Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / How Early Retirees Can Use Geographically Diversified Income
Transcript
- Lucas: So I was looking at the latest Census Bureau migration data for 2025, and something jumped out. More than half a million Americans moved from high-cost states to lower-cost ones last year alone. Luna: That's not new — we've seen that trend for years. But what's the angle for early retirees? Lucas: The angle is that most people build their entire retirement income around one geographic location. Their rental property is in their hometown. Their dividend stocks are U.S. companies. Their side hustle serves local clients. And that's a massive concentration risk. Luna: Because if the local economy tanks, all your income streams take a hit at once. Lucas: Exactly. I want to walk through a specific example. Think about someone who retired early in Calgary around 2014. They had a paid-off house, a couple of rental condos nearby, and a portfolio of Canadian energy stocks. Then oil crashed from over a hundred dollars a barrel to below thirty. Luna: The rent payments dried up, the stock dividends got cut, and suddenly their cost of living didn't drop — but their income did. Lucas: Right. Their spending was local, but so was every single source of income. That's the trap. So today I want to talk about geographic diversification for your income streams — not just your investments, but your actual cash flow. Luna: Is this different from just buying an international stock ETF? Because that feels like the easy fix. Lucas: It's part of it, but I think there are three concrete layers. First, actual income-producing assets in different regions — rental properties in cities with different economic drivers. Second, globally diversified dividend-paying equities, which you mentioned. And third, a remote side income that isn't tied to where you live. Luna: That third one is interesting. A lot of early retirees pick up consulting or freelance work to bridge the gap before they can access retirement accounts. Lucas: Exactly. But if all your clients are local businesses, you're still geographically concentrated. If you pick up remote work for companies in other states or countries, you've added a layer of insulation. Luna: So what does this look like in practice? Give me a concrete allocation. Lucas: Sure. Let's say you've got a million-dollar net worth targeting a four percent withdrawal rate. I'd suggest splitting your income-producing assets into three buckets. Sixty percent in local or regional rental properties — but only if the local economy is diversified. Thirty percent in a global REIT ETF like VNQI, which gives you exposure to commercial real estate in dozens of countries. And ten percent in out-of-state syndication deals or turnkey rental properties in a market with a completely different economic base. Luna: That's still a lot of real estate. What if someone doesn't want to be a landlord? Lucas: Then you can swap the rental property bucket for a globally diversified dividend stock ETF. Something like VIGI or SCHY. The key is that your dividends aren't all coming from U.S. companies that are exposed to the same interest rate cycle. Luna: But international dividends have higher withholding taxes. Does that eat into the return? Lucas: It does for taxable accounts. But if you hold them in a retirement account or a Roth IRA, you avoid the foreign tax credit issue. And for an early retiree, the trade-off is worth it if it means your income doesn't collapse when the U.S. market has a lost decade. Luna: Fair. Let's talk about the side income piece. What's a realistic example? Lucas: I talked to a guy last month who retired at forty-two. He'd been a project manager in construction. He now does remote project management consulting for developers in three different states — none of which are the state he lives in. That way, if his local housing market slows down, his income isn't affected. Luna: But he has to maintain a professional network in those states. That takes effort. Lucas: It does. But if he were relying on local clients, he'd be competing with everyone else in a downturn. By diversifying geographically, he's selling into regions with different economic cycles. Luna: Alright, let's talk about the cost of implementing this. Buying rental properties in another state sight unseen is risky. Lucas: Huge risk. But there are turnkey providers that have been around for a decade — companies that buy, rehab, and manage properties in markets like Indianapolis or Memphis. You pay a premium, but you get a manager who knows the local landlord-tenant laws and the contractor network. Luna: So you're paying for convenience, but you're also paying for a layer of due diligence you probably couldn't do yourself from across the country. Lucas: Exactly. And you can start small. A single duplex in a city with a growing population and a diverse employer base — not just one factory town. Luna: This is making me think about my own portfolio. I have a rental property in the same city where I live, and almost all my stock holdings are U.S. companies. I'm more concentrated than I realized. Lucas: And that's exactly the blind spot. We tend to invest in what we