October 19, 2012

Planning for retirement when you don’t know where you’ll be

October 19, 2012 - Categories: finance, planning

I have several friends who’ve also moved to Canada from other places. One of them asked me how she could figure out how much money she’d need in retirement if she doesn’t know where she’s going to live and what the costs will be. Even at 29, I’ve spent some time planning for retirement, and here’s how I approach planning for retirement when I don’t know what’ll happen.

The most important thing to realize is that there isn’t just One Number. There are different possibilities depending on how much you save. I remember reading a personal finance book that suggested coming up with three numbers: how much you need for a bare-bones retirement, what you need for a comfortable retirement, and what you need for an awesome retirement. If you take the same idea and extend it to possibilities in different places, you can get a sense of what you might need.

It’s also good to know that those numbers will change. You’ll make different decisions. You might need more, you might need less. If you’re automatically saving 10%, maybe 20%, maybe even more, then you’ll most likely be in decent shape.

Still, numbers can be good for motivation! So, how do you get those numbers? I like starting with current dollars instead of inflation-adjusted numbers. It’s easy to find articles suggesting what you need to retire in different places. For example, this 2010 article says $800-1200/month is comfortable for expats, which probably means that number’s way over the top. =) I can probably get away with something like the amount I earned while teaching there, with something extra put aside for medical issues.

In Canada, I can estimate the minimum I need by looking at my expenses and finding out what else I might need to spend for, like medicines. I’m not counting on Old Age Security, the Canada Pension Plan, or other government programs – they’ll be a nice bonus if I get them, but I shouldn’t rely on them. That gives me a number for a basic retirement, and then I can come up with other numbers for more comfortable retirements.

When you look at retirement planning as a range of numbers instead of a single number that you have to make, it becomes easier to cheer yourself on. Then you have all these numbers, and you can estimate how much you need in today’s dollars when accounting for inflation and growth. You can see what possibilities are probably already available, and how far you are to your next threshold. You can think of it as getting to different levels in a game, or unlocking different achievements. As you save and invest, you open up more possibilities – and it’s great to know that your backup plan is well-covered.

Me, I’m inching towards my “very basic Canadian expenses covered” goal, knowing that I can likely retire to the Philippines if I want to. It’s pretty cool knowing this at 29, and it motivates me to save up more so that I could have a totally awesome retirement either in the Philippines or in Canada!

I’m not a financial advisor and this isn’t financial advice. I’d love to hear what you think, though!