Why You Should Look At Retirement As An Expense

Why You Should Look At Retirement As An Expense

Recently, the ChooseFI team received an email from Anders Skagerberg, a fee-only financial planner based in Salt Lake City. Anders describes himself as a “ChooseFI faithful” and says that he and his business partner, Brett, are always trying to motivate young people to get excited about financial independence.

One of the strategies that Anders uses with his clients is to get them to think of “retirement as an expense.” In his email, Anders explained exactly what he means by that and how it can help young people (or really, anyone) get excited about retirement saving.

Looking at retirement as an expense gives us a tangible goal to chase and helps us recognize the money we save by starting early.

Why You Should Look At Retirement As An Expense

Whether you're looking for a unique way to convince others to join the financial independence movement or are looking for a little extra savings motivation yourself, thinking about retirement as an expense could be helpful. Anders explained two reasons why.

1. Looking At Retirement As An Expense Gives Us A Tangible Goal To Chase

It's no wonder that many people struggle to follow the traditional advice of saving 10% or 15% towards retirement. It doesn't tap well into the goal-oriented parts of our minds.

Why do we enjoy saving up for a kayak, vacation, car, or a down payment on a house? Because we're able to come up with a tangible number to save towards.

The Importance Of Setting A Retirement Number

By using the 4% rule, or whatever rule you follow, it's helpful to find out exactly how much you'll need to have saved before you can retire.

And then you can start saving towards that “expense” every year.

Thinking of retirement as an “expense” helps to activate the goal-oriented portion of our brains. Here's what Anders had to say.

The concept is a simple reframing of the way we think about retirement. Once you become clear about your monthly spend rate, it is very simple to determine your FI number. For those following the 4% rule, simply multiply it by 25, and for those with Big ERN and the 3.5% rule, multiply it by 28.6.

Finding your retirement number is the first step towards looking at retirement as an expense. But simply coming up with a retirement number isn't enough on its own to get you really excited about saving.

The Importance Of Setting A Retirement Date

When you want to buy a house or a car or anything else, you generally have an idea when you want to make that purchase. And it's the time factor–the deadline–that gets most of us even more motivated to save larger chunks of money each month.

Anders explains how setting a retirement date can have a similar psychological effect on our retirement savings.

Now the next step, pick the date at which you are targeting FIRE. For me, it is age 40. So I know, at age 40, I want to have $1 million saved up and be financially independent. Now, this is where the reframe comes in. If I start today from scratch at age 27, assuming an 8% ROR, I need to “spend roughly $45k per year on my retirement (AKA I need to save $45k/year), in order to pay off my retirement expense at age 40. However, if I had started at the ripe young age of 18, giving myself 22 years to pay off my retirement expense, I only need to “spend” around $18k per year on my retirement expense.

Anders readily admits that he hasn't stumbled upon a new idea. Many of you, in fact, may already have a retirement number and date that you're working towards.

But for Financial Independence newbies, explaining retirement in this way could help to get them on board.

This is obviously not earth-shattering findings by any means. But I think it can at least help people get their heads wrapped around this idea that you have a retirement expense out there that you need to pay off at some point in time. You can start now and it is crazy easy. Or you can delay paying it off, and it gets exponentially harder.

Tracking Your Retirement Goals

You can keep track of this retirement “expense” savings yourself, using a homemade spreadsheet. Or you can use one of the “goals” tools from Mint, Personal Capital, or many of the robo-advisors.

Another big thing that people do when paying off debt is to create “debt art” like a thermometer that they color in as they track their progress. The same can be done for retirement.

My friend, Ashley, said that's exactly what she's done. And she explained why the “retirement thermometer” works well for her.

I know how much I need to contribute and I have both an annual and a lifetime chart that I color in when I contribute. It feels better than just chucking money into a black hole of retirement savings.

Regardless of which tool you use, you'll want to make sure your goal includes both a retirement number and date. Then you'll know exactly how much you need to save each month. And each month that you save more will give you the satisfaction of knowing that you're making it possible to retire even earlier.

Related: Personal Capital: The Ultimate Net Worth Tracker

2. Looking At Retirement As An Expense Helps Us Recognize The Money We Save By Starting Early

In his email, Anders made another great observation. He pointed out that many people will get super-motivated to pay off debt. Yet those same people may struggle to get serious about investing and retirement savings.