know, and what we know is local. But if our spending is local and our income is local, we've essentially built a giant undiversified bet on our region. Luna: So the fix is to run what you might call a 'geographic income audit' — map every dollar of income and see where it comes from. Lucas: Right. And if more than half comes from one metro area or one country, you have a problem. The goal is to have at least three distinct geographic sources. Luna: I think people hear 'diversification' and assume it means different asset classes. But it also means different geographies for the same asset class. Lucas: One hundred percent. And I'll add one more thing. Geographic diversification also protects against political risk. If your state changes landlord-tenant laws in a way that hurts your returns, you want to have income from a state with a different regulatory environment. Luna: That's a good point. Some states are much more tenant-friendly than others. Lucas: On that note, I want to pause for a second. If this conversation helped you think about your income sources in a new way, that's the kind of thing we love hearing. And if it was worth a coffee to you, you can find us at buy me a coffee dot com slash fexingo. Truly, that's the link — no pressure, no perks, just listener support that keeps this show ad-free. Luna: Yeah, we don't run ads, we don't have sponsors. It's just us and our listeners. So if you get value from these episodes and want to chip in, that's the spot. Lucas: Alright, back to the geography piece. I want to talk about a specific tool. There's a free website called City-Data dot com where you can compare economic diversity across metro areas. Look at something like the Herfindahl index for employment concentration. Luna: That's the same index used to measure market concentration in antitrust cases. Lucas: Exactly. A city with a low Herfindahl score has a diversified economy — healthcare, education, manufacturing, tech, tourism. A city with a high score depends on one industry. You want to invest in cities with a low score. Luna: So before you buy a rental property in another state, check that city's economic diversity index. Lucas: Yes. And do the same for your dividend stocks. If your portfolio is heavy on energy companies and you live in Houston, you're double-concentrated. Luna: What about someone who doesn't want to own real estate at all? Can they achieve geographic diversification with just stocks and bonds? Lucas: Absolutely. A globally weighted stock ETF like VT gives you exposure to companies that earn revenue from all over the world. But even then, many U.S. companies earn most of their revenue domestically. So you'd want to add an international stock ETF like VXUS to get true geographic diversification. Luna: And bonds? International bonds are usually hedged to the dollar, so the currency risk is removed. Lucas: Right. For early retirees, the main role of bonds is stability, not growth. So a globally diversified bond ETF like BNDW or IAGG can give you exposure to government bonds from multiple countries, which can behave differently during crises. Luna: But international bonds have lower yields than U.S. bonds right now, especially after the rate hikes. Lucas: True. But again, the goal isn't yield maximization — it's resilience. If the U.S. dollar weakens or the U.S. economy enters a prolonged slump, your international bonds could provide a cushion. Luna: That's a long-term play. Most early retirees focus on the first ten years — the so-called 'danger zone' where sequence risk is highest. Lucas: And geographic diversification helps there too. If the U.S. market crashes in year one, your international holdings might not fall as much, or they might recover faster. It's a hedge against the worst-case scenario. Luna: So you're essentially building a portfolio that doesn't rely on any one country's economic success. Lucas: Exactly. And for early retirees who are quitting their jobs and living off investments, that kind of resilience is worth more than an extra half percent of yield. Luna: I think the biggest takeaway for me is to stop thinking about asset classes in isolation and start thinking about where those assets are located. Lucas: That's the frame. Income geography matters just as much as asset allocation. If you run that audit and find you're overexposed to one region, you have a clear action item. Luna: And the fix doesn't have to be complicated. A single international ETF purchase can rebalance your entire income map. Lucas: Right. So here's what I'd recommend. Take fifteen minutes this week. List every source of income you expect in retirement — dividends, rental income, side hustle, Social Security, whatever. Then assign each a geographic location. If more than half your income comes from one place, you've found your risk. Luna: Then decide: buy an international ETF, invest in an out-of-state rental, or find a remote client in another region. Pick one move. Lucas: Exactly. One move this quarter. That's enough to start moving the needle. Luna: Alright, I'm going to do that audit tonight. Thanks for the nudge. Lucas: Happy to help. That's all for this episode. We'll be back next week with another angle on financial freedom.