No one has to sell us on the idea of retirement. We do however need to be reminded of the benefits of Findependence.
Most of us don’t need reminders of why we want to retire some day. As the decades fly by, salaried jobs can be stressful and that doesn’t seem about to change in an increasingly competitive global economy. There may come a time when bosses, clients, ambitious co-workers, the commuting routine and other aspects of working may start to pale. The sheer time and energy needed to be a full-time worker also takes away from other things: time with family, time to for the arts, sports, spiritual pursuits or other forms of leisure.
In short, no one has to sell us on the idea of retirement. You don’t need seven reasons to retire. You already know why you’re saving for an eventual retirement and it boils down to one word: Freedom.
And yet it seems people do need to be reminded of the benefits of financial independence. As anyone who has happened on this blog well knows, I do not regard financial independence (or what I call “Findependence” for short) and retirement as the same thing. In my view, Findependence is necessary if you want retirement but Findependence is still a worthwhile goal even if you love working and intend to continue doing so for decades still to come.
Defining financial independence
In short, while you may plan to retire at the customary retirement age of 65 (plus or minus a few years), there’s no reason why you wouldn’t want to establish financial independence by your mid 30s or 40s. That is, you would want to be completely debt-free, including mortgage free, so that you have a roof over your head that’s rent-free, and have accumulated enough capital that you could live passively off dividends and interest: perhaps not in grand style but you’d never be wondering where your next meal was coming from. For a formal definition, I again would point readers to an excellent entry on financial independence housed at Wikipedia. I also devoted a recent installment of this MoneySense blog to this here.
Last week, there was a well-circulated article in the My Financial Independence Journey blog entitled 7 Reasons Everyone Should Reach Financial Independence. (See, I’m by no means the only one out there beating the drum for financial independence instead of retirement!) While today’s blog title is just a minor variation of that title, I’m happy to give credit here to the original author. Imitation is the sincerest form of flattery and all that! I subsequently riffed off that article to write a followup guest blog for Roger Wohlner, aka The Chicago Financial Planner. You can find that blog published on Roger’s site the past weekend here. Roger is also a must-follow on Twitter as @rwohlner.
Since this is the Financial Independence blog at MoneySense, I’ve incorporated the 7 points I commented on below:
1. The Ultimate Unemployment Insurance
This is certainly one of the key attributes of Findependence as I’ve always viewed it. If you’re not findependent then by definition you’re living paycheque to paycheque, which means that if you do lose your job, you’re at the mercy of those who dole out the rather minimal amounts of employment insurance —assuming you even qualify and can jump through all the hoops.
2. Freedom to Live and Work on Your Own Terms
This is the essence of my vision of Findependence. Even if you choose for the time being to remain employed, as I say in Findependence Day (the novel), you’re working because you choose to, not because you must (financially speaking). Of course, Findependence also makes it more likely that you can go out on your own as a consultant, freelance writer or speaker or entrepreneur: as with No. 1, you’ve established a steady stream of income that will be coming in whether or not your cultural or entrepreneurial ventures get off the ground in a reasonable amount of time.
3. License to Take Risks at Work
This is another aspect of Findependence I’ve noticed in my own career. In fact, I wrote the original edition of Findependence Day while I was a salaried staff writer at the Financial Post and wrote the revised all-American edition as a salaried employee in my current position here at MoneySense. I’ve described this book as a “financial love story,” but I’m not sure I’d have gone out on such a limb if I were still paying off a mortgage and felt I had to cleave 100% to the company line.
4. Extra Spending Money
I can’t say I had given this one much thought before but no doubt it’s true. If you still have a day job and you have investment income coming in and building up, it goes without saying that some of that extra cash flow can be diverted into spending on some really nice stuff. Personally, I believe in “freedom, not stuff!” (to use a line from the novel), so I’m inclined to stay on the path to guerrilla frugality (another term I use), eschewing conspicuous consumption and thereby speeding the arrival of Findependence Day, and ultimately (much later) the traditional retirement day.
5. Freedom to Pursue Entrepreneurial Ventures
I pretty much covered this in No 2. Findependence means you can put some capital at risk and perhaps take a large chunk of time to develop a business idea or creative project you hope will ultimately generate financial returns in the future.
6. Retire Early or Even Very Early
This point reinforces the concept that Findependence and retirement are not the same thing. You need findependence to retire but you can also have Findependence and choose not to retire in the traditional sense of the word (that is, gold watch at age 65, followed by endless rounds of golf, bridge and daytime television). Conversely, if you have not achieved Findependence, it’s madness to try to retire.
7. Spend more time with your family
Sure, and I’d add, “Spend more time at whatever your passion is.” Hopefully we all feel passionate about the immediate members of our family. Spend more time being a painter, or musician, or stand-up comic, whatever your passion, you can be sure that a degree of Findependence will allow you to spend more time on your chosen activity. One way might be semi-retirement or phased retirement. If you’re Findependent but still gainfully employed you may want to go down to a four-day week, thereby having three-day weekends that can be spent with your family. Assuming they themselves are still on the five-day week you could do the various chores on the Friday or Monday, freeing up the traditional two days of the weekend to focus on family.