Using the Big Mac Index to Plan Living Abroad

Examine variations in the price of the Big Mac to estimate the costs of living in different countries.

If you are planning to retire overseas, the Big Mac Index may be a useful tool to assist in your planning for living abroad. The price of a Big Mac has evolved into a nice economic standard for estimating the cost of living around the world. For better or worse, the company maintains uniform standards for making Big Macs internationally. While the quality of the hamburger (or lack thereof) may be relatively standardized, the price of a Big Mac is not from one country to the next.

Using the Big Mac Index to Find an Affordable Retirement Destination

If you are planning to retire abroad, one of the things that you might be seeking is an affordable place for your retirement. The Economist publishes a Big Mac Index annually that was intended to show the relationship between the purchasing power of different currencies. You can use it as a quick and dirty way of determining what the cost of living will be like in different countries.

For example, in 2009, the average price of a Big Mac in the United States was $3.54. Using this as a base, you can then guesstimate what the cost of living is like in other countries by comparing the price of the Big Mac in another country.

Expensive Countries to Retire Abroad:

The price of a Big Mac is the highest in western and northern European countries. The price of a Big Mac is $5.79 in Norway, $5.60 in Switzerland, $5.07 in Denmark, $4.58 in Sweden, and averaging $4.38 in other countries using the Euro.

Obviously, the average person will not live entirely on Big Macs in their retirement, but the basic cost of the ingredients: two beef patties, special sauce, lettuce, cheese, pickles and a sesame seed bun combined with the labor costs of making, packaging and selling are high.

Thus, the cost of the Big Mac in Norway is a reasonable indication that the cost of food and labor in northern Europe could be 60% higher than in the United States. On a tight retirement budget, Northern Europe may not be an ideal retirement destination for living overseas. If budget is not a limiting factor for you, then of course you would use other criteria for selecting a retirement destination and Northern Europe might just be one of the best places to retire for you.

Mid-Priced Countries to Retire Abroad:

Countries where the price of a Big Mac is comparable to the cost in the United States include Israel ($3.69), Brazil ($3.54), Canada ($3.36) Britain ($3.30), Japan ($3.23) and Turkey ($3.13).

In very rough terms, the price of Big Macs in these countries suggest that the cost of living in these countries is comparable to that in the United States. This is not 100% true because of variations in the cost of other things in these countries (besides the two all beef patties…), but it is a good first approximation of the cost of living.

Reasons to retire overseas to countries in this category would not be so much for the economics of lowering your costs of living. If you live comfortably in the United States, other factors such as climate may be a more important determining factor.

Low Cost Countries to Retire Abroad:

The price of the Big Mac is much lower in Russia and Eastern Europe ($1.73 to $2.92) and the lowest in Asia ($1.52 – $2.07). Depending on where you live abroad in this category, the cost of living could be as much as 60% less than in the United States. If your are looking for a cheap place to retire, these are likely to be viable retirement destinations.

Although you are not likely to live on a diet of Big Macs, the index is a reasonable reflection of how much it costs to live in different parts of the world. If you were to retire abroad, the best location for a Big Mac attack would have been in Malaysia for $1.52.

In 2009, if you require a low cost of living to retire abroad, but in an economy developed enough to sustain a McDonald’s franchise, then the old Eastern bloc, Russia, and the newly developing Asian economies seem the best bet for retiring overseas.

For a complete listing of Big Macs, you might want to take a look at the Economist.

Consider the Big Mac Index as a useful starting tool in your exploration of potential retirement destinations. However, the decision to retire abroad is a very complex one and it is recommended that you explore a host of other factors related to the economy and cultures of different countries if you plan on living abroad.

While the pocketbook and a low cost of living are desirable in retirement, these are not the only factors that retirees will have to adapt to if you retire overseas. For many, one of the most difficult challenges is dealing with culture shock of being immersed in a foreign culture.

Please spend some time reading some of the articles in Retire Abroad to get a better feel of some of these non-economic issues as a starting point in your retirement planning for living abroad.

(Photo by: TheD)

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