Reader Case Study: Stuck in Chicago, Longing for Life in The Basque Country
Katie and her husband Jon live in Chicago, IL with their two-year-old daughter Amaia. But Chicago is not where their hearts are. Jon is originally from the Basque Country and the family longs to return. After a brief stint of living there in 2019, they were forced back to the States in order to find better jobs. Now, they’re on a three to five-year trajectory to retire early in Spain. They’ve asked for our help in analyzing their plan and forecasting the likelihood of this dream.
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Case Studies address financial and life dilemmas that readers of Frugalwoods send to me requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight and feedback in the comments section.
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I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn. There’s no room for rudeness here–the goal is to create a supportive environment where we all acknowledge that we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.
A disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Katie, today’s Case Study subject, take it from here!
Hi, Frugalwoods! I’m Katie, a 32- year-old American married to Jon, a 38-year-old Basque. Together we have a hilarious almost 2-year-old daughter named Amaia. We currently live in Chicago where I work in public relations and Jon works in logistics. We met on the OG dating site, Match.com back in 2011 :).
Jon had moved to Chicago for work and I was a recent college grad starting my career. We got married just 8 months after meeting to avoid having to do a long distance relationship when Jon’s visa ran out. 9.5 years and a daughter later, it was the best crazy decision of our lives!
Over the course of our relationship, we have lived in Chicago, Las Vegas, Spain and now we are back in Chicago. As a family, we love being outside – at the park, beach, in the mountains. And we love to cook – especially traditional Basque foods. Our dream is to retire early in the Basque Country and we’re hoping to do so in the next 3-5 years.
What feels most pressing right now? What brings you to submit a Case Study?
We’ve just moved from Spain to Chicago. We moved to Spain in October of 2019 with the intention of staying indefinitely. We planned for this move for nearly 5 years – saving diligently because we knew securing employment in Spain was going to be tricky. Spain still hasn’t really recovered from the 2008 recession and the job market is, well, shit. Luckily, I was able to keep my US job (and salary!) working as a remote freelancer.
Jon struggled to find work but finally received two job offers in February/March 2020 – one with a luxury tour company and another at a Michelin star restaurant. Then the pandemic hit, and both of his job opportunities disappeared. He spent the next several months applying for jobs with no luck. Finally, in October of 2020 (seven months later), he found a contracted position covering a medical leave. My employment has been fairly steady over the last year, I got furloughed for 2 months over the summer when things got really bad, but was brought back for some projects here and there and I’ve been back to full-time since October.
We knew Jon’s job contract would eventually come to an end and he had little hope of finding something new once it ended, so we started to think through our next move. We absolutely loved living in Spain, but we knew it would be very hard to reach our financial goals relying on employment options there. We started to play with the idea of moving back to the states for a few years, while our daughter is young, to finish out our financial goals. And JUST as we started to think about that, I got a LinkedIn message from a recruiter for a big job back in Chicago. After a series of interviews and some candid conversations with my current employer, I was offered a full-time, promoted position at my current company – I got the offer from the competitor and my company countered, so I decided to stay.
At the end of March 2021, we relocated our family back to the US with the plan to stay for about 3-5 years, hopefully returning to Spain before Amaia needs to start ‘real school.’ Our goal is to return to Spain with a fully paid off home + about $1M invested ($1,150,000 total NW) and based on our calculations/forecast, we think that could be doable.
The most pressing thing for us: what’s it going to take for us to feel comfortable and confident in pulling the plug on full-time employment?
Can we get it done in 3-5 years while living in Chicago? How can we try to enjoy the next 3-5 years in Chicago knowing we’ll be longing for our life back in Spain? Our move to Spain in October 2019 was premature but Jon was burnt out and needed to get home. We’d just become parents and needed help and support from family. The move was great but we both feel like we left something incomplete back in the states. Jon is kicking butt at his new job and is making a conscious effort to build community in Chicago but I do still worry he might get burnt out again, especially when winter returns. And I don’t want us to wish away the next 3-5 years – I want to enjoy life while we work toward our goals.
Additionally, we will both have access to Social Security in the future — we both will have reached the minimum years of work by the time we retire
Owning and Renting
We purchased a scary haunted condo in The Basque Country of Spain for $100k (we paid cash) in February 2021 and will be renovating it over the next 6-8 months. While we live in Chicago, we’re renting a one-bedroom apartment. We are pretty comfy in this one-bedroom and I see us living here for our entire time in Chicago. Plus, moving is the worst so we’re hoping to avoid that at all costs. We’ll live in the condo in Spain when we move back and envision that being our forever home.
