Another Way To Think About Saving For Retirement

To come up with a future retirement budget most people look at current expenses and then add a chunk for anticipated increases later in life. They calculate needed savings based on that number. It is easy to come up with a number that way, but it is not a useful number for early retirees.

I’ve potentially got 70 or more years of retirement planned. My life is going to change a lot over that time horizon. My expenses will change as well.

If I had solely looked at my expenses when I was working  to come up with my number I would have had saved too much. Saving too much isn’t usually a problem, but it is if it means working longer at a job you don’t particularly enjoy. To avoid working more I used another strategy.

It is a shorter road if I think about my future as distinct time periods, each with their own expenses and ways to fund those expenses. It is easy to break them up, and it allowed me to skip years or working.

My periods are:


For the next few years I’ll travel often, mostly in cheap countries. I’ll spend little to do it and generally live the life of a glorified bum. I’m doing this now while still young and willing to sacrifice a little comfort. I can backpack around Asia, I can live well in a van, but I don’t want to do it forever. It’s because I want to, not because I have to.

Short term

Eventually I want to settle down some of the time, but still travel a lot. This is more expensive than living out of a backpack full time. I also want to budget for more expensive destinations. Let’s call that age 35 to 50.

Mid term

From age 50 on I’m planning on another bump in the budget. My assumption is that as I get older my desire for comfort will increase, and so will expenses. There is also health care costs to consider – premiums really start to creep up around mid age.

Long term

At some point I’ll be old. As in the traditional definition of retirement age old. I’m budgeting for another increase in expenses during this period. Even though I’ll be old I’m not planning on slowing down, (I’ve already slowed down) and I want to make sure my bases are covered financially for all of the fun things during that period.

Very long term

I also want to pay for some things that will help the world. I am incredibly wealthy compared to 97% of the worlds population, and I’d like to do something significant to alleviate that disparity. Before I die I’d like to donate a significant portion of my wealth or use it to create something useful.

How I’m paying for each of these periods


This one is easy since it is such a short period. To live for the next few years I’m mostly using repayments from loans held in Prosper and Lending Club. Both of these companies provide a platform for me to lend small amounts to many different people. Between the two of them I own hundreds of tiny portions of other peoples debt, and every month I get a little payment from each of the loans. Added up, these little payments are a fairly significant.

I set up these accounts mostly as an experiment, but I’ve been happy with the results thus far. Between the two of them I’ve managed pretty good returns on my investment, but I’ve decided to slowly get rid of them because I think they are risky. In five years they will be completely spent. If I didn’t need the money right now I’d probably keep them going for the sake of experiment – I like the idea lending outside of the traditional banking world.

I’m also spending the tiny amount of income the rental property (usually) generates. My expenses while traveling the world are pretty low, so between the personal loans and the rental I’m 90% covered.

I can supplement this by working fun/interesting side hustles. Two years ago I helped a friend with a bit of personal chef catering during the busy holiday season. I got to cherry pick the easy and fun clients, and said no to ones that seemed potentially high-strung. It was fun, in a few nights of work I made enough to cover months of expenses on the road. Last year I didn’t work at all, I was too busy doing other things.

Yes, you can keep working in retirement. But do it on your terms. Work because you want to, not because you need to.

Short term

In a few years when I decide to settle down a bit more I’ll have to start paying for housing. Housing is expensive. If I end up back in the States or some other developed country I’ll need a significant bump in the budget. Even if I end up based in some cheaper country I’m still planning on higher spending. There is also the possibility of having children during this stage, which would add some more.

To fund this stage I’ll still partially rely on rental income. I’ll increase rent slightly each year, which will help a little, but not much. There are also some mutual funds held in a taxable account earmarked for this stage. Dividends and interest will cover some expenses, but not all. The rental and the investments are enough for about half of my expenses. I’ll need more, but I’m flexible.

