In general, international living will tend to be cheaper in most developing countries. However, under certain circumstances, just the opposite will be true. For example, living in the Philippines can be very cheap, but if one is living like a typical American in a major city, then the cost of living may actually be higher.

Most measurements of the “cost of living” try to standardize the cost of a typical basket of goods from one location to the next. These cost of living measurements are a useful first approximation for how much international living will cost you. However, each retiree is unique and what may be true for one, may not hold for another. Two retirees with completely different retirement lifestyles in Manila, Philippines are likely to discover two completely different “personal” costs of living. In this article, we examine some of the factors affecting the international cost of living from this ‘personal’ perspective.

International Cost of Living: Variations in the Cost of Labor

If one is living in a developing country, it is more than likely that the cost of labor will be relatively low. For basic goods and services with prices determined primarily by labor costs, prices also will tend to be low. Hand made goods and labor intensive agricultural products will tend to be cheap. Services that employ low skilled workers such as a maid will also tend to be low.

However, even if one is living in a developing country, the cost of goods and services can be high if the goods are energy intensive (e.g. manufactured goods, large scale mechanized agriculture). Skilled labor employing modern technologies (e.g. first class medical care) can be expensive as well. In these cases, the prices for these goods and services could well be the same as in the United States.

International Cost of Living Point 1:  International living can be lower than living in the United States, but this depends to a large degree on the types of goods and services that a retiree wants to put into his ‘basket’ of household goods.

International Cost of Living: Variations in Energy and Transportation Costs

The cost of energy and transportation tend to be expensive worldwide whether it is for electricity or oil. This is primarily because the price of oil is set by the global rather than the local economy. Whether you are retiring abroad to Europe or Southeast Asia, these countries have to buy energy from the same global marketplace and pay the same price. Thus, with respect to fossil fuel energy and transportation costs, there is no generally no decrease in the international cost of living.

There are some exceptions to this rule of thumb however. For one reason or another, countries may impose a tax on imported oil which tends to drive the price of oil up. However, other countries may subsidize (government underwrites part of the cost) the price of oil and this will tend to drive the price of fossil fuels down. This is not a common practice around the world though.

Countries that have lower costs with respect to energy may have substantial capacity in the use of alternative energy (e.g. hydroelectric power) to keep electricity costs down. Oil producing countries are also likely to have cheaper oil (smaller transportation costs to move the oil around). Energy can be cheaper if it is obtained from a non-fossil fuel source or is produced within the country.

The last thing to consider is that if you live abroad and drive a gas guzzling SUV combined with living in a huge house that requires a lot of cooling and lighting, then you can expect your energy costs to be as high if not higher than living in the states.

Obviously, by changing one’s international lifestyle habits, it is possible to reduce the costs of energy and transportation. For example, one can make greater use of public transportation, employ alternative energy devices, or practice other forms of energy conservation. The reality here though, is that the lower cost of energy is the result of  a change in one’s behavior and less so as a result of international living.

International Cost of Living Point #2: There is usually no significant savings in costs from energy between countries. Energy costs can be reduced by ‘green’ international living – employing energy conservation methods.

International Living: Variations in the Cost of Imported Goods

If you are living abroad and insist on consuming imported products, your cost of living is not likely to go down. In fact, they are likely to go up, simply because you are paying for the product, plus the ‘cost of transporting’ that product from the USA to your retirement destination. You may also be paying for the higher cost of labor of American products.

To minimize the cost of imported goods, you will need to look for substitutes for those goods. Usually, locally produced goods will be much cheaper. For example, if you enjoy a good California wine, you will pay for the wine and transportation cost for that wine. On the other hand, if you can find an acceptable local substitute, it will probably be much cheaper simply because the cost of grapes and labor may be much lower locally.

International Cost of Living Point 3: International living will tend to be cheaper if you used locally produced substitutes for American goods and services.

International Living Abroad: Variations in Housing Costs

The cost of housing can be much cheaper with international living, but it is not a guaranteed fact no matter what country you decide to retire in. If you live in the capital city, odds are that you will be competing with wealthier locals as well as wealthier expatriates for housing. This tends to drive the price of housing up due to the demand for limited upscale housing.

On the other hand, if one avoids the competition by looking for a subdivision not heavily populated with wealthy working expatriates, one can usually find more affordable housing. If one moves outside of the city or to a smaller city, the price of housing should drop significantly and your costs for living abroad will decline.

If you really want to live on the cheap when living abroad, you can always adapt to the lifestyles and housing of the locals. If you are adventurous, this could mean an indigenous type of lifestyle – perhaps not so bad if you’re living on a tropical beach somewhere. If you shop around you will find housing that varies from an ultra cheap hut to an astronomically high priced huge and fancy villa. Again, the choices that you make for you international retirement lifestyle will your international cost of living.

International Cost of Living Point 4: In general, the further you move away from the center of a city, the lower the cost of housing will be.

International Living: Variations in Food Costs

The price of foods will, on average be lower in developing countries. However, costs will tend to increase the more processed the food is. If you purchase a chicken that has been chopped up and shrink wrapped in plastic, you must pay for the chicken, the materials to package the product, any labor involved in packaging, and energy used to package it. On the other hand, if you are living overseas, you will usually be able to purchase a chicken from a local wet market without all the extras and reduce your expenses.
When your retire abroad, if you shop in a fancy supermarket, the cost of the food will also include the cost of labor, rent, refrigeration, air conditioning and other overhead that the supermarket owner must bear. Shop at a local market and these prices may decline (unless the supermarket is able to reduce prices significantly because of volume sales).

International Cost of Living Point 5: The more packaged and processed food is, the higher the cost of food.

International Living: Summary of the Cost of Living When Retiring Abroad

The decision to retire abroad can be a great adventure and much less costly than life in America, but it will require some conscious management of your lifestyle. For some, it will be extremely comfortable to shop at a local market to minimize expenses and adopt a ‘greener’ lifestyle.

On the other hand, living abroad can be miserable if your international living budget is tight and you are unable to make these kinds of lifestyle adjustments. Many Americans have learned to live abroad on very modest incomes. In most instances they’ve learned to adapt to the reality of the local economy and have made appropriate changes to their international living lifestyle to keep the cost of living within their means.

(Photo by: bfishshadow)

References and Bibliography

Cost of Living, Expatulator

International Cost of Living Comparisons, Expatisan

International Cost of Living Comparisons Explained, ExpatInfoDesk

List of Most Expensive Cities for Expatriate Employees, Wikipedia

Mercer’s Cost of Living Survey Highlights, Mercer