Cost of living in Hua Hin

[Whaler]

Whaler - 'but you want to be young enough to enjoy the little you have' !
With respect that's just the kind of viewpoint I've been railing against. It just enforces the age divide and perception of older expats IMO - i.e that they are too old to be able to enjoy whatever they have left (be it time or cash presumably?).

margaret

I'm glad you posted agian as I certainly read your previous one as bring ageism in to the debate and telling us younglings to stop our pursuit of materlistic things and concentrate on more important things like family. Although a bit strange if presumably you have moved xK's away from them

Still glad you clarified your view point now and it was not intended to be condescending

[Super Joe]

Keeping it simple and as crude budget you need account for doubling your monthly/annual budget every 10 years assuming this is savings that also earn interest.

Whaler, presumably the doubling of a budget amount you quoted is as a result of currency fluctuations right? Otherwise, are we saying that inflation is running around 8.5% per annum in LOS?

It's at about 4% at the moment but it did go over 8% in 2008.

Yes, and I worked out the average going back to the 80's is about 3.9%, but as you can see from the graph it's a bit rollercoaster. IMO, inflation is the unexpected killer that can screw people up, there's an excellent post/thread here by m_right: HHAD Inflation Thread

trytrtryty.jpg (15.36 KiB) Viewed 2194 times

Inflation:
The OP asked for costs of living 'today' basically so that's fair enough, but for anyone who is looking at budgeting for the rest of their lives, and any of the following is part of their budget plans, then they need to seriously consider factoring in inflation... a) a lump sum in a saving account, b) an income from pension or other that's growth is dependant upon index-linking, and c) anyone renting.
Examples of why I think it's a massive gamble to rely on stuff like '90,000 Baht/month is more than enough to live comfortably'...

1) Overseas Based Income: Based on historical averages over the past 30-50 years of Thai & UK inflation rates, if you're income is from a UK index-linked pension, in 30 years time your income will have 'devalued' by 31%, so 90k/month is only 62k/month. That's without sudden recessions/exchange rate disaster that HHF has been talking to a brick wall about. That's without Hua Hin taking back off again, over-and-above national inflation, after this recession is over, a nailed-on dead cert in a popular, developing resort. Either of these occurs and the 62k will be maybe 55k!?
Future Growth of UK 'Index-Linked' Pensions to Reduce Due To Switch from RPI to CPI

2) Renting: Based on same Thai & UK historical inflation and average UK property prices (rents generally track this) since 1971, then rental growth would have out-stripped your income growth by 7.6x, as property prices out-stripped inflation by 7%, ie: 7% extra-over inflation. So if you want the same 12k/month property you are renting today, you need to allow 91k/month in your budget for it, today. And these figures do include the recent property 'correction' due to recession, but as it's based on a 40 year old starting point I'd agree it's unlikely prices will increase same as UK did. But even half of this would be pretty drastic I would have thought.

SJ

[Whaler]

SJ,

Thanks, I had also read the linked article. I still maintain the 10 years x 2 factor which according to the link is inflation running at over 7%

The reason being and as others have noted your expenditure/lifestyle changes and it also depends on your retirement start point

Let’s assume that 100K/month is equally to your normal day to day expenses and lifestyle costs and you are as any newbie would be dinning out regularly, including occasional splashing out but excludes major purchases/renovations other than one flight home per year.

Starting retiring at 65 I would simply take 100K*12*10 + 200K*12*10, the 3rd decade becomes more problematic simple due to health issues and life expectancy and the fact that assets can be disposed of to offset residential care but you would still need to factor at least 400Kx12x5

Starting retiring at 55 I would take (100k+200K)/2*12*10 + (200K+300K)/2*12*10) + 400Kx12x10 + 800Kx12x5

The difference between the 2 examples allows for the additional baggage/expenditure you are still likely to acquire whilst your younger and able to maintain a more active lifestyle and accounts for a slowing down during your later decades.

Those with straight savings or pensions and have sold their homeland house to fund property purchase in LOS/HH will need to be extremely careful vs those who can afford 2 properties (1 at home and 1 in HH) as simply the rental income and the gains made on homeland property if say you sell up during your second decade of retirement offset the inflation and cash savings required.

