It Matters Where You Live

This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35.  Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.

Retiring young seems to be an attractive dream. I don’t believe that it’s necessarily accessible to everyone. In part, the ability to retire young depends on a person’s environment, their ability to earn a very good income and live on much less than they earn. But everyone has opportunities that come their way, and everyone makes decisions in relation to their opportunities.

In Calgary, the environment has been especially helpful until recently. Until 2006, house prices were modest compared to Vancouver and Toronto, and compared to present-day prices in Calgary. Buying a house was possible without shackling oneself with 35 or 40 years worth of debt. Employment was plentiful and jobs paid very well. Working a professional job and saving 1/3 to 1/2 of my income, I was able to pay off my house in seven years (my goal had been eight).

A couple I know sold their  house in Calgary about a year ago for $600,000. He had an income well over $100,000 per year, but they never allowed “lifestyle inflation” to expand their budget beyond about $3,500 per month. That left enough income to pay down debt and invest. But the decision they made that had the greatest impact on their ability to retire at 53 wasn’t about smart investments. When they sold their home in Calgary, they bought a bungalow in Phoenix for $150,000 just down the street from their daughter.

That left them with $450,000 to deposit to their investment account, more than they had saved while working and raising kids. They decided to retire and go on a humanitarian mission for two years in Southeast Asia. They were fortunate that there was a large differential in real estate prices between Calgary and Phoenix, but they took that opportunity when they saw it.

Although the job market became very difficult over the last two or three years, house prices remained elevated. At this time, I’m not sure that  a young couple could benefit from buying a home in Calgary the way this couple did. But that’s not to say there aren’t other opportunities. Here are some examples.

Buy a home in a less expensive city. If you’re going to buy, it may be wise to consider a more affordable market. It seems unlikely we’ll experience much more price appreciation in Vancouver, Calgary or Toronto, but what about other Canadian cities? What about moving out of the country?

Plan to retire in a less expensive city. There are many countries that are popular retirement destinations, in places such as Latin America and Southeast Asia. But even within North America, there’s a large variation in cost of living. When moving between countries, there may even be an opportunity to take advantage of differences in interest rates and fluctuations in foreign exchange rates.

Live in a working-class neighbourhood. The authors of The Millionaire Next Door point out that living in an upper middle class neighbourhood exacerbates the effort to “keep up with the Joneses”. Living in a more humble neighbourhood may allow a person to more easily spend less and save more. It may even make financial sense to rent instead of own, especially if you’re planning to move within a year or two.

Be willing to explore a variety of options when making lifestyle decisions, in order to take advantage of opportunities and move yourself toward your retirement goal. What lifestyle choice have you made that’s helped you jump toward your goal? Have there been drawbacks as well as benefits?

6 thoughts on “It Matters Where You Live”

  1. Who you “pal” around with also makes a difference. Trying to live frugally is especially tough if you socialize a lot with friends who like to eat out at more pricy restaurants. My now departed in-laws considered themselves “poor” because they had a lesser-status apartment in their golf course-development condo in West Palm Beach. They had lost any kind of perspective – and drained their savings on expenses that they really couldn’t afford – usually in order to keep up with their extremely well-off neighbors (and ignored the more frugal neighbors who might have shown them a more feasible and still-comfortable lifestyle).

    Common sense sure ain’t so common…..

  2. Yep, my Dad, after two divorces, has to live in Greece to make his dollars go far enough in retirement. However, that doesn’t seem bad at all 🙂 Funny isn’t it, that people struggle just to live in a tough environment when they could go someplace awesome and have a better life.

  3. I bought a studio apartment in a well run co-op complex back in 1989 just before I turned 26 years old. After netting out the tax savings, it cost me about the same as renting but I was building up equity. Nine years later I paid off the mortgage so I was then well ahead of renting.

    At times, I wish I had waited one more year before buying my apartment because I could have gotten one for less money, as the real estate market took a tumble in 1990. Or, I could have bought a one-bedroom apartment in 1990 for the same price and I would have had a bigger down payment and a lower mortgage to offset the higher monthly maintenance charges.

    Keeping my housing costs low was crucial for my retiring early.

  4. My husband and I just bought a townhouse in a co-op that is much smaller (and cheaper) than our current house. We are currently having some updates done to the townhouse, then plan to put our big house on the market in July and move. I am retiring at the end of June at 53. Hubby is already retired.

    Upside? We will be shaving about $10,000/year off our expenses on such things as property taxes, utilities, upkeep, etc. plus have the difference from the house to invest. Downside? The townhouse is much smaller and that will take some adaptation. It is in a different community so there will be adjustments there also.

    Our new community is not as pricey as our current one but after hanging out there I’ve noticed the neighbors seem friendlier and there seems to be a sense of caring there. Plus, my sister and niece live there and I am looking foward to living near them.

    Robert, what you don’t mention is that moving can mean leaving behind friends, church, family, etc. and just a sense of comfort and familiarity. While we are excited about moving, I would not be honest if I said we are not having some anxiety about these changes. We are proceeding forward and hoping for the best. Some discussion about the emotional impact of relocation and/or downsizing might be interesting (and helpful!) …

  5. Banjo Steve, you’re right. Where you live affects who you compare yourself to, and “rich” or “poor” is all in the comparison to your peers.

    Alex, that’s a great example. Of course, awesome is in the eye of the beholder, but I think it’s rare for people to consider a drastic change, even if it would be beneficial. It simply doesn’t seem to occur to most people.

    Deegee, your story supports exactly what I was thinking. Having your house paid off puts anyone on a much more stable financial footing. It’s too bad prices declined after you bought, but that couldn’t have been predicted. It’s good to remember that the important thing is having a place to live, without debt. What it’s “worth” only matters if a person is looking to “cash in.”

  6. Kaye, I’m really glad you’ve shared that experience. In my experience, we moved (last year) within t he same city. There was no financial impact, since we bought a similar house in a different location (to be near the kids’ school). We moved further from my parents and close to my wife’s parents, so there was little impact on family. We moved further from my work, which caused me to need to make some decisions around commuting. And we didn’t feel like we had a lot of close friends in our old community. We’ve met our new neighbours and we are making new friends.

    One of the things that I think has made the transition smoother is making a concerted effort to “get involved”. I’ve joined a community association and my wife is working on an advocacy group (for public education). Besides that, we both teach at church and we’ve started to invite people over to our house for brunch on Saturdays. It’s always sad to leave people behind, but we’ve met some great new people. Having said all that, we’re not particularly sentimental and we’ve moved a number of times in the past, so it may be much harder for others who are more well-established.

    My final thought is that “where you live” is especially important to young couples starting out. As deegee pointed out, starting out in something affordable can give a person a solid foundation. In contrast, starting out by buying more house than one can afford could put a person on a path of constant financial difficulty.

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