Time to Bug Out of America?

7100035467 5e6c86ab79 Time to Bug Out of America?George Ure and Gaye Levy, Contributors
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We seem to get a more or less, constant stream of mail from people who go “one step beyond prepping” and go so far as to actually leave and bug out of America.

George, for example, has plenty of readers, it turns out, in places like Ecuador and Chile, where lots of Americans are moving to extend their retirement incomes. But in some places, like Panama, where George’s brother-in-law is back from, it seems like the overseas boom in real estate has come to a screeching halt.

So we ask ourselves: does it make sense to leave America and move elsewhere for the long term?

Depends….

What Your Money Buys
For people on fixed incomes, one starting point is to consider what things cost in the country that you are thinking of retiring to . . . or just moving to in order to escape the rat race of North America. The problem is sorting out truth from fiction about what things cost.

Fortunately, there is a widely recognized method of balancing things out using a system called “Purchasing Power Parity.” Wikipedia sums up the concept this way:

In economics, purchasing power parity (PPP) asks how much money would be needed to purchase the same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate.

Using that PPP rate, an amount of money thus has the same purchasing power in different countries. Among other uses, PPP rates facilitate international comparisons of income, as market exchange rates are often volatile, are affected by political and financial factors that do not lead to immediate changes in income and tend to systematically understate the standard of living in poor countries, due to the Balassa–Samuelson effect.

A bit more research and we find that there are other, less formal, ways to find out how the actual cost of living would feel in different countries if you were to stick to American products. One example is the often-cited Big Mac Index:

The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.

Using this index in 2008 would have priced a Big Mac at an average of $3.57 in the USA, while it was ₤2.29 in the UK. Since the exchange rate at the time was $2 equaled ₤1 pound, the equivalent price was estimated at $4.58 (in US dollars), so buying the same burger in the UK would cost about 28.3% more than in the US. No savings there.

On the other hand, in other places around the world, burger prices vary, but it’s hard to keep track of such things in our spare time. Unless, of course, you happen to know that The Economist, a British paper focused on care-to-guess-what? It has just such an index and you can look at it periodically to see what’s going on with Big Mac prices worldwide.

Based on the January report available here, while the average Big Mac was running $4.20 (on average) in the USA, it was a (pardon our bad burger pun here) running a Whopper of a price in Switzerland, fetching $6.81. . .before fries and sides. On the other hand, the same burger was only costing what would be in Rupees, the equivalent of $1.60 in India, and only slightly more expensive ($2.11) in Ukraine.

Other American equivalence indices can be found, as well, such as the Starbucks latte index, which compared the price of a tall latte in various places globally, but the index hasn’t been much talked about lately.

But returning to our focus, Purchasing Power Parity, or simply PPP as it’s called, can be found annually update as the Organization for Economic Development and Co-operation website and it reveals some interesting things. Mainly that in terms of purchasing power, only three countries on Earth are more expensive than the USA: Luxembourg, Norway, and Switzerland (which we suspected after the burger index research) while on the cheap end of things, the bottom expense-wise may be found in places like Chile, Mexico, Turkey, Poland, Hungary, Estonia, the Slovak Republic, and Portugal.

Of course, these countries have their own sets of issues which Americans may wish to ponder before pulling up stakes.

What Makes a “Livable” Country?
Most of the reader’s we’ve corresponded with fall into one of two camps: Those that do not wish to learn Spanish, or some other global language, and those who do take the time to learn “something else.”

To be sure, climate and natural resources figure prominently in any equation as well, and along with this, as long as we’ve got the thinking caps on, we may also wish to consider other factors, such as population density per square mile.

Depending on how you rank these, there are plenty of different answers that could be best – but it would only be “best for you” since anyone else would likely have a different weighting model from such a decision.

In 2008, Forbes Magazine did a really thorough look at the question of where’s the best place to be an American Expat (expatriate) and topping their list was Singapore. That’s not likely to be the case today, since prices in Singapore have risen, and, remember, the Forbes article was directed at a different market than retirees – they were talking about expat job postings in the main.

