018)
Interesting title, eh? If I had $200,000 USD in savings would I even be retired in the Philippines? Would you?
Well, let’s explore so issues and possibilities.
A while back I posted this article about retiring here in the Philippines with NO money. You might want to read that if you haven’t already. Just click on the link, go ahead, I’ll wait for you here:
As that article says, you absolutely have to have some money to retire in the Philippines, but the actual monthly needs may be very small.
But what if you have been lucky in life and have been a good personal money manager over the years? What if you have a nice “pile” sitting in the bank or in some IRA, 401K or another investment plan?
Current national statistics on savings are scary, very few people of retirement age have any savings at all.
They plan to live their retirement the same way they have lived the years landing up to it, paycheck to paycheck, substituting Social Security for a J*O*B.
If you’re one of the smart ones among us and you do have a healthy savings account going into retirement, you might want to read this recent article from investopedia.com. It raises some interesting points and gives some good information about retirement in the Philippines.
And some information which I feel needs correcting, so I will, below.
More and more people are choosing to retire abroad to enjoy new experiences, access to affordable health care and a lower cost of living.
One destination long popular with expats is the Philippines, a nation that spreads out over more than 7,000 islands.
Its borders are Taiwan to the north, the Pacific to the east, Indonesia and Malaysian Borneo to the south, and the South China Sea to the west.
A large expat community enjoys everything the country is known for – beaches, beautiful scenery, tropical climate and friendly locals – plus affordable health care and a low cost of living.
Other perks: The Philippines extends a number of incentives to expat residents, including discounts for the 60+ crowd and the duty-free import of household goods…
Well, pretty much true.
But two areas of concern in this introduction are “health care” and discounts for the “60+”.
First, healthcare in the Philippines is “spotty”. If you live in Manila, Cebu, Davao or a few other large cities, you should be able to find all the health care you need.
But if you go very far out in the “provinces” at all, where the cost of living is much cheaper, you may not be able to find even decent basic health care.
And traveling to larger cities is often a lengthy, expensive and arduous project.
Secondly, the discounts for seniors over 60 are for Filipino citizens who physically red=side in the Philippines ONLY.
There are harsh penalties for violating this law, so no discounts for most expats.
Low Cost of Living
Each year, International Living’s Global Retirement Index ranks retirement destinations around the world, measuring factors such as climate, healthcare, benefits and discounts, and cost of living.
For the 2017 Index, the Philippines scored a 90 out of 100 for cost of living.
International Living also shows that expats can live comfortably in the Philippines for about $800 to $1,200 a month.
If you live on $800 per month – probably the lowest amount on which most retirees could live comfortably – your $200,000 savings account would last about 21 years ($200,000 ÷ $800 = 250 months, or 20.8 years); live on $1,200 a month and your savings would last 14 years ($200,000 ÷ $1,200 = 166.66 months, or almost 13.9 years).
This assumes the unlikely situation that your monthly expenses stay the same over the years and that you have no other income or expenses during retirement.
OK, fine arithmetic there.
But I am here to tell you, even if you have a substantial “nest egg”, like $200,000 built up, it would be very unwise for you to just “burn it up” over X amount of years. Why?
- Impossible to foresee future costs.
- Impossible to know how long you will live.
- Having nothing but passive savings to occupy your time is a recipe for boredom and discontent. As we age, we are happier and even healthier learning new things and working projects and programs for the future.
What’s My Alternative Suggestion?
Use part of that $200,000 to invest in an online business which you can operate from anywhere. I’ll be writing a lot about this strategy real soon now, but to be brief, I’d hold roughly half my fictional $200K in conventional investments and buy several established online business, each making $1000 USD per month and then basically sit back and enjoy life.
What I would not do under almost any circumstances is to get involved with trying to set up some sort of Philippine business to supplement my retirement. Not recommended at all.
In addition to savings, many retirees have access to other income sources during retirement. The average retired worker’s Social Security benefit, for example, is $1404 per month for 2018.
Adding Social Security into the mix alone makes retiring comfortably in the Philippines with $200,000 start to seem like a very real possibility.
Your monthly benefit might be enough to cover most of your living expenses – housing costs, food, activities and basic healthcare – with money left over for the occasional trip back home or to cover an unexpected expense.
All Correct But a Few Warnings Are In Order.
First and foremost I strongly advise that expats do NOT have their Social Security benefits direct deposited in a Philippines bank. This CAN be done and it works OK for many, but in my 15 or more years giving advice on moving to the Philippines I have heard more horror stories on issues of direct deposit Social Security than on nearly any other issue.
First of All, Keep a US Bank or Credit Union:
If you have your Social Security Benefits sent directly to a Philippine bank, the Social Security Administration (SSA) will require the account be in your name only (not joint so that your spouse can have access).
Also, they will require that the account be what used to be called (and still is in the Philippines “passbook savings only”. No ATM cards, no checkbooks, withdraw money in person, over the counter at the bank, only. Very inconvenient in my book.
Last but certainly not least. The so-called “direct deposit” is not really “direct”. To use this service you must open an account with one of only a few banks, like BPI (Bank of the Philippine Islands). If there isn’t a local branch near you? Well, sorry about that.
Next, when the SSA sends you your benefits they are sent to a commercial clearinghouse bank in New York City … no public access, no customer service, etc.
Next, this anonymous thrird-party bank sends your funds to the BPI of New York bank. (this is a separate corporation from BPI Philippines, with it’s own schedule, rules and customer service organization.
