Is "Financial Independence" the new "Retirement?"

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Meg77
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Is "Financial Independence" the new "Retirement?"

Post by Meg77 » Tue Feb 10, 2015 3:16 pm

This article from Money pulled a few concepts together for me that I've been reading and writing a lot about. It's called "Forget About Retirement Planning for Millennials." http://time.com/money/3686209/retirement-planning-millennials/

I thought it would take the stance that Millennials will have much different career and life patterns than their parents due to longer lives, more fragmented careers, less unions/pensions, later marriage/childrearing, and/or the "breakdown" of the American family; therefore traditional retirement advice may not work. But actually it focused on how "financial independence" is a much more compelling concept for younger people, whereas "retirement" is a concept on the decline.

The writer defined "retirement" as working hard for decades while saving a small portion of your income; then quitting work entirely for a few years of golf or travel before your health is gone. "Financial independence" by contrast is posed as something to seek and achieve earlier in life by saving much larger portions of income. The idea is that you can set up income streams that will cover your expenses by midlife - so that you can presumably take breaks from work, work less, or focus on other types of work that may not pay as well (spending half your life in leisure wasn't particularly highlighted as a goal).

It's more of a distinction than a difference; both FI and Retirement require saving enough to cover your expenses with a 3-5% withdrawal rate.

This is interesting to me because it's the first time I've seen my particular desires highlighted in the mainstream financial media. As an older Millennial I've always felt uneasy describing my desire to save enough to not be stuck in any job (or relationship) as a goal to achieve "early retirement" because a) I'm younger and that seems entitled, and b) I don't ever really plan to abandon all work interests. My "early retirement" would consist of managing rental properties and my portfolio, building my blog, perhaps starting a small business or two, raising my kids, and maybe even working part time later on. However people jump all over you if you try to claim you're "retired" while still earning any type of active income (or while raising kids).

It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept? They did point out that this idea has gained traction due to financial bloggers (they reference Mr Money Mustache) and is not a usual goal promoted by financial advisors. Or is this just the first generation with enough people with enough education, interest and income to make this dream a mainstream reality?
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Re: Is "Financial Independence" the new "Retirement?"

Post by chaz » Tue Feb 10, 2015 3:55 pm

It is time for retirement unless you enjoy your work.
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Re: Is "Financial Independence" the new "Retirement?"

Post by greg24 » Tue Feb 10, 2015 3:58 pm

It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept?


No, this isn't unique, nor is the wording. I've read hundreds of articles about Boomers that are not necessarily retiring, but leaving a high-stress career for a lower-paying, more-fulfilling job.

Few members of Gen Y get excited about the idea of working for the next 40 to 50 years...


I don't think there are many people of ANY generation who were excited to work for 40 to 50 years.

The one possible change is that the freelance economy is making more common an ideology to construct an income stream from multiple sources.

Even "financial independence" isn't really true. It is being used in place of "I've saved a lot of money and can get away with smaller income", not true FI.

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Re: Is "Financial Independence" the new "Retirement?"

Post by Meg77 » Tue Feb 10, 2015 4:04 pm

greg24 wrote:
It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept?


No, this isn't unique, nor is the wording. I've read hundreds of articles about Boomers that are not necessarily retiring, but leaving a high-stress career for a lower-paying, more-fulfilling job.

Few members of Gen Y get excited about the idea of working for the next 40 to 50 years...


I don't think there are many people of ANY generation who were excited to work for 40 to 50 years.

The one possible change is that the freelance economy is making more common an ideology to construct an income stream from multiple sources.

Even "financial independence" isn't really true. It is being used in place of "I've saved a lot of money and can get away with smaller income", not true FI.


Good points. I think the switch in focus away from full retirement to "financial independence" or "semi-retirement" is at least as applicable to boomers today. Many people still want or need to work but can afford to quit their "real" careers. What does seem different about the generations is that Millennials sometimes start out in a stage of semi-retirement rather than launching a traditional career path. I know lots of people my age who freelance or have multiple jobs or work part time while having kids - basically exactly the lifestyle many aging boomers say they want to phase into.
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Re: Is "Financial Independence" the new "Retirement?"

Post by FRx » Tue Feb 10, 2015 4:05 pm

thanks for sharing it, and you gave a nice summary of it it looks like.

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Re: Is "Financial Independence" the new "Retirement?"

Post by GerryL » Tue Feb 10, 2015 4:07 pm

Thanks for this.
I'm getting ready to do the Investing module of a Financial Beginnings literacy program for high school students, and focusing on retirement is a really klunky way to try to reach young people, many of whom think of 1 year as "a long time." The concept of financial independence will, I think, resonate much more with this audience. Work because you want to, not because you have to. I'm going to use it!