We probably will not rent the condo out while we’re in Chicago. Jon’s sister might live there and cover costs (HOA, insurance, etc.) but if not, we’re thinking we will keep it empty to avoid the added stress of managing it from abroad. Since we paid cash for the condo, our only monthly carrying costs are the HOA fee and insurance.
What’s the best part of your current lifestyle/routine?
In the Basque Country, I love the pace of life and the focus on the outdoors. Our days off mostly consist of leisurely walks by the river, playing in one of the many parks and perhaps stopping by a bar or café for a drink and a pintxo. Quality of life in the Basque Country is very high – great weather, diverse geography, cheap and beautiful produce, universal healthcare, nearly free education. Life is focused on family and friends – not money or flashy things and that is extremely refreshing.
In the US, I have a wonderful network of life-giving family and friends. I’ve missed them all terribly over the last year and a half that we’ve been in Spain. I also really appreciate the ability to grow professionally – the job and side hustle opportunities in the US feel limitless.
What’s the worst part of your current lifestyle/routine?
In the Basque Country, the lack of job opportunities is really THE issue for us. The job market is tough – very few jobs are available for very low pay. It makes reaching our financial goals very difficult.
In the US, cost of living is the biggest barrier. Healthcare and education are the two biggest things – retiring early in the US feels like an impossible feat. In Chicago specifically, the weather is a real burden – we love to be outside, but in Chicago, we are indoors 6 months+ of the year because of the extreme weather.
Where Katie and Jon want to be in 10 years:
- Finances: We’d like to have successfully lived off 2-2.5% of our investments for 5-7 years
- Lifestyle: Living in the Basque Country of Spain, spending our days walking, working out, surfing, cooking, reading, napping, playing with our daughter, taking day trips to nearby towns, enjoying the mountains and beach and just generally living a slow-paced life. At this point, we envision Amaia being our one and only child.
- Career: Retired, perhaps picking up a few projects here and there if we want.
Katie and Jon’s Finances
|Katie’s net income||$7,433||Katie’s net salary, minus the following deductions: health and dental insurance, 401k contributions, and taxes.|
|Jon’s net income||$3,725||Jon’s net salary, minus the following deductions: health and dental insurance, 401k contributions, and taxes.|
|Parking space rental||$94||We rent out our parking space in Spain, which covers our HOA costs for the condo|
|Item||Amount||Notes||Name of bank/brokerage|
|Brokerage Account||$423,736.25||This is our taxable investment account||Betterment; We are currently sitting at 82% stocks, 18% bonds, slowly moving to 70/30. Expenses are 0.25%.|
|Home Equity||$168,335||We bought our Spain condo in cash for $100K and are putting about $70K into the renovation. We’re counting that all as home equity.|
|Traditional IRA (Katie)||$100,443.32||Betterment|
|Checking Account||$21,317||We’re using this money to pay taxes and for the condo renovations. The rest is our emergency fund.||Bank of America|
|Traditional IRA (Jon)||$17,094.38||Betterment|
|401k (Jon)||$300||Just started contributing last week|
Note: Katie’s dad plans to gift us $150K over the next 5 years – we received the first $30K increment in February of this year.
I added our current expenses in Chicago, but also wanted to share our average expenses in Spain to show what our early retirement life will cost.
