Context
It was the year 2020, and the world was going through a pandemic. Little we knew it would produce consequences such as reducing our expenses by 30%, a job change, working and parenting full time, and zoom birthday parties. Even more significantly, we asked ourselves whether we are in the place we want to live for the next ten or twenty years.
Around mid-year, I received a job offer out of state. Neither my wife nor I had intentions to move. We concluded that if the offer reached a specific number, we would do it as it would mean accelerating our financial independence. While I elegantly simplify the situation, we went through a series of exciting conversations. What does the weather look like? Where do kids would go to school? Where are we going to live? What activities are there for the family? Do we know anybody there? What about our friends here?
In the end, while the offer was fair, it was not exceptional, and we decided to stick around. Twenty-four hours later, the thought hit me. If we were ok moving out of state, was there a place in the US or the world we would be excited to move to?
Requirements
Ideally, the location should be by the sea and close to the mountains. The weather across the year should be mild. We would accept a hot summer if we can avoid cold winters and sunsets before 6 pm. The location should allow us to travel to many different points of interest within a three hours range.
We want to move back to a city or close enough to enjoy activities without using a car. The city should have family activities, kids' sports, public parks, and cuisine from different cultures and countries.
Quality public education, realistically priced daycare and universities should be available. A job market where our skills and languages would be considered an advantage.
Finally, a destination where our living cost is the same or below the one we would have in our current location.
Costa Rica (Guanacaste)
We have always joked about retiring in Costa Rica, a beach destination close to the US where our kids would go to university. We love it there - "Pura Vida!".
Europe's history and its plethora of points of interest made us realize Costa Rica was a great vacation spot but not our future home.
Portugal (Lisbon, Porto) vs. Spain
Portugal ranks in the top 5 safest countries on the Global Peace Index; it has sandy beaches and a warm climate that meets some of our requirements.
The country has a very friendly expat tax code representing income tax exemptions for the first ten years.
Given its proximity, we could live in Spain and visit Portugal quite frequently. Being spanish native speakers and our ancestors being Spaniards, we decided to skip Portugal's deep dive and jump right into Spain's assessment.
Spain (Barcelona, Valencia, Malaga)
When needed, we will pick Valencia as our comparison measure with Dallas, TX, where we currently reside. We are not including Madrid as it is not by the sea, which is one of our "requirements".
Economy
So let's address the elephant in the room first. How does the US economy compare to Spain's?
Is the economy expanding?
In the following section, I'm using 2019 statistics to avoid any skewing, product of the pandemic, and its impact on the economy.
While we don't plan to work in Spain, low unemployment reflects an expanding economy. Based on the World Bank, in 2019, the US's unemployment was 3.96% while it was 13.96% in Spain.
Job Market Advantage
A job market where our skills and languages would be considered an advantage.
In Dallas city, with a population of 2.6M, Linkedin throws 97000 results. Based on the US Bureau of Labor Statistics, 1.4M are of working age (at least 16 years old), which gives us We find 14 individuals per posted opportunity. From the source, we find 1.3M are employed, and 100k are unemployed. Unfortunately, it does not specify if those unemployed are part of the inactive group not looking for a job. Finally, across those 97k jobs, 23% are related to IT engineering and 7% to recruiting/staffing, which are the niches we would fit. Our Spanish has not provided any work-related opportunity in the time we have been in Texas.
In Valencia city, with a population of 800k, Linkedin throws 4.5k results. Based on the 2019 Valencia's ayuntamiento report, 650k individuals were working age (at least 16 years old), 53k of them were unemployed, while 280k were inactive. With an Active group of 370k, the job distribution is a scary ratio of 82 candidates per posted job. Across those 4.5k jobs, IT engineering gets 25% and recruiting/staffing 4.5%. These are the niches we would fit in. Finally, 8% of the job postings are written in English, 26% mention English as a requirement, and 0.4% require Valenciano.
Wages
Taking GDP per capita in Purchasing Power Parity terms, we can compare countries in terms of real income (what can be purchased) instead of the dollar income. In layman's terms, we can have one hundred dollars and pay one dollar for 1 liter of milk in one location or three dollars in the other.
US purchasing power per person is USD 65297, while in Spain it is USD 42195, which might indicate people in the US either earn more money or cost is lower. Nevertheless, GDP per capita can be misleading as it does not account for wealth and income inequalities.
If Bill Gates enters a bar, on average everybody in that bar is a millionaire.
So how is wealth distributed in each country? In the US, the richest 20% holds 88% of wealth and 63% of the income share. In Spain, the wealthiest 20% of the population controls 41% of the income share.
Because the above indicators do not tell the whole story, more mundane indexes exist, such as the BigMac or the 1 liter of milk index.
2% Fresh Milk - 1 ltr
- USD 0,88 -> Dallas, Texas, US (Wal-mart)
- USD 1,10 -> San Francisco, CA, US (Wal-mart)
- USD 0.83 -> Valencia, Spain (Mercadona)
2% UHT Milk
- USD 2,27 -> Dallas, Texas, US (Wal-mart)
- USD 2,27 -> San Francisco, CA, US (Wal-mart)
- USD 0,86 -> Valencia, Spain (Mercadona)
To complete the picture, we need to understand that wages in Spain - at least in the IT sector - are roughly between half to one-third of the US's salaries, depending on the city. A software engineer in Dallas, Texas, ranges between USD 61k and USD 116k, and the median is USD 80k. In Valencia, Spain is USD 22k to USD 65k, and the median is 34k.
If you live off a European income, fresh milk is 2-3X more expensive, so you might want to switch to UHT milk instead. If you live off investments' return, fresh milk gets 6% cheaper in Spain.
The above is a simplification which we will unravel when we dive deeper into costs. You will then see living costs are significantly lower in Spain, which helps balance out the lower income.
Who is eating my cheese?
For retirees, inflation is a silent rodent carving on funds.
For the last few years, I've heard a recession is on the way. Then COVID-19 happened, and the economy shrunk by 4.4% based on estimations from the IMF. While 2020 saw a global recession, there was also a significant rebound - although not entirely - in the US. Depending on how things evolve global and locally, the US economy risks falling into a period of stagflation.
In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.
-- Wikipedia
For those born after 1980 in the US, inflation has been within 1-5%. The seventies told a pretty different story.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
-- U.S. Bureau of Labor Statistics
The IMF data indicates the CPI in Spain was at 0.79% and 2.29% in the US during 2019. While we don't want high inflation, we don't desire deflation either. Many economists state a slowly increasing price level keeps businesses profitable and prevents consumers from waiting for lower prices before making purchases.
Our observations
- Spain might not be the destination to make us richer.
- If we ever plan to get a part or full-time job, we should expect a tough competitive market although our English "fluency" will come in handy.
- Given our income is based on investments, our expenses and tax burden play a more prominent role.
Part II
We defined our requirements in this first installment, and we listed some not so positive economic aspects of Spain. One part of Europe is definitively their higher tax burden. To analyze tax obligations, we have to look at the cost of living.
In Part II, we will analyze if Spain matches our requirements and offsets the challenges mentioned above.