BTW, next week I will do my first presentation, which will be the Credit module. I've been reviewing the prepared materials and making a few note and adjustments. Just me and 34 students. Yikes. Wish me luck.

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Re: Is "Financial Independence" the new "Retirement?"

Post by bigred77 » Tue Feb 10, 2015 4:14 pm

[quote="Meg77"]

It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept? They did point out that this idea has gained traction due to financial bloggers (they reference Mr Money Mustache) and is not a usual goal promoted by financial advisors. Or is this just the first generation with enough people with enough education, interest and income to make this dream a mainstream reality?[/quote]

I don't necessarily think its a new concept but I don't think it's ever going to become a "mainstream reality".

Frankly its just incredibly hard to do.

If you start working at an entry level salary and a have a presumably low or likely negative net worth from student loans, you simply can't save 50%-75% of your income and live a comfortable lifestyle. I know there are many anecdotal exceptions but I think we can agree most of those are outliers in terms of income or they have accepted a very spartan lifestyle. The first step is getting people to save enough to support themselves in their old age. Once we get to that point we can talk about becoming financially independent in ones 40s or 50s.

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Re: Is "Financial Independence" the new "Retirement?"

Post by adamthesmythe » Tue Feb 10, 2015 4:17 pm

A few thoughts

Taking breaks is not going to work for most people until we solve (as a nation) the problem of access to health care insurance. Right now it's still tied to employment for most people. The ACA will solve this problem for many (unless the current Supreme Court case succeeds in unsolving it).

Some career paths (certainly mine) require continued maintenance of activity and visibility, otherwise you end up in a death spiral into low-paid jobs.

>you can presumably take breaks from work, work less,

Reminds me of Travis McGee, the fictional character, who was taking his retirement a little bit at a time.

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Re: Is "Financial Independence" the new "Retirement?"

Post by VictoriaF » Tue Feb 10, 2015 4:21 pm

Meg77 wrote:This article from Money pulled a few concepts together for me that I've been reading and writing a lot about. It's called "Forget About Retirement Planning for Millennials." http://time.com/money/3686209/retirement-planning-millennials/


I am responding to your comments rather than the article which I have not read and probably will not read.

Meg77 wrote:I thought it would take the stance that Millennials will have much different career and life patterns than their parents due to longer lives, more fragmented careers, less unions/pensions, later marriage/childrearing, and/or the "breakdown" of the American family; therefore traditional retirement advice may not work. But actually it focused on how "financial independence" is a much more compelling concept for younger people, whereas "retirement" is a concept on the decline.


Financial independence and retirement are essentially the same thing. Being retired does not imply doing nothing. Retirement means that one does not have to comply with her employer's schedules and requirements and is free to choose what to do with her time. The same description also applies to financial independence. However, when you are 35 years old, it's easier to tell people that you are saving for financial independence than for early retirement. The former is admirable, the latter is loaded with stereotypes.


Meg77 wrote:The writer defined "retirement" as working hard for decades while saving a small portion of your income; then quitting work entirely for a few years of golf or travel before your health is gone.


It's one of the stereotypes I am referring to above. Some retired people are engaged in community or other volunteer activities. Is that "quitting work entirely"? Some take care of old or young family members. Some engage in creative activities such as writing books, playing music, drawing, or becoming actors or comedians. For example, Carl Djerassi, the inventor of the birth control pill, has spent his retirement years writing plays about ethical issues in medicine. Sadly, he has died a few days ago, at the age of 91.


Meg77 wrote:"Financial independence" by contrast is posed as something to seek and achieve earlier in life by saving much larger portions of income. The idea is that you can set up income streams that will cover your expenses by midlife - so that you can presumably take breaks from work, work less, or focus on other types of work that may not pay as well (spending half your life in leisure wasn't particularly highlighted as a goal).


It's definitely a worthy goal to have an income stream that liberates one from the constraints of the standard work, and one should try to achieve it as early as possible. At whatever age it happens, one can then pursue other work or other activities, as I mentioned above.

Meg77 wrote:It's more of a distinction than a difference; both FI and Retirement require saving enough to cover your expenses with a 3-5% withdrawal rate.


I agree with this statement.

Meg77 wrote:"This is interesting to me because it's the first time I've seen my particular desires highlighted in the mainstream financial media. As an older Millennial I've always felt uneasy describing my desire to save enough to not be stuck in any job (or relationship) as a goal to achieve "early retirement" because a) I'm younger and that seems entitled, and b) I don't ever really plan to abandon all work interests. My "early retirement" would consist of managing rental properties and my portfolio, building my blog, perhaps starting a small business or two, raising my kids, and maybe even working part time later on. However people jump all over you if you try to claim you're "retired" while still earning any type of active income (or while raising kids).


