The word ‘retirement’ is simultaneously my favorite and my least favorite word in personal finance.
The reason I like the word is that everyone has strong thoughts and feelings surrounding the topic. When you ask someone about retirement, their responses are incredibly revealing. And those responses are almost always followed by a change in body posture, facial expression, or by taking a big deep breath. Many of us are stressed with financial challenges today, so the mere mention of our future financial situation can be overwhelming. The honesty in people’s responses is why I like it as an ice breaker.
The reason I dislike the word is that it is misleading. It means different things to different people. To top that off, not everyone wants to retire, or if they do, they don’t do it the same way others are doing it. The truth is, what everyone wants is not necessarily ‘retirement.’ What everyone wants is the financial circumstance in which they can retire. That financial circumstance is called Financial Independence (FI).
What is Financial Independence?
Financial Independence occurs when you are no longer dependent on a paycheck. Work becomes optional. FI occurs when the size of your investment portfolio grows large enough that you can live off systematic withdrawals and any dividends or the income it produces for the rest of your life.
Let me guess; you would like to achieve Financial Independence? Of course, you would. We all would. What you choose to do when you achieve it, that’s entirely up to you. The incredible benefit of Financial Independence is that you have bought a resource that is even more valuable than money. That resource is TIME.
Time to do what you want, where you want, and with who you want. Want to live year-round at your favorite vacation destination? Perhaps you are interested in starting a new career? Or, maybe you just want to spend more time with your family?
Laura and I have built our financial plan and budget around achieving early Financial Independence. It’s difficult to say how life will look then or what choices we will make, but the key here is that we are giving ourselves the option to live the way we want, free from financial stress.
How would you like your life to look when you achieve FI? When do you want to get there? The most important concept to use to your advantage when pursuing Financial Independence is your Savings Rate.