|Rent||$1,150||Includes rent + heat/water||$50||Since we own the house outright, we just pay HOA|
|Utilities||$25||Just pay electricity||$154||Water, gas, electricity|
|Daycare||$1,280||Private daycare, full day, 5 days a week – includes lunch and snacks and diapers||$117||Public pre-school, pay for food & diapers|
|Groceries||$500||Includes food, house supplies, diapers, etc.||$400||Includes food, house supplies, diapers, etc.|
|Cell phone||$o||Both of our jobs pay for our cell phones||$23||Includes both of our cell phones|
|Home Insurance||$0||We rent||$33|
|Car Insurance||$0||Don’t have car in Chicago, use CTA||$43|
|Gas for the Car||$0||Don’t have car in Chicago, use CTA||$60|
|Personal Care||$24||2 haircuts a year for Katie, 1 every 6 weeks for Jon||$19||2 haircuts a year for Katie, 1 every 6 weeks for Jon|
|Entertainment||$100||1-2 dinners out, a cupcake and a coffee here and there, drinks with friends||$60||A pintxo or two each week, 1 menu del dia for lunch|
|Travel||$208||2-3 domestic trips, 1-2 international trips back to Spain||$250||1-2 international trips back to US|
|Gifts||$41||Christmas, birthdays||$41||Christmas, birthdays|
|Clothing||$50||A few new things per year – a pair of shoes, a new coat, etc.||$50|
|Healthcare/Dental||$42||Annual check-ups, co-pays, etc.||$11||Just have to pay for dental|
|Chicago Monthly subtotal:||$3,494||Spain Monthly subtotal:||$1,377|
|Chicago Annual total:||$41,928||Spain Annual total:||$16,524|
Credit Card Strategy
We’re working on getting a credit card. We applied, but because we don’t have any open accounts in the US right now, we were denied 🙁 BUT we love the Chase cards and have gotten a companion pass on SW using promos. Big fan.
Katie’s Questions for You:
- Based on our financial situation, do you think it’s feasible for us to reach our financial goals by Summer 2024? Or should we plan to stay in Chicago an additional 1-2 years beyond that?
- What tips do you have for enjoying these years of working towards our goals?
- When we reach our goal, how do we muster the courage to quit our jobs and execute our plan?
- Logistically, how should we plan to live off our investments? We know about the 4% rule, but feel more comfortable using 2 or 2.5%. How do you set up the withdrawals from your investments?
- How should we factor in the currency exchange rate from USD to Euro? And the cost of transferring money from the US to Spain?
- Right now, all our money is in our US-based investment accounts + our condo/parking spot. Should we think about diversifying? Any tips? We thought about buying a rental property in Spain, however, we don’t have access to mortgages in Spain and so would need to pay everything in cash. Is this something we should consider?
- Any glaring places where we can optimize/reduce costs/etc.?
Liz Frugalwoods’ Recommendations
First off, massive congratulations to Katie and Jon for the stellar financial decisions they’ve made! Katie and Jon managed to stay out of debt, buy a home in cash and live well below their means. Through the combination of excellent salaries and frugal living, they’ve put themselves on the trajectory to retire early.
What shines through the most is their clear articulation of their shared longterm goals: they want to live a simple, outdoorsy life with their daughter in the location they love.
I point this out because at the end of the day, The Goal is not money. Money is the vehicle we use to reach The Goal. Well done to Katie and Jon for discerning the type of life they want to lead and for their willingness to work hard and sacrifice in order to make it happen. Ok, let’s get to it!
Katie’s Question #1: Based on our financial situation, do you think it’s feasible for us to reach our financial goals by Summer 2024? Or should we plan to stay in Chicago an additional 1-2 years beyond that?
This answer may surprise Katie and Jon, but I actually think they could retire much sooner than 2024. The catch is their stated desire of a 2 or 2.5% withdrawal rate. That is an incredibly low and conservative rate. I get the desire to be cautious, but there is such a thing a being too conservative.
I am not an expert on withdrawal rates, but Early Retirement now is. I strongly suggest Katie and Jon read through his detailed, well-researched series of posts titled The Ultimate Guide to Safe Withdrawal Rates. I’m not going to paraphrase his entire series here, but I will include the below chart, which demonstrates the likelihood of running out of money at various withdrawal rates with various asset allocations:
Even assuming a long retirement–let’s say 60 years at an allocation of 75% stocks with a 3.5% withdrawal rate–you’ve got a 97% chance of your money lasting. And this doesn’t even count social security!! If you layer social security on top of a 3.5% withdrawal rate, you’re approaching a statistically 100% success rate, short of global cataclysm, in which case we all have much bigger problems than money.
The other graph I want to share is the “which will happen first: will I die or go broke?” Kinda morbid, but I think it’s an incredibly useful actuarial tool to help understand whether it’s more likely that you’ll die or go broke first:
As you can see, I input Katie and Jon’s details and, if they retired now and used a 3.5% withdrawal rate, there’s a 96% chance they’d succeed (in other words, they’d die before they went broke). Again, this is a good thing!
A few notes about this graph:
- This doesn’t include their social security payments, which Katie noted they’ll both be eligible for. That makes their success rate even higher!