[Korkenzieher]

The general way to estimate the effect of inflation and interest rates is the rule of 72. So 7% inflation / interest rate means your cost of living / investment doubles every 10 years; 10% means 7 years; 5% 14 years. Obviously as a moving target, it is a bit more complex but nothing a pen and paper can't deal with - or a spreadsheet if you are so inclined.

Over the long term, here I am talking 50 years, housing inflation is much less than people expect it to be. In the UK, which has a more developed secondary market and much greater restrictions on new development, growth is about 3.5%. Yes, that's it! Periods of growth followed periods of stagnation or value adjustment all collected together got you 3.5% over 50 years.

It isn't easy to predict what will happen in the next 5 years, but over figures being discussed of up to 30 years, it isn't hard to estimate quite accurately.

All well and good. But what do you do when you are retiring? Well the way I look at it is to look at opportunity loss. Over the long term again, the stock market has outperformed the housing market, and tends to be relatively inflation proof because companies can increase prices over time (in fact that is part of the inflation they are reacting to!). There may be a good case for renting out your house in the your home country, and using the income to live in HH; equally the case may be good for buying outright in a cheaper market because of the implied control on future inflation for the cost of a place to live; and just as likely there is a case for selling up completely, sticking the lot in some market investments to live off the dividend and slowly draw down principle. The one thing I think anyone should be able to outperform, is the return on an annuity, but hey, someone might feel they need the safety net.

How does that help anybody? Well the problem is that everybody's circumstances are different. Pensions advisors tend to suggest you need a pension pot which returns 4% to cover for inflation and current implied pots based on a typical spend and lifespan are of the order of $1.5m. That isn't a realistic figure for most people - in fact, if you were sitting on that I would suggest you are way ahead of the game, and can stop reading now!

It does however, give you some idea of how creative you might need to get if the 'plan' currently is to sell up a house in the UK and live on that - if you come out with 200k, and can live within a million baht a year (80k a month), even at zero inflation you have 10 years. If you buy a house, probably less than 5 until you get down to having to depend on some form of social security, such as the UK state pension. There's plenty of people that do survive on that, and I would guess that those in LOS doing so probably have a better standard of living than a pensioner in the UK living off the same amount. But selling a house isn't going to let you retire in luxury.

If the plan is to rent out a property you will last longer at a lower level - until you start having troublesome tenants and renovation costs, of course(my current problem)! However, your survivability will be better because you will be able to adjust to inflation somewhat, and perhaps better time the property sale to a high-point in the market.

In general, since stock market inflation is stronger than housing market inflation, a more attractive solution might be to find a portfolio of solid dividend paying stocks and put the proceeds of the house into that, holding back a year or 2's worth of living expenses to allow time to adjust and for income to start flowing. It isn't for everybody because it involves taking on market risk at a level a lot are not comfortable with. My own preference though would be to avoid the UK because transaction costs are very high there compared to the US say, and you will probably wait a year just to get your commissions back.

[lomuamart]

The Thais will have a say on the 3rd July. That could affect us all with inflation and exchange rates. The way I see it is that we can speculate until the cows come home but this is an uncertain country, politically.
Never sell what you have back home. Try and make money out of those assets and never forget that, as has been pointed out, inflation goes up here so if you've got assets back home they've got to appreciate to at least the same amount.

[Whaler]

Over the long term, here I am talking 50 years, housing inflation is much less than people expect it to be. In the UK, which has a more developed secondary market and much greater restrictions on new development, growth is about 3.5%. Yes, that's it! Periods of growth followed periods of stagnation or value adjustment all collected together got you 3.5% over 50 years..

3.5% real growth over 50 years is not as bad as you think and it outstripped real earnings by 100% that’s why a average house use to be an average 4xsalary and is now over 8xsalary and why youngsters cant get on the housing market.

Managed funds should fare better over the same period but the tax liability in the UK is much more complicated where on your primary residence it's tax free

For the average person having a spread portfolio is not really a reality eg try explaining to the Mrs to live in cheap rented accommodation for 50 years as you can get a bigger retirement fund by investing elsewhere

I would say if your 65 now and a joint UK pension over 25 years plus the value of your house is around 800K UKP and you own a small property in HH your in with a fighting chance of a comfortable retirement in HH, but rule out world cruises

[migrant]

Got to say thanks to all

I've been following these types of threads over the years for our planning purposes and the value of info is fantastic!

I've developed a excel spreadsheet using the factors and can play with this as economic conditions change (such as our homes value here ) to help me with planning.