Your plans sound good, but keep your mind open for any other interests you may develop along the way.

People who "jump on you" for whatever reason are probably not very interesting people to talk with. I like people who are philosophically minded, open to a variety of topics, turn bizarre scenarios into games, and play a Devil's advocate even with the ideas that they generally support.

Meg77 wrote:It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept? They did point out that this idea has gained traction due to financial bloggers (they reference Mr Money Mustache) and is not a usual goal promoted by financial advisors. Or is this just the first generation with enough people with enough education, interest and income to make this dream a mainstream reality?


I am suspicious of any generalizations based on the age or the generation. There is more in common among people with financial means, active lifestyles, broad interests, and inquisitive minds than between arbitrary individuals selected based on their year of birth.

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Re: Is "Financial Independence" the new "Retirement?"

Post by letsgobobby » Tue Feb 10, 2015 4:35 pm

I agree it's hard for most to do this.

In a sense this is the natural consequence of the breakdown in traditional employee-employer relationships. Loyalty is out the window; temporary and consulting work increasingly viable. You develop a unique skill set, you move it around from company to company as it is needed and as you are paid. In this environment you better become financially independent ASAP because there is no gold watch or gold-plated pension waiting for you at the end of your career. It's all what you make and what you save yourself. And you better plan on periods of obsolescence, unemployment, and irrelevance, and the need to reinvent yourself and your skill set once if not repeatedly, so again saving more earlier takes on greater importance.

I feel this acutely in psychiatry. When will ARNPs, PAs, or psychologists be looked at as cheaper substitutes? When will overseas foreign physicians start encroaching via telepsychiatry, licensing and training be damned? When will computer algorithms take the place of a good face to face evaluation with a doctor or therapist?

And medicine is a field with high barriers to entry. I can't imagine the existential anxiety faced by those in technology.

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Re: Is "Financial Independence" the new "Retirement?"

Post by VictoriaF » Tue Feb 10, 2015 4:39 pm

letsgobobby wrote:When will computer algorithms take the place of a good face to face evaluation with a doctor or therapist?


The first computer therapist ELIZA was developed fifty years ago.

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Re: Is "Financial Independence" the new "Retirement?"

Post by Savvy » Tue Feb 10, 2015 4:49 pm

Meg77 wrote:This article from Money pulled a few concepts together for me that I've been reading and writing a lot about. It's called "Forget About Retirement Planning for Millennials." http://time.com/money/3686209/retirement-planning-millennials/

I thought it would take the stance that Millennials will have much different career and life patterns than their parents due to longer lives, more fragmented careers, less unions/pensions, later marriage/childrearing, and/or the "breakdown" of the American family; therefore traditional retirement advice may not work. But actually it focused on how "financial independence" is a much more compelling concept for younger people, whereas "retirement" is a concept on the decline.

The writer defined "retirement" as working hard for decades while saving a small portion of your income; then quitting work entirely for a few years of golf or travel before your health is gone. "Financial independence" by contrast is posed as something to seek and achieve earlier in life by saving much larger portions of income. The idea is that you can set up income streams that will cover your expenses by midlife - so that you can presumably take breaks from work, work less, or focus on other types of work that may not pay as well (spending half your life in leisure wasn't particularly highlighted as a goal).

It's more of a distinction than a difference; both FI and Retirement require saving enough to cover your expenses with a 3-5% withdrawal rate.

This is interesting to me because it's the first time I've seen my particular desires highlighted in the mainstream financial media. As an older Millennial I've always felt uneasy describing my desire to save enough to not be stuck in any job (or relationship) as a goal to achieve "early retirement" because a) I'm younger and that seems entitled, and b) I don't ever really plan to abandon all work interests. My "early retirement" would consist of managing rental properties and my portfolio, building my blog, perhaps starting a small business or two, raising my kids, and maybe even working part time later on. However people jump all over you if you try to claim you're "retired" while still earning any type of active income (or while raising kids).

It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept? They did point out that this idea has gained traction due to financial bloggers (they reference Mr Money Mustache) and is not a usual goal promoted by financial advisors. Or is this just the first generation with enough people with enough education, interest and income to make this dream a mainstream reality?


As a fellow Millennial, well said, thanks for sharing and summarizing!

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Re: Is "Financial Independence" the new "Retirement?"

Post by MathWizard » Tue Feb 10, 2015 4:58 pm

bigred77 wrote:
Meg77 wrote:
It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept? They did point out that this idea has gained traction due to financial bloggers (they reference Mr Money Mustache) and is not a usual goal promoted by financial advisors. Or is this just the first generation with enough people with enough education, interest and income to make this dream a mainstream reality?[/quote]

I don't necessarily think its a new concept but I don't think it's ever going to become a "mainstream reality".

Frankly its just incredibly hard to do.

