Conventional financial advice tells us that retirement planning is the gateway to living the life we want to live. Save and invest long enough (and smart enough) and eventually you’ll be able to pursue the things that you’re most passionate about after retiring. However, what if you don’t want to wait until your golden years for those pursuits? What if you just can’t wait until your 60’s to live in Colorado to ski for the winter? Or, what if getting away to surf Hawaii for 6 months is just too tempting? Life is short – no one is promised tomorrow.
Interestingly lots of people in their working years are able to take significant time away each year to do the things they love most. You don’t have to put your passions on the shelf until you’re 65. Whether a short three weeks learning to kitesurf or taking off to the Abacos to chase bonefish for months at a time, balancing the lifestyle you want with work is possible.
It takes careful planning, a well thought-out budget and discipline. Through the course of my career in wealth management, these four tips in particular have stood out in our client’s ability to sustain flexible lifestyle options well before retirement age.
1.Calculate baseline income requirements for your desired lifestyle
While it might sound obvious, many do not accurately calculate a baseline for the monthly living expenses required for their desired lifestyle. Pairing new expenses with the income needed to make basic obligations is essential to planning a lifestyle that caters to your hobbies. This figure should account for all your ordinary expenses and the minimum amount you would be content saving for possible retirement, college or any other major future financial investments, recognizing these desires may need to be put on hold. Start with the basic 6 month emergency fund rule of thumb in living expense savings and adjust if need be from there.
If you have a specific lifestyle desire – say, to spend the winter months on a sailboat in the Caribbean- an entirely separate set of calculations is needed. You’ll need to determine what this schedule change will cost you in excess of your daily living expenses.
- What does it take to maintain a sailboat?
- How about docking fees?
- Will it take more or less money to feed you while you’re on these trips?
You’ll then have to factor in opportunity cost.
- Will you be able to work at all during this five-month span?
- Are you able to work remotely for part of the period, or do you have business income that will carry on in some capacity in your absence?
- Will this be a direct draw from savings or investment income?
The particulars will vary, but it’s a safe bet that these months will have a tangible impact on your annual earnings. Add these costs, direct and indirect, to the baseline budgeting figure. If your current income still puts you above this figure net of the lifestyle change’s subtractions, you’re sitting pretty. If not, there’s more work to do on your expenses or income.
2. Research the worst case.
Try hard to discover the possible unknown expenses you could incur and be able to spend if all goes wrong. Whether a hospital stay in Bali or a complete replacement of your stolen camera gear, plan for what could happen and talk to others that have done similar trips. There are numerous blogs and groups associated with adventure-based lifestyles; reach out and get the story behind the trips. People love to talk about their experiences and can enlighten you on unforeseen expenses and worst-case scenarios.
3. Reallocate your assets into buckets.
The most important step of a financial plan is understanding where your assets will be drawn upon when you need them.
Divide your assets into three distinct buckets. How much goes into each one depends on where you are after step one and two.
Bucket 1 – Short term bucket with living expenses and emergency needs. These assets should be in a bank account with easy access and highly liquid. Be sure to search around for high yield and insured options, as you can get a return on these dollars.
Bucket 2 – Medium term bucket with stable, income generating assets. Use these assets to generate a more robust income stream then your typical checking account can produce and plan for their duration to be longer than bucket 1. Take the income generated and use it to re-fill your short-term bucket, helping to pro-long your lifestyle and living expenses. If need be in a pinch, you can sell these assets and use the cash for unforeseen or excessive expenses.
Bucket 3 – Long term bucket for asset growth. This area should have growth-oriented securities, such as stocks or equity funds. You should view this as part of your long-term plan and should be focused on long term growth for future use in your new lifestyle or for retirement, home, or life after your lifestyle change. Ideally you structure your other buckets so you do not have to touch these assets in a down market or recession, giving it enough time to go through market cycles and create long term growth for your future goals.
4. Adjust your plan, don’t abandon it
There are certain limits to what’s possible in terms of earning potential when you choose to live a lifestyle that keeps you out of the office for long stretches. One area in which you have much more flexibility, however, is in selecting the details of that lifestyle. The key here is to recognize which specific features of an experience make it one that you are determined to have.
If you’re a dedicated surfer, you undoubtedly have a number of dream spots on your list. Are they interchangeable? Maybe you want to take two trips to Fiji every year, and airfare is $1,500 each time. If you decide that Nicaragua is just as fulfilling, you could save $1,000 per trip just by making the decision to alter – not sacrifice – pursuing your passion. That’s $2,000 additional every year that can be contributed directly to your other buckets, a difference that could amount to meaningful dollars in the timing of your trip or when full time retirement finally rolls around.
Dialing in this kind of planning can be a balancing act. Living the life that you want at the moment you want without sacrificing your future stability is far from simple. No two situations are identical, and what’s possible for one person may not be feasible for the next. What’s important to remember, though, is that you do have options. People around the world are able to live out their dreams without quitting work entirely in 2018. The key is to budget and plan with specifics in mind.
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The LPL Financial Registered Representative associated with this site may only discuss and/or transact securities business with residents of the following states: CT, HI, IL, KY, MA, NH, NJ, NC, NY, OH, RI, VA.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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