[migrant]

This article came up today so thought I would share.

Personally I think it too simplistic, but one can never have too much information

http://www.dailyfinance.com/2011/06/10/ ... k2%7C70267

[margaretcarnes]

Whaler - 'but you want to be young enough to enjoy the little you have' !
With respect that's just the kind of viewpoint I've been railing against. It just enforces the age divide and perception of older expats IMO - i.e that they are too old to be able to enjoy whatever they have left (be it time or cash presumably?).

margaret

I'm glad you posted agian as I certainly read your previous one as bring ageism in to the debate and telling us younglings to stop our pursuit of materlistic things and concentrate on more important things like family. Although a bit strange if presumably you have moved xK's away from them

Still glad you clarified your view point now and it was not intended to be condescending

No probs Whaler - not strange though as I moved back to the UK! But as I've said before IMO people could do a lot worse than follow Lomuamarts advice (on a practical level) and just always keep an open mind eh?

[Whaler]

This article came up today so thought I would share.

Personally I think it too simplistic, but one can never have too much information

http://www.dailyfinance.com/2011/06/10/ ... k2%7C70267

I think he's got it wrong by at least a factor of 2 if not 3, this would be like trying to survive on a third of your salary that is depreciating all the time

[STEVE G]

I think he's got it wrong by at least a factor of 2 if not 3, this would be like trying to survive on a third of your salary that is depreciating all the time

That may be so but to accumalate a pension fund that has twenty or thirty times your annual salary would be a very difficult thing to acheive for the average person.

[Korkenzieher]

@Whaler:

Actually, I come to a similar figure, but it depends on a number of things. The oft quoted US figure of $1m to $1.5m for a 4% drawdown does pretty much assume that you are using zero risk tolerance in retirement and that the 4% is taken as principle drawdown.

My starting point is to work in USD. Even though I am a Brit, long term, the baht tracks the USD much more closely than any other currency. It might make sense to move that to Chinese Yuan soon!

From there, converting my cost of living to $. Start with 80k a month (which is rougly what I spend, but as we have discovered, others would need to use different figures). That is a COL of 1m baht a year or roughly $33,000.

From that point I need a pot which is throwing off enough cash and still growing roughly in line with inflation. If we assume 4% inflation - which is probably too high in retirement, because many items that make up the basket increasingly cease to have meaning - then effectively our pot needs to throw off double our cost of living, to compensate the pot itself for the corrosive effect of inflation.

That basically means we need a pot for which 4% is currently $33,000, growing at 8% a year. That gets us to $825,000. Since the long term average of the S&P is closer to 11% we are outpacing our growth requirement by roughly 75%. Obviously, there is the potential to have to draw down principle in market 'down' years, so we don't want to cut back too far. For various reasons which I won't elaborate on here, I put the figure at which a fully invested pension pot becomes self sustaining at my level of outgoings, at $650,000.

[Korkenzieher]

One step I missed out is that I assume the 4% rule for the cost of living - in other words, my pot should be 25 times my annual cost of living. Note that in retirement, this doesn't compare to a multiple of income, because of the absence of taxes and the absence of the need to build a retirement pot in the first place.

It also assumes zero principle drawdown over the long term, meaning that the pot never shrinks in inflation adjusted terms; and that market returns in the future approximate to historical returns over the long run.

These assumptions could be disputed, but are a reasonable starting point, if nothing else.

[migrant]

One step I missed out is that I assume the 4% rule for the cost of living - in other words, my pot should be 25 times my annual cost of living. Note that in retirement, this doesn't compare to a multiple of income, because of the absence of taxes and the absence of the need to build a retirement pot in the first place.

It also assumes zero principle drawdown over the long term, meaning that the pot never shrinks in inflation adjusted terms; and that market returns in the future approximate to historical returns over the long run.

These assumptions could be disputed, but are a reasonable starting point, if nothing else.

All these permutations work out well on a excel spreadsheet. Since everyone's lifestyle is different, they can put in their own requirements.

It also works out well if you want to play with "what if" scenarios

[Korkenzieher]

Yes. One additional thing I do with mine is I have the currency cross-rates and can see at a glance what my position / net worth / requirement is in any currency I choose or aggregate them across currencies. I also factor in pensions kicking in on particular dates, and once a year sometime just after my birthday, I move the 'start' date 1 year closer