It may seem like a strange phenomenon, but Anders has a theory for why this happens.

Another idea that came from the comments on this post is that a lot of times when people are paying off debt they are very easily motivated because they can track the number and watch it shrink as they pay it off. We can do this same thing with our retirement number. Simply write out your retirement number as a liability that you are paying off every time you save/invest money. The awesome thing about that is as your money grows and works for you you begin to pay it off even faster.

I think Anders brings up a fantastic point here. And it deserves a little unpacking.

Why We Get Excited About Debt Payoff

I believe Anders is completely right that it's satisfying for us when we see our debt shrink each month. But there may be another reason why many people find it easier to stay focused on debt reduction than retirement savings.

We also get excited about debt payoff because we realize that every extra dollar we put towards debt, we are saving on interest. That's why we throw extra money at our credit card debt or refinance mortgages into 15-year loans.

We can run a mortgage calculator or debt snowball calculator and see exactly how much interest we'll save by putting a little extra money towards our debt today.

This is exciting and motivating. And we know the longer we wait to pay it off, the more money we're going to lose overall.

In fact, people get so excited about saving interest on their debt, they'll use tools like the debt reduction calculator from Vertex that tell them whether or not they should choose the debt snowball or debt avalanche method.

It's fascinating that many of us will go to such great lengths to save on interest during the debt payoff phase. Yet once the debts are paid off, many tend to “float” when it's time to transition into retirement saving.

Related: Debt Snowball Vs. Debt Avalanche–Does It Really Matter

Why We Should Think Of Retirement Saving Like Debt Payoff

While we may not think about it in the same way, retirement savings works exactly the same way as debt payoff.

The major difference is that instead of saving more interest, you're earning more interest by “paying” more early on. And you're giving yourself more time for interest to compound.

With a mortgage calculator, you can see how much “out-of-pocket” money you'll save by paying your home off early. And with a retirement calculator, you can see how much “out-of-pocket” money you'll save by investing earlier.

Related: 5 Retire Early Calculators to Get You on Track for FI


Whether we realize it or not, we all have that big retirement expense headed our way someday. And the earlier we begin, the faster and easier it will be to save the money that we'll need to foot the bill.

Thanks, Anders, for taking the time to send us an email. We agree that thinking about retirement as an expense could be helpful for all of us. And it could be a “light bulb” moment for those who've been reluctant to join the financial independence movement.

Related Articles

Why You Should Look At Retirement As An Expense

Your Financial Resilience Toolkit

Affiliate Disclaimer

ChooseFI seeks to uncover helpful services that help you be financially resilient. However, we may receive compensation, at no cost to you, from the issuers of some products mentioned in this article, including from CardRatings for our coverage of credit card products. Opinions are the author’s alone, and this content has not been provided by, reviewed, approved or endorsed by any of these entities. See our disclosures for more info.

We've updated our Top Cashback Card! Check it out!

Save on Existing Loans

Save On Living Expenses

Save & Invest

Financial Emergency Prep

2 thoughts on “Why You Should Look At Retirement As An Expense”

  1. Thanks for the thought provoking article. Thinking of retirement as an expense is a mind shift that I think would be very beneficial. However, to state, “You can start now and it is crazy easy. Or you can delay paying it off, and it gets exponentially harder,” is over simplifying the process and doesn’t allow for significant fluctuations in life events that occur during young adult years.

    To reflect on the example of saving 18K/year from age 18 till age 40, to achieve $1 million at 40 years old, does NOT necessarily account for schooling, housing, vehicles, weddings, marriage, kids, that typically occur between those years. There are years you may not make 18K because you are working part-time and going to school, or various other scenarios; let alone put away 18K for retirement. Unless you get a well paying job right out of high school and live on the very cheap, I don’t think it’s realistic. And worse yet it can be defeating for those who really strive to be go-getters.

    Maybe we should have a 2-step process that would better represent the masses. Set a retirement age and goal. Then decide how much to save during early adulthood, when life is rapidly changing (step-1), and then accelerate the savings once the person is more established (step-2). But the key is to NEVER stop saving for that retirement expense. I think it would more attainable and relatable. And I wish someone would have shown me a strategy like this when I was in my younger years.

  2. This is a great take on saving for retirement. It is definitely an expense – you are giving up using it today to allow your future self to use it. The opportunity cost is the expense. While saving for retirement, you shouldn’t forget to live life.

Leave a Comment