Finally, BPI New York sends you money to your account at the BPI Philippines where it is available for your use. All this costs you about $7.00 in fees.
But the time delay and the chances of something going wrong when your money passes through so many hands and different corporations is scary.
What’s My Solution?
I have my Social Security benefits sent directly to my US Federal Credit Union. There’s no charge and it happens like clockwork, third of every month when the SSA sends out retirement checks.
How do I get my hands on my money in the USA hen I am in the Philippines?
- I can write a check, payable to me, drawn on my US Credit Union account and deposit it in my Philippine US dollar bank account. This costs a $5.00 USD foreign check deposit charge and also has the disadvantage of my bank holding the funds for 25 banking days before they are available in my account.
- Or I can use the services of Xoom. They will transfer the money from my US bank account to my Philippine bank account in literally seconds. Their fees for this service are about $5 USD per thousand USD transferred. No muss, no fuss, no bother and my money is normally available before I can log out of their website.
Once my money is available, I can withdraw it as US dollars and seek my own n=money changing service, or I can withdraw it as Philippine pesos, converted from US Dollars at my bank’s latest daily conversion rate.
Rent or Buy?
Like anywhere in the world, rental costs in the Philippines depend on the property’s location, size and condition.
According to city and country database website numbeo.com, as of 2018, the average monthly rent for a one-bedroom apartment in a city center is $230; outside a city center, the rent drops to an average of $129 per month.
For three-bedroom properties, the average rent is $505 inside cities and $277 outside cities.
While rent is generally considered affordable if you plan on living in the Philippines for a while, buying a condominium might be more cost-effective.
Although foreigners, in general, are prohibited from buying property in the Philippines, the Philippine Condominium Act makes it possible for expats to purchase condominiums, essentially because condominium ownership does not convey any type of ownership in the land on which it sits.
For information on which locations you might want to investigate, see Find The Top Retirement Cities In The Philippines. If you buy something, see Do You Get U.S. Tax Deductions On Real Estate Abroad?
This Is Basically Correct, except for One Glaring Error:
The statement, “foreigners, in general, are prohibited from buying property in the Philippines” is dead wrong. The Philippine constitution is quite clear that foreigners may not, under any circumstances, purchase any amount of the land area of the Philippines.
Over the years I have seen many, often quite complicated and apparently illegal schemes to allow foreigners to purchase land in violation of this law.
My advice? Stay far away from any of these schemes and accept the fact that as a foreigner you can only BUY a condominium. But you can rent, or long-term lease property (up to 50 years) without any restrictions.
If you end up living in a place where you’ve previously enjoyed vacationing, it can be difficult to make the financial switch to everyday life.
One mistake many new expats make is acting – and spending – like they’re still on vacation.
While it is normal to splurge on vacation, spending too much on meals and attractions for the long-term can burn through your retirement budget.
One way to avoid overspending is to find out where the locals go for meals, groceries, nightlife, entertainment, attractions, etc.
By getting to know the local vendors and other expats, you can find out where to buy things at the “local” rate instead of the “tourist” rate. This is a hugely important step in maintaining a low cost of living abroad.
You might already do this at home without even thinking about it. Do the same thing abroad and your money can last much longer.
Many expats, when coming to the Philippines, attempt to live apart for “the locals”, interacting with and dealing with only other expats, and patronizing places that serve and sell only (expensive) expat style items.
If you do this you will not only increase your month expenditures dramatically, but you’ll miss a lot of the “flavor” and benefits of living in another country.
The Bottom Line
The uncertainty of anyone’s lifespan makes it impossible to predict if $200,000 would be enough to last through retirement anywhere – even in a country with a low cost of living like the Philippines – but living abroad during retirement can offer a better quality of life for your money and make retirement dollars stretch further.
As with any retirement destination abroad, it’s a good idea to visit the area more than once before making any decisions – and try to visit from a resident’s perspective, rather than as a tourist.
In addition, taxes for those retiring abroad can be quite complicated. As such, it is always recommended that you work with a qualified attorney and/or tax specialist when making plans for retiring abroad. Start by reading How To Plan Your Retirement In The Philippines. Then check out Plan Your Retirement Abroad.
Taxes Will Always Be With Us
The last thing I want to talk about is taxes.
The first thing US expats often run afoul of is the idea that som3how if living outside the USA they do not need to pay US income taxes.
Depending upon actual income you might indeed not have to pay US taxes, but ALL US citizens must report all income from any source, worldwide. From there you calculate to determine if you actually owe any tax to Uncle Sam.
The Philippines does not tax you ion income from sources outside the Philippines, so unless you are employed in the Philippines, or operating a business there, you don’t have to worry about Philippine tax.
An important fact about US taxes to consider, especially if you take my advice and operate an online business as part of your retirement funding is, all “earned” income while you live outside the USA can normally be excluded from your US tax liability, up to $104,000 in the coming year by use of the US Foreign Earned Income Exclusion. (FEIE).
It is important to remember that the FEIE covers ALL income earned while you live overseas, not, as many conclude, only income earned from countries other than the USA.
But a trap many expats tend to fall into is Social Security, government and private pensions and other retirement income is NOT considered “earned” income by the IRS. But earnings from a business which you own and actively operated certainly is “earned”.
I’m not a qualified tax advisor, so be sure you consult with one before making any income and tax decisions.
Meanwhile, what is else do you need to know about
How To Retire in the Philippines with $200,000 of Savings?