Hey Joe! Tropical Island Dreaming

This is a question that has more than one right answer. A lot depends on the lifestyle you choose to live and where you choose to live. Living accommodations vary from a native hut in a rural area to the high rise condos in Makati. So it will depend a lot on what you require to live comfortably. The more western you choose to live the higher the price you will pay.

I know the information to this point is pretty general so let me give a few more specific examples. In Cebu City apartments with plumbing and electricity. (In some areas of the country these are options) range from around P5000 to P25000. The amount that translates to varies with the exchange rate. As I write this the rate is P45.65 to the US Dollar. So at this time it varies from $110 to $550 a month. There are more expensive options available. Utilities vary with usage as they do everywhere. Electricity in a place with a refrigerator a computer and an A/C that runs mostly at night  is about P1200 to 1400 or about $27 to  $30.  Food costs vary considerably depending on whether you eat out or in and how many people you will feed. For two people if you mostly eat at home you can eat fairly well for around P2500  or about $55 a week.

I haven’t factored in entertainment and probably a number of other items. If you live frugaly you can probably squeek by on $800 a month as long as you don’t have any major emergencies. You could live more comfortably on between $1000 to $1500. If you have more than that available you can live even better. These figures do change over time and living in the provincial areas will be cheaper.

I wouldn’t recommend a permanent move there without at least $1000 a month available. Also keep in mind I did not mention start up costs such as deposits and furniture and the other little goodies you need to have in the house. These little Items add up to quite a bit when you have to purchase them all at once. So you should arrive initially with at least double your monthly allowance in hand and that might be cutting it pretty short even then.

I would really like to hear from anyone who lives there now about what your average expenses run. I am sure everyone would find that beneficial.

When I originally decided to retire in the Philippines I began looking for investments that could supply me with a source of local income to supplement my pension income. Here are several options I considered to grow some income.

Property: While considered a good long term investment in many parts of the world in The Philippines foreigners are not permitted to own land. They are permitted to own condominium units but only if Filipinos own at least 40% of the other units. There are methods that some have used to purchase property through corporations or fronts but keep in mind it is illegal and if challenged you could lose your entire investment. So property was out.

Business: Ownership of businesses except in certain industrial zones requires majority Philippine ownership. There are also certain businesses that foreigners are not allowed to have ownership in. Also if it is a business that can be easily copied expect a lot of competition to spring up if you are doing well at it. In addition there are licences and fees and sometimes outright bribes that must be paid. Another problem if you are not yet residing in the Philippines is finding someone trustworthy to manage the business in your absence. A great man once said the best way to make a small fortune in the Philippines is to start with a large one. So this plan is shelved for now. I will possibly revisit it when I am actually residing in the Philippines.

Stock Market: The one thing about the Philippine stock marked is most of the stocks are not expensive so a small cash investment can give you a reasonable portfolio. It has ups and downs like every market everywhere so you have to keep close track of what is happening. I have been making small investments in the market for several years and I have made a reasonable return on my money. I would have made more if I had sold most at the last market peak but that goes back to what I said about paying attention. I am still ahead of the game. and have at least doubled the money I initially invested. I expect to do better when I am actually there to watch events more closely.

Bank Accounts: Most bank accounts do not pay a high rate of interest. A regular bank account would not really be much of an investment. Just a safe place to keep your cash. This is part of the reason I don’t plan to keep all my cash in the Philippines. There are some accounts available that pay a much higher rate of return. (Legacy Investments) I plan to look at these a little closer on my next trip and will provide more details later. If anyone has more information on these types of accounts please feel free to fill us in.

December 14 2008

Legacy Investments: I didn’t know much about these so I didn’t do a writeup about them. I asked someone who was involved to provide some information but he never did. Now I think I know why. In the news over the last several weeks they have been detailing the collapse of the Legacy connected rural banks. It is too early to be certain but many of the investors in this plan may lose their entire investment. I still don’t completely understand how they were supposed to work but my understanding is some of the plans were insured by the PDIC and some were not. Those that are insured may see at least a partial return of their money.

To date three of the eleven banks have been closed by the PDIC for investigation with possibly more to follow. I guess this should be a warning to all of the risks of high return accounts. I would advise anyone thinking of investing in a high interest plan that seems higher than the norm to ensure the funds are insured. As the old folks used to say: Anything that sounds too good to be true probably is.

There are several other types of investments such as import export produce. I really don’t know a lot about these areas so I am not really going to talk about them. A lot of what you can do will also depend on weather you have trustworthy friends or family in the Philippines to assist you. If you do this opens up a number of other possibilities for you.

One thing you will find if you spend a little time in the Philippines is things that should be pretty simple often are not. Opening a bank account can be one of these. For foreigners who are residents of the Philippines and have an ACR card there is usually no problem to open an account. For many of the others who reside there on tourist or other visa types it can be an adventure.

Due to Philippine anti money laundering laws non resident foreigners are not permitted to open bank accounts. As everything in the Philippines there are exceptions. The bank can allow you to open an account at their discretion. The rule is enforced to different degrees from bank to bank and even among different branches of the same bank. So you may need to shop around the banks.

If you know someone who works there that is helpful in getting your foot in the door. If you don’t then ask around someone you know may have a friend or relative who works there. If you get in through the friend of a friend don’t forget a small gift for the one who helped you. Usually candy or something equivalent is fine.

