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9 Steps to Financial Freedom (Step 9)

Click here to see all of Andrew’s 9 Steps to Financial Freedom or click on them individually as Steps 1-3, Steps 4-5, Step 6, Step 7, Step 8, and Step 9.

Step #9 Calculate how much you’ll need

US expats, like other professionals, have different lifestyles and expenditures. What one US expat can happily live on, another might find oppressive. You need to write down what your annual expenses currently are, subtract any work related expenses or investment obligations and determine what you could live on (while maintaining your current standard of living) if you were to retire today.

The second step requires that you examine inflation. Over the past 100 years, inflation has averaged roughly 3% per year. If you hope to retire 10 years from now, you need to know how much money you’ll require, annually, 10 years in the future.

Assume that you can live on $30,000 per year right now, not including work related costs: professional clothing, transport, lunches out, etc. For our first example, we’ll assume that you won’t qualify for social security or a pension, and that you’ll choose not to work part-time during your retirement.

If you want to retire 10 years from now, that $30,000 will need to be adjusted for inflation at 3% per year. Today, that $30,000 would have the buying power of $40,317, ten years from now, thanks to inflation. You can work out your inflation adjusted amount by using the compounding interest calculator.

If you required an income of $40,317, 10 years from now, you would require a portfolio of $1,007,925.

As a retiree, it’s suggested that you not withdraw more than 4% of your overall portfolio each year (William Bernstein, The Four Pillars of Investing, New York, NY: McGraw-Hill Companies, 2002, p. 230). In this case, if you required an income of $40,317, 10 years from now, you would require a portfolio of $1,007,925. Four percent of $1,007,925 is $40,317.

Considering that the markets have made roughly 10% per year since 1926, we may be able to expect something similar in the future. However, the markets may not perform as well as they have, historically, and considering that you should have a government bond allocation which is equivalent to your age (bonds have lower long term returns than stocks) it might be prudent to expect a long term return of 8% on your money.

Play with the compounding interest calculator again, and you can see how much money you’ll need to invest to arrive at this hypothetical $1,007,925, ten years from now.

If this US expat had a portfolio of $425,000, ten years from their retirement date, and if they added $10,000 a year for ten years (at 8% per year) they’d have $1,073,998 upon their retirement.


Those might be daunting sums of money. But US expats receiving social security or a US expat’s pension will require a significantly smaller portfolio.

Even if this hypothetical US expat could expect just $15,000 a year from a pension or social security, they could achieve their future income goal (of $40,317 per year, ten years from now) with an investment portfolio of $632,925.

With assisted income of $25,000 a year (from either social security, a pension and/or a part-time job) a US expat could make up the difference with a portfolio of $382,925.

You can play with all of these variables at compounding financial calculator. And for further reading on this topic, you can check out The Four Pillars of Investing, 2002, by William Bernstein, chapter 12.

International US expats may not be paid as highly as many other professionals. But if we follow the preceding nine steps to financial freedom, we increase our odds of enjoying a financially independent lifestyle during retirement.

Click here to see all of Andrew’s 9 Steps to Financial Freedom or click on them individually as Steps 1-3, Steps 4-5, Step 6, Step 7, Step 8, and Step 9.

This post was originally the chapter “The International Teacher’s Nine Steps to Financial Freedom” in the book Reviving, Retooling and Retiring for Teachers (published by Michigan State University). It was graciously reposted here by Andrew Hallam, public speaker, author of Millionaire Expat: How To Build Wealth Living Overseas, and webmaster of andrewhallam.com where this post also appears. The word “teacher” was sometimes replaced with “US expat.”  

Andrew Hallam

Andrew Hallam

I’m the author of the best-selling personal finance book, Millionaire Teacher—The Nine Rules of Wealth You Should Have Learned in School (Wiley 2011, 2nd Ed. 2017) and The Global Expatriate’s Guide To Investing – From Millionaire Teacher to Millionaire Expat (Wiley, 2015). My website can be found at https://andrewhallam.com/.