If you start working at an entry level salary and a have a presumably low or likely negative net worth from student loans, you simply can't save 50%-75% of your income and live a comfortable lifestyle. I know there are many anecdotal exceptions but I think we can agree most of those are outliers in terms of income or they have accepted a very spartan lifestyle. The first step is getting people to save enough to support themselves in their old age. Once we get to that point we can talk about becoming financially independent in ones 40s or 50s.


Yes, it is incredibly hard to do.

If you look at appendix A1 in the 2011 column of
http://www.census.gov/people/wealth/files/Wealth%20distribution%202000%20to%202011.pdf
and look at what is normally assumed as the beginning of retirement, you see that for 2011, only the
median of the fifth quintile (the 90th percentile) is above $1 Million.
The median of the 4th quintile (70th percentile) is only about $400K.

If you look at the 45-54 and age range, even at the 90th percentile there is only $654K which has to last until SS
and Medicare. So possible yes, but common, no.

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Re: Is "Financial Independence" the new "Retirement?"

Post by goodenyou » Tue Feb 10, 2015 5:12 pm

letsgobobby wrote:

I feel this acutely in psychiatry. When will ARNPs, PAs, or psychologists be looked at as cheaper substitutes? When will overseas foreign physicians start encroaching via telepsychiatry, licensing and training be damned? When will computer algorithms take the place of a good face to face evaluation with a doctor or therapist?

And medicine is a field with high barriers to entry. I can't imagine the existential anxiety faced by those in technology.


NPs and PAs and CRNAs have already filled in as cheap alternatives. The horse has left the barn on that one. They are not performing surgery (yet), but that may come soon. The irony is that the small premium paid to physicians to perform more complex tasks like surgery is diminishing. Many surgeons would rather do office work than spend their time in the OR doing high risk procedures taking hours at a time with little extra reimbursement.

The high barriers of entry to medicine in time and cost of need to be lowered. 8 years of education and 6 years of training is too much time and cost. Quality and expectations will be lowered too. Flex retirement and slowing down in many medical specialties (especially surgery) is hard to do. Many choose a race to critical mass and then "get out". I am seeing it on a daily basis.
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Re: Is "Financial Independence" the new "Retirement?"

Post by The Wizard » Tue Feb 10, 2015 5:36 pm

Critical Mass = Financial Independence...
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Re: Is "Financial Independence" the new "Retirement?"

Post by The Wizard » Tue Feb 10, 2015 5:53 pm

As to the premise in the OP, I think it depends on whether a person is an employee or an entrepreneur.
Entrepreneurs take many forms: business owners, real estate barons, athletes and other performers.
Many entrepreneurs continue going well beyond FI from what I can tell.
It's we employees who tend to jump ship and retire just after achieving FI...
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Re: Is "Financial Independence" the new "Retirement?"

Post by MoonOrb » Tue Feb 10, 2015 5:54 pm

Thanks for sharing this. This is consistent with what I've read about the way Gen X's and Gen Y'ers talk about work and careers, compared to people from earlier generations. The Gen X/Gen Y generations are much more likely to value work/life balance over loyalty, flexibility over prestige, and so on.

This also seems to reflect the reality that "retirement" is a much more illusory idea than it was during the time when it was a common thing for people to work at the same place for decades and earn a pension. Even if this wasn't a reality for everybody, I'd argue it was enough of a reality for enough people that if you were to stop people on the street and ask them what "retirement" meant, this idea would frequently come to mind. Now the perception is changing, and people realize that "retirement" is something that you manage yourself through a 401k and other investing, supplemented by social security, and the expectation is that you'll move around from employer to employer and possibly from career to career. (And then there is a subset of people who do nothing about retirement--who knows what they think about it, yikes).

And, yes, at the end of the day, whether it's called "retirement" or "financial independence," a great many people of all generations aspire to a moment in their lives when they can decide whether they want to spend their time working or doing something else instead.

But I do think there is something to the idea that Gen X/Gen Y generations are more down with the idea of no longer working as something that can be done on a temporary basis rather than something that is a goal that is reached at the end of one's working life.

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Re: Is "Financial Independence" the new "Retirement?"

Post by Yesterdaysnews » Tue Feb 10, 2015 8:20 pm

I was born in 1976 so not sure what that makes me but I never view the classic retirement picture as a goal of mine. More like having "FU" money lol and being able to work according to my own terms. :sharebeer

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Re: Is "Financial Independence" the new "Retirement?"

Post by livesoft » Tue Feb 10, 2015 8:46 pm

In the 1980's there was lots of talk about FU money as well. Many of my college classmates reached financial independence in their 40's and stopped working in their 50's.

