How to Make Retirement Possible on a Small Budget

Baby boomers without much money saved will need to find creative ways to retire.

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A woman named Hazel, now in her 90s, raised five children with her husband in southern California in the 1950s. One day a neighbor came over and proudly announced he had set aside $500 for his daughter Loretta's college education. Hazel envied that neighbor. Hazel and her husband had nowhere near that much money. How was she going to put five kids through college?

No one knew. But Hazel went out and got a job as soon as her kids were a little older, saving what she could for the kids' college. In the end all five kids graduated from college, and somehow the bills got paid with Hazel's savings, student loans, scholarships based on financial need, summer jobs, and after-school jobs.

I think life often turns out like this. We wring our hands about not having enough money--in this case, to send the kids to college--yet we somehow get the job done in the end. We find a way.

Americans are going through similar hand-wringing today over retirement. Hazel's five kids and 80 million other baby boomers are reaching retirement age. As a group, boomers have nowhere near enough money to retire. In a recent Employee Benefit Research Institute poll, 57 percent of the U.S. workers surveyed report less than $25,000 in total household savings and investments excluding their homes. The survey also found that 28 percent of Americans have no confidence they will have enough money to retire comfortably—the highest level in the study's 23-year history. So no one knows where the retirement money will come from.

I'm reminded of Hazel and her five kids to put through college. She and the kids somehow managed it. And I'm sure that most Americans will somehow manage it, perhaps, I’d suggest, by moving overseas.

Let's be clear. Money rarely falls from the skies, even if you move overseas. And the truth is that it costs as much or more than in the U.S. to live in many places around the world. Even low-cost countries like Thailand and Mexico have become more expensive as the dollar weakens against the local currencies. So if you lack the money to retire, you're going to have a tough time of it regardless of where you choose to live.

Still, for those on a budget, I see three advantages to moving overseas:

1. You have more housing choices, especially in the third world. Those of us who have lived abroad for some time have met many retirees who seem to live on nothing at all. They happily wander throughout the expat community, often in bars or cafes, without spending any money. These people live in very small quarters, what the English call a bedsit and New Yorkers call an SRO (a small room with a bed and a shared bathroom down the hall). Bedsits have largely disappeared in the developed world. But you still find them in Latin America and Southeast Asia, in cities and small towns.

Often these people take up housesitting once they get to know other expats. The bedsit then becomes a storage room that they can sleep in between gigs. Housesitting offers the chance to live in bigger, better housing and even get paid for it at times. It's not too bad if you're forced to live on $1,000 a month.

Most retirees in the U.S. collect more than $1,000 a month from Social Security. But I know a woman who retired on less than that. She moved to Thailand and spent her life savings to buy a town house and a motorcycle. Her small check now goes a long way, covering utilities, a little gas for her motorcycle, low-cost health care, and then all the things that make life worthwhile. She found a way.

2. You get away from peer pressure. Downsizing back home, if you're forced to do it for budget reasons, makes you feel bad. Sure, you can handle the blow to your self-esteem. But you can avoid that blow altogether if you move overseas and into a new community with new faces and new outlooks.

3. You become more flexible. The first move takes a lot of work. You get rid of stuff, set up an internet-based banking routine, maybe sell your car and house and go through the emotional hit of leaving behind a lifetime of familiar people, places, things and joys.

Once you've made the first move, succeeding moves become easier. So if the first country you choose becomes too expensive, dangerous or dull, you can easily move again. You may even follow one of your house-sitting clients to a new country, if that client has come to rely on you for six or seven months each year.

Perhaps you will find yourself among the 28 percent of Americans reaching retirement with very little money saved, with only a small Social Security check to carry you through. If this is the case, you'll have to be creative to make retirement work. But you'll find a way. One option, if you enjoy trying new things and approach life with a spirit of adventure, would be to retire overseas. You'll have at least three things going for you.

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 28 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her newest book, How To Buy Real Estate Overseas, published by Wiley & Sons, is the culmination of decades of personal experience living and investing around the world.