3 Secrets to Keep You From Running Out of Money in Retirement, According to a 38-Year-Old Retiree

Retiring at 38 may seem like a pipe dream for most people, but not for Tanja Hester.

While she loved her high-pressure job in politics, the endless hustle of 70-hour work weeks made her and her husband realize they weren’t enjoying their lives. Hester decided to dive into the world of FIRE (financial independence, retire early) a personal finance movement that has gained traction largely among millennials seeking to manage their money and their lifestyles in a way that allows them to build up enough savings to retire early and leave the cubicle life behind — for good.

Hester and her husband, Mark Bunge, who also worked in politics, turbo-charged their savings for six years and retired in late 2017. Her new book, Work Optional, which debuts Tuesday, outlines a step-by-step process for how to transition to the FIRE lifestyle yourself.

But whether you retire at 35 or 75, sticking to a budget is key to maintaining your financial freedom. When you go from being stuck behind a desk to all of a sudden having an additional 40-plus free hours each week, every day feels like a Saturday, and you have to find cost-efficient ways to keep yourself busy. For her part, Hester enjoys skiing and travel. She and her husband accumulated millions of frequent-flyer miles while working, which helps defray her travel costs.

You need to have a system to in place to prevent from you overspending if you get bored, want to help out a family member or have other unexpected costs pop-up.

“This is about your life, this is about your dreams,” Hester tells Money. “The money is the thing that makes that happen.”

It's not uncommon to spend more money during retirement than you did while working, especially during the early years, thanks to those freed up hours. You finally time have to do all the things you're interested in. Hester says many people spend less in retirement because they have to — thanks in part of a lack of planning and saving — not because they want to.

"It’s absolutely true that some people are happy spending very little, but for all the rest of us, it’s safe to assume your spending will stay the same or go up in retirement, not go down," says Hester. "In our case, we took three international trips in our first year of retirement, and even though we kept costs down, those trips still cost money. We didn’t have time to travel like that while working, so we couldn’t spend that money then even if we wanted to. Now we have lots of free time to fill with travel and activities, and very little of that is entirely free."

Here are her top three tips for for holding yourself accountable to your retirement budget:

Set Up A Paycheck System

Create a system of paychecks using multiple accounts, Hester says. This is especially helpful for people who are prone to overspending. Keep your everyday spending money in one account and the rest of your shorter-term money in a high-yield savings account at a different bank. (This money is separate from your brokerage accounts and your long-term retirement accounts. Hester explains all of the buckets you should keep your money in and when you should draw on them in Work Optional.) Keeping the accounts at two separate banks makes it harder to thoughtlessly dip into your savings because it requires conscious action to access that additional money, Hester says.

Have a transfer set up for every two weeks or once a month like the regular paycheck you received when you were working to keep your spending and your budget consistent.

Build in A Buffer (Or Two)

Know where you could cut your spending if you needed to and go through that thought process in advance, Hester recommends.

"If you’re in a position to plan, build in a big buffer," she says. "In our case, we know we could downsize our house if we needed to. It's not a huge house, but we could certainly live in a smaller one. So if something came along that cost us tens of thousands of dollars we could downsize and that would free things up."

Downsizing a house (as opposed to, say, drawing on cash savings) won't require you to meaningfully change your lifestyle. Where you can cut back will be different for everyone. Scaling back your lifestyle is another option. If you budgeted to take one international trip a year, you can go only on road trips within the U.S. until you build your nest egg back up again. You can rent out rooms in your house or sell a baseball card collection — anything that can function as a contingency plan without eating into your retirement savings will offer you greater piece of mind.

Don't Skimp on Insurance

Even though you’re living cheaply, you shouldn’t necessarily be cheap. That’s especially true when it comes to insurance, Hester cautions. Good insurance may sound obvious and somewhat unrelated to budgeting, but it’s another way to prevent an unexpected catastrophic expense from derailing your carefully crafted plans. No matter how many detailed spreadsheets you keep, an outrageous hospital bill or health care expense could you force back into an office if you don't have ways to mitigate the damage.

“Make sure that you’re not skimping on homeowners and auto insurance," Hester says. "The difference in cost between the minimum and a higher liability limit is going to be pretty minimal and if something like that happens, you want to make sure that kind of stuff is covered."

For everyone, but especially those with significant savings, the extra layer of liability coverage that umbrella insurance provides is a good idea, Hester says. It also has a relatively low cost compared to the benefits. If someone ever sues you for any kind of accident, your insurance company will fund your legal defense — which could cost hundreds of thousands of dollars — compared to just a few hundred dollars a year for the plan.

And if you encounter unplanned financial difficulties that make it necessary for you to go back to work? Hester says you should still aim to do something you love that doesn’t feel like a job.

“Something that looks like work is ok if it’s something you would have excitedly done in high school for free,” she says. For her, that’s writing about the FIRE movement and sharing it with all of us.