Also note that the average retirement age has been creeping up lately. It used to be around age 57, but is now around age 61 (self reported: http://www.gallup.com/poll/162560/avera ... t-age.aspx ). I think that's because folks had to recover from 2008.

What I find amusing is that "early retirement" seems to be defined as any age before one can start drawing SS benefits, yet the average person reports they retired early.
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Re: Is "Financial Independence" the new "Retirement?"

Post by SDBoggled » Wed Feb 11, 2015 10:50 pm

If you haven't already found the early-retirement site you might enjoy it, although mostly retired (and want to be ER), they link ER and FI -> FIRE http://www.early-retirement.org/

I have always enjoyed work, so FI is more important than actual retirement as it allows more choice in the how/when/what/who of work: sometimes 0h, 10h, or 60+/week; allows more risk with startups or own business, more time to learn and trial outside my area of "expertise".

The downside is that I am not as productive as when I am "over-scheduled" as I take more time to just do stuff I enjoy (not necessarily valued by others).... like hang on bogleheads.

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Re: Is "Financial Independence" the new "Retirement?"

Post by Leeraar » Thu Feb 12, 2015 5:35 am

Let me just say that my goal was always financial independence rather than retirement.

I belong to the Johnny Paycheck school of financial planning:

https://www.youtube.com/watch?v=eIjEauGiRLo

L. :D
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Re: Is "Financial Independence" the new "Retirement?"

Post by alisa4804 » Thu Feb 12, 2015 1:58 pm

Meg, thank you so much for posting this link, and your thoughtful comments. As we reach financial independence, we have a choice to make a career change, rather than calling it retirement, so still contributing in someway to society. I am a Boomer myself, and think many Boomers share this philosophy, so don't know if it is Gen X specific. Appreciate the dialog!

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Re: Is "Financial Independence" the new "Retirement?"

Post by surfstar » Thu Feb 12, 2015 2:15 pm

Call it whatever you want - I want to quit going to work and spend 100% of my time like I spend my weekends and vacations

:D

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Re: Is "Financial Independence" the new "Retirement?"

Post by jay22 » Thu Feb 12, 2015 2:17 pm

Leeraar wrote:Let me just say that my goal was always financial independence rather than retirement.

Same here.

The only reason I save money is so that I do not have to work for money when I have enough; and to have the freedom to walk out of a job I don't like/can't tolerate anymore and not worry about how I am going to pay the bills and feed my family.

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Re: Is "Financial Independence" the new "Retirement?"

Post by ryman554 » Thu Feb 12, 2015 4:49 pm

surfstar wrote:Call it whatever you want - I want to quit going to work and spend 100% of my time like I spend my weekends and vacations

:D


what happens when you spend weekends and vacations actually doing work?

I've forgotten how to have fun......

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Re: Is "Financial Independence" the new "Retirement?"

Post by PeteD01 » Thu Feb 12, 2015 4:54 pm

jay22 wrote:
Leeraar wrote:Let me just say that my goal was always financial independence rather than retirement.

Same here.

The only reason I save money is so that I do not have to work for money when I have enough; and to have the freedom to walk out of a job I don't like/can't tolerate anymore and not worry about how I am going to pay the bills and feed my family.


Same here.

I am in the middle of a successful expert career and some time last year administration decided to become a bit of a bother.
I was very happy to be able to tell them not to bother too much because there was a change of plans on my side as well.
My wife is very happy that we are moving to Spain later this year and all that is possible because we are financially independent.
I guess one could call my upcoming situation retirement but it really is freedom from having to put up with things one does not want to put up with.
Should something interesting come up in my field, I might work again - but it better not be too much of a bother...

Cheers!

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Re: Is "Financial Independence" the new "Retirement?"

Post by jeffarvon » Thu Feb 12, 2015 5:26 pm

MathWizard wrote..

Yes, it is incredibly hard to do.

If you look at appendix A1 in the 2011 column of
http://www.census.gov/people/wealth/fil ... 202011.pdf
and look at what is normally assumed as the beginning of retirement, you see that for 2011, only the
median of the fifth quintile (the 90th percentile) is above $1 Million.
The median of the 4th quintile (70th percentile) is only about $400K.


I was curious and took a peek. It is notable that net worth number include home ownership (equity). Many folks here usually exclude.
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Re: Is "Financial Independence" the new "Retirement?"

Post by GerryL » Thu Feb 12, 2015 5:41 pm

PeteD01 wrote:
jay22 wrote:
Leeraar wrote:Let me just say that my goal was always financial independence rather than retirement.

Same here.

The only reason I save money is so that I do not have to work for money when I have enough; and to have the freedom to walk out of a job I don't like/can't tolerate anymore and not worry about how I am going to pay the bills and feed my family.


Same here.

