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

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!

  • Paul

    No matter what your savings plan, whenever you get a raise, increase your savings percent by half the raise. This will help you get to the recommended 15% or more of savings. Now that I’m within 10 years of retirement I actually look at how much I can spend in a year and maintain my savings/investments. I look at projections with 3, 5, and 8 % returns and use a 3% inflation rate.

    Financial Planners use to say plan on spending 50% of your working income during retirement. That has changed dramatically. Now they recommend 80 to 90% and one planner recommended 100 to 110% if your goal is to become a world traveller.

    I know my house will be paid off before retirment so for my retirement costs I take my current salary and subtract the mortgage payment. Now there are other expenses that will go away, but I will have new expenses with higher medical, etc.

    The where question may be a big one in your 20s, 30s or even 40s. But for the last couple of years we travelled to areas we thought we might want to retire to. Looking at the things that interest us, as well as housing prices. Last year we moved to the town we thing we want to be retired in. This gives us the opportunity to make sure this is our place for the future.

    I would suggest not worring about where you will retire until you are within 10 years or so. In your early years I would focus on building that savings rate.

  • Oh, I’m an early convert to the idea of saving! =) That’s what’s enabled me to go on this 5-year experiment in entrepreneurship. Can’t recommend saving highly enough.

    I’m glad you’re testing location. It’s a good idea to try out your retirement possibilities before you commit to them! That’s also why I’m experimenting with writing, drawing, helping people out, etc. – things I think I might like to do when I “retire”, so why not try them out now?

    Thanks for sharing!

  • I learned a lot from reading these two books : “Die Broke” and “Spend ’til the End.”

  • arnebab

    I prefer state-plans for retirement to private saving (as long as the plan is: those working today support those who worked before). That’s the only plan which is really resilient against a financial crash: There always will be some people who work, but your money might die with your bank.

    The system only breaks if the government breaks down, but then your savings are gone anyway (because a new government which would remove the retirement laws can always just claim your money: They make all the laws, not just those on retirement).

  • arnebab

    PS: Generally I like saving, though, as long as you don’t have to trust on more than 15 years of financial stability to make your saving pay off…