The actual requirements for opening an account vary from bank to bank. The usual requirements include one or two forms of ID(I used a passport and a stateside drivers licence.), 1 or 2 passport size photos, and an address within the Philippines. Depending on the bank there might be more requirements to be met.

The most convenient type of account most banks offer is the ATM account. This gives you ready access to your money every day. In the Philippines banks are closed on Saturdays and Sundays as well as public holidays. They also offer checking and savings accounts. The requirements for opening them and the minimum balances vary. Most banks I have spoken to have a maintaining balance on an ATM account of P2000 to P3000. Check with the bank to get their minimum requirements.

Most banks also offer Dollar savings accounts. Where deposits and withdrawals are in US dollars. The minimum balance (Maintaining Balance) on these varys widely from as little as $100 in some Rural banks to as much as $1000.

Keeping the bulk of your money in a bank is much safer than keeping it at your place of residence. (I am sure for most I state the obvious but it needs to be said) Keep in mind that the PDIC (deposit insurance) is P250,000. If you have significantly more cash than this give me some of it. Ok just kidding. If you have significantly more cash than this you should probably have accounts at more than one bank. I believe the rules state that you can have the full amount deposited in a savings and a checking account and they are both covered but please verify this with the bank.

I believe I have covered the basics. If I missed anything please post a comment and let me know. The anti laundering law is intended to prevent the deposit of money obtained in criminal activity this is why banks have the discretion to allow you to open an account.

Setting up your required bank accounts is one of the reasons I recomend taking at least one early trip to the Philippines.

October 20 2008

After a day spent running around to various banks I finally found one that allowed me to open a Dollar and an ATM account. I was also informed by an employee at one of the banks that the ACR card requirement is not a law but is a bank policy. I don’t know if this is correct or not but if you know someone you can open an account legally at a bank. So now at least one part of my financial planning is complete.

March 03 2009

A lot of people seem interested in this topic. I did not post specific information on the banks because they are all different and they change periodically. I am however adding links to some of the major Philippines banks on the Links page. I did not include foreign banks but a number of foreign banks do have branches in the Philippines.

In a previous post I explained the method I planned to use to get access to my money once I retire to the Philippines. There are many ways to do this I will touch on a few here that I have some familiarity with. Anyone who has any additional information or corrections to what I have said in this or any other post please feel free to comment. I will keep the descriptions brief.

1) Direct Deposit into a Philippine bank. This would seem to be an easy way to handle it no worries about waiting for checks to clear. Usually no transfer fees.

The main disadvantages I have seen with this method is that some organizations will only deposit into a peso account. The banks do not have the best rate and this could cause you to lose spending power. Also all of your money is now in the Philippines possibly in Pesos so if you want to travel you lose again changing it to something else.

I have also heard if your check  is from the US social security that you can’t have ATM access to your money and no one may withdraw it except you. This may have been changed but I don’t have the latest information on that.

2) Bank transfer. This works fairly well and you can transfer it into a dollar or a peso account. The biggest problems I see with this is the fees can be quite high and there are sometimes delays in the transfer. Though probably not 2 to 3 weeks like it takes a check to clear.

3)ATM withdrawals. Many people use this method and are quite happy with it. Your money remains outside the country until you need it and you can get it without delay. (Except for the slow people ahead of you in the ATM line). You don’t need a local bank account for this method.

The disadvantage would be the ATM fees and depending on your bank and the bank you withdraw from the amount you can get at one time varies considerably. (Between P4000 and P40000) This is also dependant on the amount of cash in the machine. Best not to try for large amounts on a Sunday. Also you once again get pesos at the banks rate.

4)Western Union. This method is fast and you can get dollars but the transfer fees are pretty high, but it doesn’t require a local bank account. Also you need someone on the other end to send the money.

These are the four other methods I am most familiar with. I am sure there are others. Please fill me in on any other information you might have.

There are many different ways to get access to your money if you have elected to live permanently in the Philippines. I’ll talk about some of the others in following blogs. What i will talk about here is the way I have decided to use.

My retirement income will come principally from a pension and a recurring deposit from some investments. I am having the payments deposited into an account I maintain in the US. I have opened a dollar account in the Philippines. I will deposit a check in the Philippine Account each month for the amount I need for the month then withdraw the money in Dollars as needed and cash them at a money exchange which normally payes a higher exchange rate than the banks.

Advantages of this method:

My money remains in accounts in the US.

I get a higher exchange rate because I can take the dollars I withdraw to where I get the best rate.

If I ever need to move from the Philippines I don’t have to worry about transferring my deposits.

I don’t have to pay transfer or wire fees.

In an emergency the money in the US account is accessible through an ATM card.

Disadvantages of this method:

A check requires two to three weeks to clear so you have to plan ahead. You also need to arrive in country with enough money to last till your first check clears. (Or you can use the ATM card)

Due to present banking laws it is not always easy to open an account in a Philippine Bank so you may have to shop around. It is up to the banks discretion to allow you to open an account. As with many things in the Philippines it helps if you know someone to recommend you.

I know several expats who use this method of money transfer it works well for normal use just ensure you have some method to access your funds for unexpected occurrences.

  While it is possible to live in the Philippines on a much smaller income than in the US. You do need a source of income. You can’t just move there and find a job like you can in some parts of the world. Getting a position with a multinational company is one way to have a salary. Many rely on pension incomes or web based businesses.

  Whatever the source you need to ensure it will be adequite to support the standard of living you wish to maintain. Keep in mind the more western you choose to live the more expensive it will be.  This is another reason why one or more visits to the area you plan to reside are important.