I’m hoping to monetize some of my interests – sort of a get paid to play thing. Hopefully these projects pay enough that I won’t have to get a real job. This stage is the biggest unknown in my plan, but going back to work part time wouldn’t be the end of the world if it came down to it. There are plenty of jobs that are fun for a little while. The hardest part about slinking back to work would be the harassment I’d get from friends.

Mid term

Things start to get expensive here. My biggest concern is increased health care costs, but I also assume life in general will be a bit more expensive. I hope to have some expensive hobbies by then. In 20 years time I definitely want to be able to spend more. Lucky for me I already have all of these future expenses paid for.

Funding for this time period revolves entirely around the rental property. The property has a fixed rate mortgage, so payments will stay the same over the duration of the loan, but over time rent will increase. Right now the property generates very little cash flow, but in 20 years it will generate significant cash flow. When the mortgage is finally paid off it will generate a ton of cash flow.

The mortgage has 26.5 years left before it is paid off, which is too long. I’ll be 57 by the time that happens if I don’t change anything, I’m not willing to wait that long. To force cash flow sooner I will either:

  • Pay extra principal to accelerate the mortgage payoff. I could feasibly have this thing paid off 20 years from now.
  • Refinance into another loan once a significant amount of the balance is paid off to lower monthly payments.
  • Sell it and invest the equity into something with better cash flow.
  • Move into it, therefore lowering my expenses.

Anyway I look at it, this property will be worth a lot in 20 years, either in income or equity or the value of having a roof over my head. Thanks renters for paying that mortgage for me. And thanks to my earlier self for making a lot of sacrifices to buy and pay for that thing.

Plus, I’ll still have the dividends from the taxable account above, and whatever savings I manage to accumulate from monetizing my hobbies. And, I’ll probably still work a little for fun. My future looks very cushy.

Long term

I’m calling this one age 70 on. The way things are going, I think 70 or even 75 will be the standard retirement age by the time I get there.

Life gets even more expensive. I’m still planning on paying for health care, I don’t know if Medicare will still be available. I’m also not planning on getting any social security benefits. Those plans might still be around, but I’m not counting on it. I don’t ever want to be a burden on my family, so I’m budgeting to pay for someone to take care of me at some point. Good personal care is expensive. Maybe I’ll get lucky and someone will invent cheap personal robots, but again, not counting on it.

To fund this period I’m using broad index mutual funds held in IRA’s. You could use 401k’s, HSA’s or other tax sheltered retirement accounts instead, they all accomplish the same thing.

Because these are sheltered accounts I basically can’t touch this money until I’m in my 60’s, so they will have 30 or 40 years to grow with compound income. That’s a long time. These accounts are pretty small right now – not nearly large enough to live off of – but in 30-plus years they will grow immensely.

Again, hats off to my younger self for making some sacrifices. I’ve already contributed enough to these accounts that they will grow to more than I will need. Even if I never contribute another dime, I’m looking very setup for that stage of life. Compound interest is awesome with time.

Plus, I’ll still have the rental property, the taxable account, and whatever other savings I manage to accumulate. And I’ll probably still work a little for fun.

Very long term

I haven’t figured out funding for this stage yet, other than using the obvious extra from above. I will have enough late in life to donate significantly to charity as it is. But I’m considering doing more things now to increase the impact. I’m even considering going back to work  just to increase savings earmarked for social change. Going back to work because I want to is a lot more palatable than going back because I have to.

Plan for changes in life

The above plan is just a rough draft. Things will change in 70 years.  I’ll update my plan as I go along. The key to its success is my flexibility.

But the overall trend is worth paying attention to – people get less willing to sacrifice comfort as they get older. I can happily live cheaply when I am young, but I don’t assume I’ll be OK with it forever. I want to live in a van because it is fun, not because I can’t afford anything else. I don’t ever want to do anything when it’s no longer enjoyable.

Can you tweak your plan and retire sooner with a little creativity?

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