What if you could retire early by living a nomadic lifestyle?

Updated May 9, 2018 Can you retire early by becoming a “digital nomad”? Possibly. But, I’m not a financial planner and I am no expert. However, consider this. If you could reduce your expenses by half or more now, how might that change your retirement picture? Here’s a simple way to think about the calculations from Forbes, though you should always talk to your financial adviser, of course.
  1. Start by determining how much money you have in savings and retirement accounts.
  2. Assume you can withdraw roughly 4% a year without outliving your money (according to experts). So, if you have $500,000 in savings, for example, that means you could withdraw roughly $20,000 per year as income.
  3. Now add how much you expect from Social Security / CPP/ Old Age Security or other pension funds to determine your total income.
  4. Now figure what you expect your expenses to be. Most experts say you’ll need 75% to 85% of what you’re making now to maintain the same standard of living, but adjust that up or down depending on whether you’ll have a mortgage, debt, etc.
  5. Figure out the difference between your income and expenses. If you’re like most, your expenses are larger than your income.
If you are “upside down” in your retirement calculations, then one option is to work longer, thereby delaying the point at which you start to draw down your savings, and also increasing the money you’re able to save. Another option, though, is to reduce your planned expenses. And one very palatable way to do that is most definitely to adopt a lower cost nomadic lifestyle. Let’s take a look at what the impact to your budget could be by using our own situation. Here’s what our (simplified) monthly budget looked like before we embarked on our nomadic journey:

Budget before becoming a digital nomad

Now here’s what our (simplified) budget looks like now. In our case, we are still providing support to our college-aged and young adult kids, so that’s a hefty budget item. This may or may not be the same for you.

Budget after becoming a digital nomad

I also have not included taxes in these budgets, but in our case, we are able to take advantage of the US’s foreign earned income exclusion which results in some savings as well. Every situation and government is different, so be sure to speak with a qualified adviser about potential tax implications of such a move. So, can you retire early? It’s easy to see how your retirement calculations change when you’re able to drastically reduce your expenses. But if you find you can’t quite retire as you were hoping, you can still travel by transitioning to something that allows you to earn a living from anywhere.

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