Financial independence: a new concept in lifestyle retirement planning

Sea Wave on Beach
KJ: One of the biggest topics in the media today is retirement. With thousands of baby boomers reaching the official retirement age each day, it’s all a lot of us think or talk about. How do you get there, how much do you need? What happens when you get there, and why is it called “retirement?” What’s so great about that point in time? Especially for us young savers, the normal retirement age could be DECADES (20, 30, 40 years) away, so what can you do now to really help you get on track and realize this flexibility sooner? Few people want to completely sacrifice today (and every year thereafter) until you get to retirement and can “live the good life.” It’s important to have periodic milestones along the way to celebrate life and youth.

Throw out the concept of retirement
I’m starting to get a little tired of the word retirement. It seems to imply that you’ll work all your life – tirelessly – to get to some point in the future where you can stay home, play computer games, and eat Cheetos until your heart is content. Or, maybe it means laying on a beach sipping piña coladas without a worry in the world. Sure, that sounds like fun for a period of time, but why wait until retirement to do any of that?

Many people who get to retirement realize it isn’t what they thought it would be. After all, what are you going to do to stay active (and not just turn into a vegetable on the couch!)? You may quickly realize you would like to spend time doing something meaningful by taking on a part-time job, another full-time job, or volunteering for a cause that is closest to your heart.

Instead, reach for financial independence
Financial independence is a very similar concept to retirement, and it’s my preferred term for what people are doing to try and accomplish this “lay on a beach and sip drinks” utopia.

What financial independence means is not so much not working at all, but rather the concept of working because you want to and not because you have to and need the income. Maybe your savings numbers are much the same as the traditional concept of retirement, but look to get to a point where you can live off of your savings and investments indefinitely. There are lots of studies designed to help you figure out what that number could be, so work with an advisor to help understand what it really means and what you need to save.

Even though 60 is the new 50, sacrificing it all today for that one point in time seems ludicrous. Set goals for you and your family and include some fun checkpoints along the way. Maybe it’s reaching a net worth of $100,000, $250,000, $333,000, $500,000, $1,000,000, etc. Even though these numbers can just be figures on a page, it can help you learn to celebrate what you’ve accomplished. Crack open the bottle of champagne, go to a fancy restaurant with your significant other, or take a nice trip.

How financial independence is different than retirement
It helps bring the concept of retirement into perspective for younger generations. By understanding where you are heading and what you need to do to get there, you can make the changes today to get you on the right track.

Financial independence helps bring the concept of retirement to what you can actually do today that can have an impact. Saving blindly to a 401(k) just *hoping* to get to retirement decades from now can often be very burdensome and unfulfilling. So, put it in terms of what you spend today. Looking at it from the perspective of working because you want to and not because you have to may mean to make a few different career or lifestyle choices to more quickly build flexibility in your life. The lower you keep your expenses, the lesser amount you need to sustain your lifestyle, and the quicker you can get to financial independence. If you get raises or bonuses, use it to sock more money away and get ahead – not use it for that expensive car or to subsidize the cost of a pricey home!

Cut your expenses for the next five years
Maybe this means cutting your expenses for the next five years, so you can take a year or two sabbatical to travel or spend more time with family. Stopping work on a whim would be ill-advised, so planning ahead to have this type of flexibility is important.

Think ahead for your five year future. Maybe you’re a two income household and are looking to start a family in the near term. What is life going to be like when you lose one income? Will it be temporarily for a few weeks, months, or years? Thinking about this ahead of time will allow you to plan ahead and save for those contingencies. Instead of a 3-6 month emergency fund, maybe it’s a 12-24 month fund you need!

Save more, spend less
To me, the concept of saving 5-10% of your income will take you forever to get to financial independence. If you have children and education goals and/or goals to get to financial independence quickly, saving 10-30% of your income isn’t unheard of.

If you found that saving an extra 5-10% of your income could shave off years of your goal for financial independence and allow you sooner flexibility to take a sabbatical, European trip, or Bahamian beach vacation for weeks, would you do it? We sure would!

    What does financial independence look like for you and your family?
    What are you doing to ensure your success in reaching financial independence?
    Share with us what your goals are to get to financial independence.

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4 thoughts on “Financial independence: a new concept in lifestyle retirement planning

  1. I absolutely love the idea of financial independence. Eventually, I just don’t want to have to depend on anyone (i.e. employers, debtors, etc.) when it comes to my money – I want to be my own boss!

    • And that’s what it is ultimately all about! Being in charge of your own destiny and your finances, so you have the flexibility and peace-of-mind to be your own boss and guide.

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