I am in the middle of a successful expert career and some time last year administration decided to become a bit of a bother.
I was very happy to be able to tell them not to bother too much because there was a change of plans on my side as well.
My wife is very happy that we are moving to Spain later this year and all that is possible because we are financially independent.
I guess one could call my upcoming situation retirement but it really is freedom from having to put up with things one does not want to put up with.
Should something interesting come up in my field, I might work again - but it better not be too much of a bother...

Cheers!


Back in the go-go years of the tech boom we used to refer to sudden financial independence (e.g., due to stock options or IPO) as "calling in rich." That is to say, a co-worker would call the boss and say "I won't be coming in to work today. In fact, I won't be coming in to work ever again." It was a much-discussed dream of many, but I don't know how often it actually happened.

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telemark
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Re: Is "Financial Independence" the new "Retirement?"

Post by telemark » Thu Feb 12, 2015 7:39 pm

VictoriaF wrote:The first computer therapist ELIZA was developed fifty years ago.

You have your mind on computers, it seems.

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Re: Is "Financial Independence" the new "Retirement?"

Post by trueblueky » Thu Feb 12, 2015 11:24 pm

GerryL wrote:Back in the go-go years of the tech boom we used to refer to sudden financial independence (e.g., due to stock options or IPO) as "calling in rich." That is to say, a co-worker would call the boss and say "I won't be coming in to work today. In fact, I won't be coming in to work ever again." It was a much-discussed dream of many, but I don't know how often it actually happened.

It was common a few years ago for employees where I worked to stick their 25- or 30-year pins in their security badge holders. A group of the ones who had reached retirement eligibility started wearing a KMA pin (as Flo would say, "Kiss my grits"), declaring themselves members of the KMA Club.

The sentiment is found in all organizations.

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Re: Is "Financial Independence" the new "Retirement?"

Post by BlueCollarLawyer » Thu Feb 12, 2015 11:40 pm

I spent the first 15 years of my career semi-retired. I worked and was comfortable. I was even happy most of the time. I've since transitioned to a more full time schedule and am saving 40% of my income. I figure another 10 years and I will be able to enter semi-retirement again. I won't touch the nest egg for at least another decade after that. Assuming average gains, It will likely be enough when I stop working all together. Financial independence for many is $1mm plus. I could get by with $400k and a part time job and be perfectly happy. FI is a very subjective concept. It's achievability is very much tied to your individual tastes and lifestyle.

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Re: Is "Financial Independence" the new "Retirement?"

Post by Leeraar » Fri Feb 13, 2015 2:17 am

I got there at about age 50. I did not "retire" while continuing to show up at work. Actually, I think I became a better employee, not seeking raises and promotions. So, when they showed up with an early retirement offer when I was age 58, it was an easy decision, because there was no financial stress.

I was actually then surprised to find out how some of my peers were in such poor financial shape. They had worked over 20 years as well-paid professionals at a single company, but had not achieved much of any degree of financial independence.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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Re: Is "Financial Independence" the new "Retirement?"

Post by Grt2bOutdoors » Fri Feb 13, 2015 8:27 am

I didn't read that article.

Here's my idea of financial independence: paid off home, enough money in a 529 plan so my kids don't have to graduate with debt up to their ears, enough money to retire on my terms and not that of my employer. Throw out those "rules of the road" espoused by the experts - save 15% including employer match, no, if you want to retire on your terms, you'd better aim to save double that - no one is guaranteed they will be working for 30 or 40 years. If you really want to go for it, aim for the uber Boglehead savings rate of 50%+ - net or gross, not much of a difference you are still living on less after savings and you'll be accustomed to that lifestyle moving forward.
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Re: Is "Financial Independence" the new "Retirement?"

Post by Grt2bOutdoors » Fri Feb 13, 2015 8:30 am

Leeraar wrote:I got there at about age 50. I did not "retire" while continuing to show up at work. Actually, I think I became a better employee, not seeking raises and promotions. So, when they showed up with an early retirement offer when I was age 58, it was an easy decision, because there was no financial stress.

I was actually then surprised to find out how some of my peers were in such poor financial shape. They had worked over 20 years as well-paid professionals at a single company, but had not achieved much of any degree of financial independence.

L.


Was it mostly in taxable accounts? How would you be able to access it if they were in retirement type accounts at that age? Assuming it was mostly held in retirement type accounts one would still need to work until they could access those monies using a 72(t) type of set-up.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Is "Financial Independence" the new "Retirement?"

Post by VictoriaF » Fri Feb 13, 2015 8:47 am

Financial independence has two components:
#1 how much you have and
#2 how much you need.

Frequently, people associate financial independence with The Number, which is #1. However, in the process of acquiring the means (#1), they also raise the needs (#2). If the needs outpace the means, one never feels financially independent and is reluctant to retire voluntarily. The increasing needs may or may not be related to increasing spending. Sometimes, the "needs" arise from pure imagination, from contriving hypothetical scenarios of spending money that have not happened and have not been considered in the past.