- I increased their annual Spain spending from $16k to $20k as a buffer (more on that in a moment).
- This assumes neither of them ever makes another dollar after they retire (more on that in a moment).
- This keeps their asset allocation at 82% stocks and 18% bonds (more on that in a moment).
- You’ll note I used $568,855 as the amount saved because you can’t include home equity in these calculations. So $737,190.45 – $168,335 (home equity) = $568,855
I suggest Katie and Jon play around with this graph from Engaging Data.
It’s rare that I tell people this, but, I think Katie and Jon are about to verge into the “too risk-averse” arena of investing. They are already at 18% bonds AND they have a paid-off house. Bonds are far less risky than stocks, but they’re also way, way, way less rewarding. They’re kinda like the turtles of investing–slow and steady, not much is going to happen, you’re in a shell so no one will eat you.
Stocks, on the other hand, such as a diversified total market low-fee index fund are sort of like the gazelles of investing–fast, exciting, but you could get eaten by a lion.
Risk is inherent to investing
You cannot invest without assuming risk. However, you also cannot expect to make money without taking risks. In my opinion–and it is opinion because I am NOT a financial professional–18% bonds (and a paid off house) at age 33 is already really, really conservative.
Katie’s note that they plan to go to 70% stocks and 30% bonds gives me the sweats. That is excessively conservative and carries a major risk of them missing out on market gains (see the last Case Study for detailed explanations of historical market returns).
But, in the words of Levar Burton, don’t take my word for it, check out what happens to the Retire or Die graph when I change the asset allocation to 70% stocks and 30% bonds:
Yikes on bikes! Things are still fine, but, their success rate decreases from 96% to 94% and you can see the red “broke” line creeping up larger in this allocation. I want to illustrate how important it is to pay attention to your asset allocation and I suggest Katie and Jon do more research and reconsider their desire to weight to 70/30.
Never Working Again?
Another angle I want to discuss is Katie and Jon’s assumption that neither of them will ever work again. That’s a really black and white definition of early retirement and, while that’s totally fine, it’s not the only option.
Personally and anecdotally, I don’t know anyone who is early retired and earns $0. Most of us–myself and my husband included–don’t work full-time and don’t have a salaried position. But many of us–myself and my husband included–do some stuff to earn some money every year.
The reason many of us do this is several-fold:
- We enjoy the work we do in early retirement. We do stuff we like and we do it part-time. I work maybe 15-20 hours a week (some week less, some weeks more), which is the perfect balance for me. I doubt I’ll ever go back to working more than that, but I also doubt I’ll ever work 0 hours because I love my job!
- If your expenses are low enough, you can cover them with your part-time early retirement work and not actually touch your investments. That is the beauty of frugality: the less you spend, the less you need to earn. Many of us aren’t adding to our investments with this part-time work, but that’s not the goal. We’ve already socked away sufficient investment portfolios, now they’re just growing in the market.
Katie and Jon’s Spain spending is wonderfully, amazingly low and I have to imagine Katie could earn that in a year with a few freelance marketing gigs. She noted she’s done freelance work in the past, which why I use her career as the example.
Doing this would eliminate (or reduce) their reliance on their withdrawal rate and would provide even more of a buffer for the long term. This isn’t a mandatory aspect for them–as we saw from the graphs above–but I think it merits consideration.
If I were Katie, I personally would rather retire now and freelance part-time as opposed to slogging away for another 3-5 years in a city I don’t like at a full-time job I don’t enjoy.
Other Spain Expenses?
Since a lot of this plan hinges on those low Spain expenses, I want to take a moment to do a gut check to make sure Katie and Jon aren’t missing anything.
Here are a few expenses I’m curious about:
- Capital expenditures and maintenance for the condo. Since they’re renovating, they may not have any major costs in the near future, but something is likely to come up at some point (roof, siding, oven, washing machine, random leak in the ceiling, child accidentally draws on wood floor with a magenta permanent marker… etc)
- They have “car insurance” and “gas for car” listed, but no line items for car purchase, maintenance, inspections, registration, etc.
- An accountant and/or tax attorney to manage ex-pat taxes and issues (more on that in a moment).
- And, a really big question: will the condo be big enough for the family in the longterm, when Amaia is older?
They may have already accounted for all these, but I wouldn’t be doing my (part-time, enjoyable) job if I didn’t bring them up. These are also why I rounded the $16k up to $20k for the above graphs.
