Start Planning for Financial Independence

Stop Saving for Retirement and Start Planning for Financial Independence!

“When are you going to retire?” I recently asked a friend I have known since we were kids growing up in Hanover, PA. “Shoot, I’m never going to retire, I love what I do,” responded my friend. My friend is a very successful business owner and certainly capable of kicking back into retirement mode at any time.

In many respects, his attitude toward retirement is repre­sen­tative of the changing attitudes about retirement and how one should live the final third of a lifetime.

Life expectancies have made tremendous gains over the last century, more than any other time in history. In 1900, life expectancy was around 47. Today it is around 78, and for a healthy person reaching age 65 it is closer to 85. Some of us could live more years past age 65 than we spent working!

And, as my friend’s comments suggest, retirement today is not your father’s retirement! More and more retirees, having accumu­lated enough wealth to afford the lifestyle of their choice, are choosing to pursue active second careers. This has a very positive effect on the economy since these people are highly productive, and highly capable of continuing to contribute to our economic system.

The concept of retirement is actually fairly new and was created as a way of getting older people out of the workforce. When Social Security was passed into law in 1935, it was thought to be more like unemployment insurance – not retirement. It was needed in 1935 because most elderly people could not afford to stop working.

The modern concept of retirement began to take hold after World War II with the rise of the leisure class. Television, for example, allowed people to enjoy concerts and sporting events at a very low price. Golf courses and swimming pools, once available only to the rich, were now publicly provided. Meanwhile, advances in health allowed people to enjoy leisure and travel well into old age. All of these factors have made retirement so much more attractive that people of all income levels now choose to leave the labor force in “old age” and retire.

Economist Harry Dent, in his book The Roaring 2000s Investor, redefines retirement as a “time of freedom when you can do what you really want, what is most meaningful to you, after you are freed of the oblig­a­tions for career and child rearing… a time to pursue your highest lifestyle and goals.” Today, retirement is typically an extended period of self-financed indepen­dence and leisure. The world’s defin­ition of retirement revolves around the idea of withdrawing from one’s work or labor. It gives the idea of enjoying life to the fullest without oblig­ation, commitment or worry.

Dent goes even further by suggesting that we consider moving into this phase in our life, which Maslov called “self-actualization,” earlier rather than later. He makes a point of noting that the most important dimension of a person’s financial plan should not be merely how to finan­cially survive retirement, but how to create the lifestyle and life work that is most desirous, that most closely matches your dreams and aspira­tions, and most contributes to society.

I often find myself thinking that life is a little backwards—when we have the money to enjoy climbing mountains, traveling around the globe, or playing 36 holes of golf every day, we’ve run out of energy and physical capabil­ities to do so. When we have all the energy and physical resources to pursue those activ­ities, we haven’t the money or the time.

“What would you do if you had ten years to live and $10 million in the bank?” asks Jim Collins, author of Built to Last. If you can answer this, you are beginning to get a vision of what life can be… a goal for your future we might say.

To many people, the idealized image of retirement is to do what you feel like doing when you want to do it. Being stress free and enjoying leisure are key elements because retirement is considered to be a just reward for a lifetime of hard work. Retirement should be more than dying rich, never having enjoyed the freedom that wealth can bring. Stop saving for retirement and start planning for financial indepen­dence!

Rick’s Insights

  • A healthy 65-year old couple has a 25% chance that one of them will see their 95th birthday.
  • Human beings do not do well sitting around with nothing to do. You should have a plan for your life when you no longer have to work for a living.
  • Financial indepen­dence is when you have accumu­lated enough wealth that your living expenses can be covered from the earnings on that wealth.