The ways of dealing with financial and psychological barriers include the following:
- Do not increase spending as the means rise
- Write The Number into your IPS and don't increase it, except for inflation
- Set a retirement date and then deal with whatever you have at the time

The last point is somewhat paradoxical. The conventional wisdom is "you retire after you are financially independent." The last statement implies that "you feel financially independent after you retire." When the retirement is final, you stop playing what-iffs, assess your assets and live accordingly.

Victoria

EDIT: Corrected a typo from IPO to IPS (Investing Policy Statement).
Last edited by VictoriaF on Fri Feb 13, 2015 6:58 pm, edited 1 time in total.
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Re: Is "Financial Independence" the new "Retirement?"

Post by longinvest » Fri Feb 13, 2015 10:18 am

VictoriaF wrote:The ways of dealing with financial and psychological barriers include the following:
- Do not increase spending as the means rise
- Write The Number into your IPO and don't increase it, except for inflation
- Set a retirement date and then deal with whatever you have at the time

IPO? Do we need to do an Initial public offering before retirement? ;)
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Re: Is "Financial Independence" the new "Retirement?"

Post by Toons » Fri Feb 13, 2015 10:28 am

No matter what "Era"
Live below means for decades
Save and invest Consistently for decades(equities)
Reinvest consistently for decades.
Compounding takes care of the rest.
Income stream from investments,Can & Will pay for many expenses in retirement,
It works. :happy
Keep It Simple
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Is "Financial Independence" the new "Retirement?"

Post by Rodc » Fri Feb 13, 2015 12:05 pm

The last point is somewhat paradoxical. The conventional wisdom is "you retire after you are financially independent." The last statement implies that "you feel financially independent after you retire." When the retirement is final, you stop playing what-iffs, assess your assets and live accordingly.


I suspect that is how many end up retired. They get let go late(ish) in their career, or have to go for health reasons or something and just deal with it.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Is "Financial Independence" the new "Retirement?"

Post by Leeraar » Fri Feb 13, 2015 1:47 pm

To disagree a little with Victoria:

The more you save, the less you spend, and the less you "need".

If you save 10 % of your salary, you need to replace 90% of your salary.

If you save 25% of your salary, you need to replace 75% of your salary.

As the Brits would say, there's a knock-on effect to frugality.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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Re: Is "Financial Independence" the new "Retirement?"

Post by TheTimeLord » Fri Feb 13, 2015 1:53 pm

DW far more interested in Financial Independence than Retirement. She is very good at living in the moment so the concept makes more sense to her.
Run, You Clever Boy!

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Re: Is "Financial Independence" the new "Retirement?"

Post by Toons » Fri Feb 13, 2015 2:03 pm

Leeraar wrote:To disagree a little with Victoria:

The more you save, the less you spend, and the less you "need".

If you save 10 % of your salary, you need to replace 90% of your salary.

If you save 25% of your salary, you need to replace 75% of your salary.

As the Brits would say, there's a knock-on effect to frugality.

L.




We have found since retiring that we need nowhere near the income we received from salaries.
50% or less of salary income is working more than fine.Wants and Needs I guess. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Is "Financial Independence" the new "Retirement?"

Post by VictoriaF » Fri Feb 13, 2015 6:57 pm

longinvest wrote:
VictoriaF wrote:The ways of dealing with financial and psychological barriers include the following:
- Do not increase spending as the means rise
- Write The Number into your IPO and don't increase it, except for inflation
- Set a retirement date and then deal with whatever you have at the time

IPO? Do we need to do an Initial public offering before retirement? ;)


I meant: IPS, Investing Policy Statement.
(If I were sly, I'd respond that I was referring to the Investing Policy Objectives.)

Victoria
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Re: Is "Financial Independence" the new "Retirement?"

Post by texasdiver » Fri Feb 13, 2015 7:34 pm

Within my own extended circle of peers, the only ones who have come remotely close to doing the financial independence/early retirement thing are all childless without exception. I have friends who are doing things like opening boutique lodges in Costa Rica and Belize, guiding fly fishing in Chile, living on sailboats in the Caribbean, and so forth. Perhaps working hard enough to barely sustain their lifestyles but no more than that. The common denominator is that they are all childless.

Although I'm sure they are out there, I don't personally know a single family with kids who are doing the same kind of thing.

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Re: Is "Financial Independence" the new "Retirement?"

