Financial independence is the goal - Retirement is a choice

Most people start thinking about retirement at an early age based on when their parents retired or traditional retirement ages. Government employees with defined benefit pension plans have charts that illustrate the percentage of their salary they will receive at different future ages and years of service. Most people just think about how soon they can afford to stop working.

A better approach is to try to envision what you would like your life to be like in the future. How will you spend your time? What activities will make you happy? And what will it cost in today’s dollars to support your desired life style? A little dreaming about your life 20, 30 or 40 years in the future may affect your decisions today and potentially change your life. Retirement should ideally be about creating your greater future, not merely ending your working life.

Of course, dreaming is just the beginning. You must create a plan to get there. Consider how you achieved other goals in your life. Before selecting a career, most people considered their interests, strengths and weaknesses, the time, effort and cost required, and then committed over a period of years. They researched the requirements, nature of the work, potential salary and rewards before deciding if such a career would really be what they desired. The same process applies to every career, whether it is among the trades, sports, music, art, a profession, or business. Those who fail to commit to this process often must settle for less.

For simplicity, consider that our lives are divided into roughly three phases. The first phase involves growing up, attending school – high school, trade school, college, and graduate school. The second phase involves our working lives, which may include one or more careers. The third and final phase, called retirement, may last for 30, or more, years. Putting in some time to imagine your future activities, the needed new knowledge or skills, and the cost could greatly increase the likelihood of getting what you want. How curious that most people spend more time planning a two week vacation than the last 30+ years of their lives!

I admit that as a financial planner, I may be more committed to the planning process than the average person. My current career didn’t exist when I was a boy, but I believe that the financial planning career actually chose me. I set goals for everything including sports, music, college, and choosing law as a first career. But my views of retirement changed dramatically over time.

When I was young, early retirement was my goal – and I achieved it when I was 52. Shortly thereafter, in a second career when I was self-employed, my goals changed because my passion and satisfaction grew to the point that I loved the process and didn’t want it to end. It was impossible to foresee this feeling in my twenties. Although I was far from wealthy when I changed careers, I had a modest pension and sufficient resources to take the risk of giving up my legal salary and much larger future pension.

So I developed a new philosophy for myself and others that was dually focused on both my working life and my future retired life. I still did the planning to calculate the cost of my greater future, but changed my goal to “financial independence” – a time when work becomes optional.
Once “financial independence” was achieved, I no longer thought about ending work. I knew that I could afford to quit any time I desired, so there was no longer any pressure. If my career was no longer challenging or fun, and the lure of more leisure time and different activities more compelling, I could transition at any time.

Why is this change of terms from retirement to financial independence so significant? Retirement is a fixed result without a clear funding plan. It doesn’t allow for unforeseen problems such as illness, disability, or loss of employment. A clearly designed financial plan, monitored regularly, could result in future income closer to 90% or 100% of your pre-retirement income. Therefore, if you still desire to quit working, or if life’s obstacles force retirement earlier than desired, your goal can still be obtained because financial independence makes work optional. Financial independence also opens the door to multiple choices, such as starting a new business, changing careers, working fewer hours and leaving more free time for family, travel or hobbies. While others may value work, money and free time differently than you do, only your feelings and values matter for your happiness.

If happiness is wanting what you have, then some may want to stop working while others who love their career may want to continue working. Some have many and varied interests that they would enjoy pursuing full-time. Others need more time to pursue other interests without giving up their livelihood completely. Some prefer more free time and are satisfied with modest lifestyles, while others have more lavish tastes but are willing to work longer to afford them. A happy retirement means different things to different people. While some will be happy living on 70% of their pre-retirement income, others desire more than 100% because they will spend more with seven free days each week. During pre-retirement, most discretionary money was spent on the weekends and vacations. Post-retirement, every day is a Saturday!

If you like my philosophy, think about how you spend your time on the weekends and vacations. Are you happy with the way things are going? What changes would you make? What would you do different? What activities or skills have you desired to pursue but lacked the time? Some take time and practice while others take more money. Once you complete the thought process and then commit to the planning, your life will likely be fuller and you will be happier, because you will want what you have for the last third of your life.

It is said that money can’t buy happiness. However, financial independence may enable a greater and potentially happier lifestyle, whether or not you are retired. The future is always uncertain, so leave your options open. I wish you a happy, productive and fulfilling life.

Marv Kaye, J.D., CFP®

Kaye Capital Management