Katie’s Questions #2 and #3: What tips do you have for enjoying these years of working towards our goals? When we reach our goal, how do we muster the courage to quit our jobs and execute our plan?
My response to both of these question is to do research. Research your plan, research your withdrawal rate, research your asset allocations, research freelance jobs, and research the fun things you’ll do once you move back to the Basque Country.
Research will do four things for Katie and Jon:
- Make them feel even more confident in their well-considered plans
- Hopefully encourage them to re-evaluate their withdrawal rate and asset allocation
- Help pass the time by focusing on their long-term goals
- Encourage them to perhaps pull the trigger and retire even sooner…
Katie’s Questions #4 and #5: Logistically, how should we plan to live off our investments? We know about the 4% rule, but feel more comfortable using 2 or 2.5%. How do you set up the withdrawals from your investments?
How should we factor in the currency exchange rate from USD to Euro? And the cost of transferring money from the US to Spain?
My answer is that I don’t know. I think they’ll probably need to hire an accountant/tax attorney specializing in US-Spain tax law since they’ll be filing taxes in both places. I would look for a Spain ex-pat forum where tax issues are discussed. I have to imagine there’s a robust online community that discusses these issues. Readers, please chime in here with your advice!!!!!!
Katie’s Question #6: Right now, all our money is in our US-based investment accounts + our condo/parking spot. Should we think about diversifying? Any tips?
We thought about buying a rental property in Spain, however, we don’t have access to mortgages in Spain and so would need to pay everything in cash. Is this something we should consider?
In general, the point of real estate investing is to leverage a mortgage. Paying cash usually isn’t the way to go if you want to make a return on the investment. This is another topic that I imagine comes up in these Spain ex-pat forums that I have to assume exist somewhere on the helpful frontier of cyber space.
In terms of keeping their investments US-based, this is just my opinion–but, in my opinion–I would keep my money in a US brokerage, in US dollars, and maintain a broadly diversified total market low-fee index fund of both domestic and international. That does mean you are subject to exchange rate fluctuations, which could be severe; however, the exchange rate risk is the price you pay for the stability of the US financial markets.
Katie’s Question #7: Any glaring places where we can optimize/reduce costs/etc.?
Nope! They are at Pro Level Frugal and, if anything, I’d be looking in the opposite direction: what expenses will need to be added in the future (per the discussion above). Also, if they don’t currently have renter’s insurance for their Chicago apartment, they should get it ASAP. It’s cheap and it’s important.
Their investment horizon is very long and I’d think seriously about whether their asset allocation matches their longevity goals. Moving to 30% bonds seems prematurely conservative to me. It is fine to be conservative, but you have to balance risk versus longterm returns. Hopefully they’re alive for another 60+ years and 30% bonds in your 30’s is super duper conservative.
To that end, I suggest Katie and Jon:
- Read ERN’s The Ultimate Guide to Safe Withdrawal Rates series.
- Strongly consider varying their asset allocation (or leaving it at 82% stocks/18% bonds).
- Use the Retire or Die calculator to understand the likelihood of their plan’s success.
- Strongly consider increasing their safe withdrawal rate.
For example, a 3.5% withdrawal rate of their net worth (minus home equity) is $19,920 per year. At that rate, Spain is MORE than paid for right now. Then, at a historically safe withdrawal rate, they’re covered for the long term. If they work another year or two in Chicago, they can just continue to increase their savings and investments, but they’re mathematically ready to retire now.
Consider accelerating the timeline to move back to Spain and freelance part-time once there:
- Freelance in Spain for the next few years and see if their budget matches their projections.
- Let their investments grow.
- There’s really no pants-on-fire reason to be miserable for money right now, given their projections.
- Since their Spain expenses are so low, if Katie (or Jon) can freelance just a bit, it’ll make this a bulletproof plan since she might be able to completely cover their living expenses and not even touch their investments.
- She can always quit freelancing if she hates it and begin using a safe withdrawal rate. Conversely, she can ramp up freelancing if she really loves it!
For taxes and related issues:
- Find an online ex-pat forum.
- Hire an accountant/tax attorney who specialized in Spain-US tax issues.
Ok Frugalwoods nation, what advice would you give to Katie? We’ll both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (email@example.com) your brief story and we’ll talk.
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