Post by FelixTheCat » Fri Feb 13, 2015 7:39 pm

Meg77 wrote:It's hard to dispute that gaining financial independence early in life is a valid aspirational goal, but I'm surprised to see it promoted as something Millennials uniquely crave or have the potential to realize. Is this really a new concept? They did point out that this idea has gained traction due to financial bloggers (they reference Mr Money Mustache) and is not a usual goal promoted by financial advisors. Or is this just the first generation with enough people with enough education, interest and income to make this dream a mainstream reality?

I've seen various references that only 11% of Americas diligently save for retirement. I doubt many millennial's are jumping on the savings bandwagon.

I was curious about Mr. Money Mustache and finally found his blog about he reached financial independence. There's isn't much detail but there is a vague timeline. He basically started in 1997 with a tech career and got promotions like every other techie I know. He got married and she made some decent money as well. Their frugality allowed him and the Mrs. to invest a lot and purchase a house in Colorado. They have a net worth around $960K which took around 15 or so years to obtain which I could see possible. His point is live well below your means like no cellphone, only one car for both them, ride your bike to do errands, no cable, etc. and invest the majority of your pay. The guy didn't retire per se, he simply changed careers to something he loves making $50K a year.

Financial independence can be achieved at an earlier age, you just have to want it and enact a plan.
Felix is a wonderful, wonderful cat.

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Re: Is "Financial Independence" the new "Retirement?"

Post by burt » Fri Feb 13, 2015 7:45 pm

Interesting topic.

Currently watching "The Men Who Built America". History Channel program now on Netflix.
Vanderbilt, Carnegie, JP Morgan.

A number I can't get out of my mind ... 1 in 11 steelworkers died per year in the late 1800's.
The pendulum is swinging back.

Yes, Financial Independence is an admirable goal.

burt

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Re: Is "Financial Independence" the new "Retirement?"

Post by ShiftF5 » Fri Feb 13, 2015 9:50 pm

The Wizard wrote:Critical Mass = Financial Independence...


= Options to spend your days any way you please.

Isn't that the end game?

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Re: Is "Financial Independence" the new "Retirement?"

Post by ShiftF5 » Fri Feb 13, 2015 9:53 pm

texasdiver wrote:Within my own extended circle of peers, the only ones who have come remotely close to doing the financial independence/early retirement thing are all childless without exception. I have friends who are doing things like opening boutique lodges in Costa Rica and Belize, guiding fly fishing in Chile, living on sailboats in the Caribbean, and so forth. Perhaps working hard enough to barely sustain their lifestyles but no more than that. The common denominator is that they are all childless.

Although I'm sure they are out there, I don't personally know a single family with kids who are doing the same kind of thing.


Do you suspect that is by design?

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Re: Is "Financial Independence" the new "Retirement?"

Post by mlebuf » Fri Feb 13, 2015 10:00 pm

ShiftF5 wrote:
The Wizard wrote:Critical Mass = Financial Independence...


= Options to spend your days any way you please.

Isn't that the end game?


Yes. That's the way I've always looked at it. It's not about the money. It's the freedom of having complete control of your time.
Best wishes, | Michael | | Invest your time actively and your money passively.

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Re: Is "Financial Independence" the new "Retirement?"

Post by ShiftF5 » Fri Feb 13, 2015 10:15 pm

mlebuf wrote:
ShiftF5 wrote:
The Wizard wrote:Critical Mass = Financial Independence...


= Options to spend your days any way you please.

Isn't that the end game?


Yes. That's the way I've always looked at it. It's not about the money. It's the freedom of having complete control of your time.


Michael -- your excellent book "The Millionaire in You" introduced me to The Time and Wealth Grid and that notion has dramatically impacted my thinking, planning and life.

Thank you, sir.

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Re: Is "Financial Independence" the new "Retirement?"

Post by texasdiver » Sat Feb 14, 2015 10:54 am

ShiftF5 wrote:
texasdiver wrote:Within my own extended circle of peers, the only ones who have come remotely close to doing the financial independence/early retirement thing are all childless without exception. I have friends who are doing things like opening boutique lodges in Costa Rica and Belize, guiding fly fishing in Chile, living on sailboats in the Caribbean, and so forth. Perhaps working hard enough to barely sustain their lifestyles but no more than that. The common denominator is that they are all childless.

Although I'm sure they are out there, I don't personally know a single family with kids who are doing the same kind of thing.


Do you suspect that is by design?


It's both cause and effect I suppose.

I didn't get married and have kids until my late 30s and found that it radically changed the trajectory of my life. Now it is all about mortgages and college savings and planning for the future and early retirement isn't really a goal, normal retirement is. Had I stayed single and childless there is a much higher chance that I'd be living some sort of alternative lifestyle doing something like running an eco-tourism lodge in South America or scuba diving around the world....that sort of thing. I might not have been truly financially independent by the definitions of this forum, but like many others, I would have just gone for it and tried to get by. it is a lot easier to roll the dice like that when you have no dependents.

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