I recently got back from a camping trip to Clear Lake over in Manitoba and it occurred to me that some of you might be wondering what exactly is the point of a vacation when your retired? Well the reasons vary a bit but I’ll try to touch on what I think some of the obvious ones.
First off in our case, my wife still works so she actually really does want a vacation each summer. Also frankly if I looked after kids all day every weekday during the year I would need more vacation than she takes. After all one of the major purposes of a vacation while you are working is to take a break from the stress of work. You know the entire relax and recharge idea.
In my case, I don’t really need a break from the stress of my life (frankly there isn’t that much to escape from), but I still enjoyed our vacation. Why? Because it is a break from your everyday life. It’s a chance to see new things and enjoy some time with those you are traveling with. I enjoy it because it is a break from my everyday sort of life which I think is important for everyone regardless of if your retired or not.
Now the other thing about being retired and traveling is you actually have some additional options open to you because you don’t have a set amount of time you can use for vacation. Effectively you are more limited by your travel budget than your vacation time. Which means you can take an option of renting an apartment for a month or two if you want and really spend some time in the region of the world where you are vacationing in. For example, if you wanted you could pick a country in Europe and make it home base for a while while you check out a number of countries near by. Alternatively you can split up your time and spend a few weeks in several spots or what ever combination of things you want to do. Like I said, your options are more limited by money than time.
Of course, I’m not there yet. My wife still has a business to run so we typically limit ourselves to two weeks during the summer and another week around Christmas time. Also a lot of our vacations tend to involve camping as it is something both us and our kids like to do so we don’t actually spend all that much money on trips most of the time. But of course we do make exceptions like a few years back we did a big tour around the East coast of Canada where we took a month off and we are planning a trip to Disney coming up next year.
So what do you like most about your vacation?
I was chatting with my wife earlier today and I mentioned that I was a proud of a something relatively minor in my retirement so far: I don’t obsess about our spending. I also don’t ignore it either. I keep an eye on our spending but I don’t sit down every month examine every dollar in detail. Instead I keep track of the big picture – how much we spend over a year and not so much about a given month.
My wife’s reply was to the point “You better not care about every single dollar you spend or what was the point of retiring in the first place?”
She is right of course. If you have to worry about every dime you spend in retirement it won’t be a fun life regardless of having all the extra free time.
Which brings me to the point of today’s post that every retirement budget needs something: slack or buffer. Or excess spending dollars or what ever you want to call the concept. The point is you NEVER want to retire on a shoestring budget with nothing extra in it.
I know when you are saving for retirement there is a temptation to reduce spending as far as it will go to get to your early retirement sooner. Which honestly that isn’t a bad short term exercise so you know what the shoestring number is but often a short term dip in spending can’t be sustainable in the long run. Why? People often will push off replacement of items and make due. Which honestly can work just fine in the short run. It just can easily start to fall apart over a long period of time.
For example, I bought a new weed trimmer this morning to finally replace the one I originally bought with our first house over 12 years ago. Why? Well the line feeder started acting up during the end of last season. So this year I just made do the first few times I used it but then the plastic guard with the line cutter broke off. Now it was just a pain to use the old weed trimmer and while it sort of did the job but only with a lot of hassle and screwing around with it. So avoiding replacing it would have just ended up costing me a lot of time and frustration in the long run. Rather than do that I looked for a new one and found a cordless battery powered weed trimmer on sale and bought it this morning. I already love not having to drag out my extra long extension cord to trim the lawn after cutting it (my previous one was a corded model).
So for a cost of less than $100 I managed to replace my old weed trimmer and also do a small upgrade by going cordless which makes me much happier since I can accomplish the job faster than using my old one.
In the end, I wasn’t afraid to spend the money and I ended up with something better for me in the long run. That is because our budget includes some slack for the things that do break down over time and need to be replaced. You can’t predict where these will occur so you best to just add in a buffer or slack to your budget to account for it.
So how do you deal with the eventually replacement of things in your home? Do you keep a set dollar amount or percentage of budget for your buffer or just use your actual yearly spending with those one off items in it?
As some of you may know from my various posts over the years that I haven’t included any inheritance in my early retirement plans except as a back up plan. Why? Well on the surface a windfall of money later on in your life could be very helpful for your funding your own retirement but it sucks from a planning perspective.
Why? Well in short you can’t control the amount of money you will end up with and you also have no control on when you might ever get it. So both of those uncertainties makes an inheritance nearly useless for you to be able to depend on for planning your retirement. As an example for discussion let’s say I may end up inheriting $100,000 when I turn 50 or $25,000 when I turn 60. In either case that would have vastly different effects on the math of your withdrawal rates (if you feel so inclined you can play with your own retirement numbers to see what I mean). Yet you really can’t know when or how much you will end up with the inheritance as there are too many variables involved. So in short I really don’t recommended including it at all when you are doing your planning for your early retirement.
Yet now we have a bit of an oddity. Depending on how good your own parents or your spouses parents are with money you might end up with a significant amount of money one day out of the blue. After all a $100,000 dollars (or what ever amount you get) is nice regardless of when you get it. But what should you do with it if you are already financially independent and don’t need the money for day to day expenses. Now there is two main options that spring to mind: enjoy the money or use it for the next generation.
The first option of enjoying it is, of course, the easiest. You can invest the money and use the extra funds to take a few extra trips or do a renovation on your house because you want to. In effect it becomes fun money to do what every you like.
The second option of using the money for the next generation also has interesting potential because if you invest the money and you can either hand it over in lump sums at key points in their lives or gift the entire portfolio to them when you feel they are ready for it. This has some significant advantages depending on the amount of money per child. For example, they could graduate post secondary with no debt and have some seed money to have them save towards a house down payment. Or you can boost your own children’s retirement savings when they are young they could give them a leg up on working towards being financially independent or using it to fund their own business or further their education or what ever you deem important.
Or another option, if you prefer, is you can save the money and play the really long game of investing your your actual or future grandchildren’s education and seed money for their retirement savings. Thus building the capacity of your family line to continue to be ahead of the curve of most people when it comes to student debt and retirement savings. The major problem of planning this long game is there is no guarantees that your grandchildren will continue the tradition to their kids.
For me personally I sort of hate to choose and might end up doing a bit of everything. It all depends on the circumstances of how old I am and where my kids are at in their lives when my parents die (not that I’m looking forward to this but as I turned 40 this year I’m aware it will happen at some point regardless of when I’m ready for it).
So have you given any thoughts to your legacy? What would you like to see your children do with their inheritance? Or what would you do if you received an inheritance?