FIRE planning for different life stages
By: Alex Ellie
Tags: Money Management, Early Retirement, Personal Finance, Budgeting, Financial Independence

Merry Christmas all! It’s a time for enjoying yourself and very often excess.

So it’s with a bit of mirth that I think back to a while back when we posted one of our updates on Reddit, and people were wondering why our early retirement living and travel budget is so big and not understanding why.

Their assumption was twofold. Firstly, because we currently live frugally, that we’d want to live the same way in retirement. Secondly, because they had travelled cheaply themselves, that we could and would do that too.

On the first count, the reason we want to retire early is to improve our quality of life. Moreover, the reason we want to FatFIRE is to have a better quality of life. We would prefer to spend money now… But that would mean needing to work longer until we reach retirement. So we settle on FastFIRE to get what we want as soon as possible.

On the second count, it’s true that you can travel far more cheaply than we plan to in retirement. A couch-surfing, hostel-living backpacker lifestyle isn’t something we’ve ever really wanted (in our youth, or now). But it also reveals a possible gap in planning for the future on the commenters’ behalves.

Planning to travel cheaply now makes the assumption that because you were happy to do something like sleep in a dormitory with shared facilities or go on a Contiki Tour in your 20s or 30s that you will want the same things later in life.

Similarly, there will always be stories of the Nanna that still goes to night clubs and rips it up on the dance floor. But the fact of the matter is that most people will change what they want throughout life’s different stages.

It just so happens that your youth is when you’re most used to — and capable of — ‘slumming it’ and living on the cheap. Two-minute noodle dinner? Sure. Backpacker hostel accommodation? You bet. Hire a scooter in south-east Asia as your ride? Bring it on!

But if you’re looking to retire early and you’re currently in your 20s or 30s, you cannot make the mistake of basing your retirement budget on your current expenses.

Hostel living in your 60s? That’ll end well…

Changing wants as you age

I’ve never been much of a wine drinking kind of guy. I actually strongly dislike the taste of wine. But that isn’t to say that I won’t someday politely try some wine sampler when my wife Ellie and I are out and about and that it’ll suddenly hit me.

“Maybe I’ve only ever had crappy wine before, but this tastes good! “

Let’s just say that if that happens, we’d likely need to find some extra money in the budget.

Similarly, people’s tastes change from cask wine to finer varieties as they navigate the world and refine their preferences as they age. The same thing can be said about practically anything.

Remember the melted cheese on bread your mum made you as a kid? Well, you still like it as you age, but you find yourself preferring a particular type of cheese, and the bread isn’t just plain white bread anymore… It’s some artisan ancient wholegrain. So your old $1 meal is now $6, and you still made it yourself to save money!

As I alluded to earlier, travel can also be a great example of this in action. A $25 a night hostel might be great when you’re young and want to party, and don’t mind sleeping in a top bunk in a shared dormitory and getting woken by people returning to their beds throughout the night.

However, you might be less tolerant of that lifestyle when you’re twice as old as the other occupants, they don’t want to play drinking with you anymore because it’s just a bit too creepy, and your partner is frowning at you after another disrupted night. So say hello instead to motels, hotels or Airbnb, and at least double the cost for accommodation.

No, that doesn’t mean that everything you want in life is automatically more expensive as you age. But anyone who has ever tracked their expenses knows that those little things add up over time. So you should account for them with future planning.

Nor is that to say that you’ll necessarily become softer in old age and want ‘nicer things’. But if you make the most of the opportunities that life presents you in early retirement, I guarantee that you’ll discover new and altered loves in all corners of the world. With that comes cost.

But as you age and start to increasingly feel physical wear and tear, it’s almost certain that you’ll want some extra comforts. That could be as simple as using extra electricity to run an air conditioner at home more in summer; or as complex as needing to renovate your home to make it more accessible.

So if the purpose of your new life in retirement is to live your best life, be prepared to pay for it at least some of the time.

What you want and need now can and will change as you age.

Changing needs as you age

While you might be able to get away with avoiding changing wants (ie: ‘nice to haves’), changing needs are far harder to escape.

We’ve already spoken about the need to set aside money for when you’re older because of things like medical expenses and assisted living.

You might argue that as you age you’ll stop doing some of the things you want to do (eg: travel). But what if costly medications allow you to manage a health condition and still allow you to travel or pursue your hobbies? It would be an awful shame to not be able to afford the life you used to have, but otherwise still have the physical and/or mental ability to pursue.

The remedy is pretty simple, I think: have extra money in your budget.

As we showed when we modelled where you can retire early on a low income, compounding can have a tremendous impact. The urge to quit work as soon as possible might be strong. But sticking it out for a little bit longer provides a valuable safety net. Even better, if you increase your budget to account for expenses later in life, you’re increasing your budget for your earlier life in retirement as well! Extra money for life sounds just peachy to me.

Getting older isn’t the end of good times, just a change in how it happens. Think and plan ahead for those days.

The danger of getting your retirement planning wrong

Risk management comes into play when thinking about possible future downturns and impacts to financial returns.

But you need to be careful with planning for your future expenses as well. Just sit down and think about how your life will change as you age. Firstly, what interests would you want to take up? Then how might those interests change as you age? Then think about what the impacts of those changes would be on your expenses.

Look at your parents and grandparents. How do they live? What are their needs, and how might that impact their finances? Ask them about how things have changed over time for them. And if you’re open with them about your FIRE plans and finances, run your ideas by them.

You’re a different person today than who you were at 15, and you’ll be different still at age 50 or 70. And there is no way to know for sure what you will want or need when you reach those stages.

Successful FIRE planning all comes down to anticipating the future. Don’t just invest with future markets in mind, invest to fund your future self in mind.

That’s why we plan to have a comfortable buffer between core living expenses and added nice-to-haves. Even if it means working that little bit longer.

That’s it for today. Hope you have a great Christmas and New Year everyone! See you in 2021!

Cheers,

Alex

PS: Have you put thought into how your expenses will change as you go through different phases in life?