George’s long-time friend, Bernard Grover, who serves as the slightly tongue-n-cheek Bureau Chief for UrbanSurvival in Jakarta, moved there several years ago and has thrived. Not only has he gotten married and been able to pursue many business interests, but he’s learned the odd mix of languages common to that part of Indonesia where, last we checked, he was working on introducing comedy clubs to the country. One drawback: many people smoke in Asia . . . tobacco smoke is far more prevalent where profits can be had from uninformed consumers.

Another of UrbanSurvival’s readers is Don DuBosque who publishes regular comments on his adventures of being an expat in Uruguay. We find “My day in Uruguay” to be a pretty insightful look at restarting somewhere else, but with the big asterisk that says “*MUST LEARN SPANISH” before such a move is attempted.

To be sure, another reader, who packed up his family after selling his home in Chicago near the height of real estate prices (tsk tsk George’s doings in part) has found success and happiness in New Zealand. While his first job was as a high-end IT manager for the government upon arrival for the first year and a half, the inevitable cutbacks in spending took their toll and he and his family were forced to do something different. Last we heard, he was still doing IT work, but also teaching baking to locals and doing classes in his local community.

Some of the little things that some from living in a foreign country are hard to put into words. George’s Kiwi reader, for example, took great delight in being able to ride a motorized skateboard, something which is verboten in most American cities.

It’s also hard to put the adventure of moving out of one’s mind for long. In 1983, George resigned from a successful broadcasting career to move his then-wife and three kids to the Cayman Islands where he lived for two years as senior vice president of the country’s national airline. While it was a “now for something completely different” kind of life, it was extremely broadening, and once in the airline business the number of cities he was able to visit skyrocketed, along with jungle adventure in Equitos, climbing Machu Picchu, lunching in Panama City, diving in the Turks and Caicos, and so forth.

But there is a downside – and this is something that people who go on about being an expat don’t talk about too much. It’s the matter of becoming, in the case of living on Grand Cayman, a bit “island happy” after a while. Because he flew into the US quite frequently, George didn’t come down with it much, but it was hard on the family living on an island with just 25-miles or road populated by a few thousand cars and, English-speaking or not, it was still a very British place.

On the other hand, Gaye lives on a small island only accessible by ferry (or pricey float plane service) and does not seem to suffer any of the symptoms of island living.  Perhaps age and maturity – and no kids – are the solution to this malady.

Then There’s the Tax Angle
As exotic and romantic as the adventure in “fleeing America” might sound, the reality is that there are tax consequences both for off-shore income, especially if that income happens to be tax-free in the country where paid, as it was in George’s case, or whether the income arrived from the US but still had taxes owing on in, such as from investment income.

George’s solution was pretty simple: hire a big-eight accounting firm (there were 8 at the time) to prepare his returns for him, or take a risk not being able to document everything just-so for IRS. George made the conservative choice and it served him well.

On the other hand, in his travels, as you might expect living in a tax-haven, he did run across people who were skirting the law. A typical example was someone in Texas (and this was going into the S&L crisis, remember) who would refinance a major apartment complex for some high-dollar value, and take the proceeds of the re-fi as cash.

Then, the person would get on a plane, fly off to one of the several tax havens in the Caribbean, and deposit the money there. Naturally, at the time under existing tax laws (and it may still be the case today – we offer no advice) because the money which went offshore was “loan proceeds” (*subject to repayment at the time of exit) there was no “income tax due” or, at least that was the argument.

Naturally, when the excessively appraised apartment building was later repossessed for non-payment, the cash was out of country and, practically speaking at the time, out of reach of US authorities. It was made even more complicated by depositing such funds in the names of local nominees, who acted as “trustees” for offshore trust accounts, also beyond the reach of US regulators, although some of that is still changing, as there was a critical tax decision aimed at drug dealer income, which is still evolving today with threatened action by the US against those Swiss banks that don’t turn over confidential information about US citizen offshore accounts.

ScotiaMcLeod’s newsletter Exchange offers some discussion of how tax rule changes by the US – and other countries– is changing the nature of offshore financial, which for a good number of years was largely interested in preserving individual income.

We note that with the rise of corporate uses of offshore banking (in many cases to cost-load expenses on to high tax-rate countries to effectively minimize total global tax burdens) that the offshore interests seem to be moving more to become corporate service bureaus, and of course, privately owned corporations . . . well, let’s let it go at that.

Can You Ever Stop being a Citizen?
Well, partly yes, and mostly no, since there are a number of problems that come with such an act. Many of George’s acquaintances who lived in Tax Haven countries simply applied for, and received, citizenship in the offshore tax haven countries.

The way this process is done – and this is important to those people seeking to permanently avoid US income tax reporting liability in perpetuity – is to first get citizenship in some foreign country.

After this is done – and with both citizenship papers and a valid passport from the new country in pocket, the next step is laid out on the State Department website this way:

B. ELEMENTS OF RENUNCIATION
“A person wishing to renounce his or her U.S. citizenship must voluntarily and with intent to relinquish U.S. citizenship:
1. appear in person before a U.S. consular or diplomatic officer,
2. in a foreign country (normally at a U.S. Embassy or Consulate); and
3. sign an oath of renunciation

Renunciations that do not meet the conditions described above have no legal effect. Because of the provisions of section 349(a)(5), Americans cannot effectively renounce their citizenship by mail, through an agent, or while in the United States. In fact, U.S. courts have held certain attempts to renounce U.S. citizenship to be ineffective on a variety of grounds, as discussed below.

After going through the warnings about the dangers of being a “stateless” person, the US then lays out their claim of ongoing taxing authority this way:

E. TAX & MILITARY OBLIGATIONS /NO ESCAPE FROM PROSECUTION
Also, persons who wish to renounce U.S. citizenship should also be aware that the fact that a person has renounced U.S. citizenship may have no effect whatsoever on his or her U.S. tax or military service obligations (contact the Internal Revenue Service or U.S. Selective Service for more information). In addition, the act of renouncing U.S. citizenship will not allow persons to avoid possible prosecution for crimes which they may have committed in the United States, or escape the repayment of financial obligations previously incurred in the United States or incurred as United States citizens abroad.

Which may be true, or may not be, and this is where it gets to be dicey. If a person pays taxes right up to the point of renunciation, and then – thereafter in the future fails to file and report future income, well that’s where we end out little discussion and direct you to competent tax counsel.

But just how broadly can such claims be made, and, in the case of real estate which was used to secure property, but which has subsequently declined in value and the difference in loan proceeds offshored? Well, that’s the stuff which keeps law firms and tax agents busy.

But What About Simply Bugging Out?
In terms of a “quick bug out”,  unless you can time your exit perfectly to the collapse of the global computer infrastructure/grid, it seems to us to be a pretty risky business to try a “shot at a brass ring” on the way out.

On the other hand, on Social Security could you live happily on a cheap beach in Mexico or Chile, or in a gorgeous mountain town in Ecuador? You bet.

And the articles found in the “Escape from America Magazine” make for really interesting continued research in answer to the question:  is it time to bug out of America?

Introducing Strategic-Living: a practical and useful online magazine providing inspiration and guidance as we make our way through the maze of changes that are coming our way. In collaboration with my friend and colleague, George Ure, Strategic-Living will offer a synthesis of Urban Survival and Backdoor Survival with much more detailed tips, tools and strategies for creating a vibrant and sustainable lifestyle wherever your path may take you. Think of Urban Survival and Backdoor Survival as your roadmap and Strategic-Living as your detailed guidebook. Here you will find articles and photos, diagrams and how-to’s, and a healthy dose get-out-there and do it with kick-in-the-ass inspiration.

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