Should You Plan For Retirement Or Seek Financial Independence?
July 13, 2015When our team of financial planners asks others about their top financial concerns and priorities there is a consistent answer – retirement. In fact, our financial wellness reports usually show that every age group with the exception of those under 30 indicate that their top financial planning priority is indeed retirement planning. This probably comes as no surprise because everywhere you look these days financial services companies are bombarding us with clever messages to shift our focus to retirement. The Financial Finesse blog team, which I am a contributing member of, frequently writes about different aspects of the retirement planning process as well.
But how much time do you actually spend planning for your own retirement? If you’re like most Americans, your answer will likely depend on how close you are to retirement with people ramping up their efforts significantly the closer that magical date appears on the calendar. With all of the focus on this concept known as “retirement,” you’d think that we would be doing a better job actually planning for this important season of life. In a perfect world, everyone would at least be saving for retirement at work and contributing enough to get the full match from an employer if one is provided. Other best practice financial behaviors that are commonly highlighted as important steps to a successful retirement include the following:
- Running a basic calculation at least once per year to track your progress
- Contributing at least 10-15% of your pay
- Setting aside money in a traditional or Roth IRA
- Reviewing your investments and asset allocation strategy regularly
- Obtaining an estimate of future benefits from Social Security and pension plans if you were ever covered by one
These are all very important steps to take but they all speak to the financial aspects of retirement. There is much more to the retirement discussion than budget planning worksheets, net worth statements, and asset allocation strategies. The real important questions are usually centered on major life issues such as how we will allocate our time or utilize our talents.
Will our lives be guided by a strong sense of purpose and meaning or will we just go through the motions of a daily routine? Where will we live? Who will we spend our time with while enjoying this season of life? How will be able to balance making this transition while also being available to help other family members in need? Will I still be of strong mind and body when I actually get there?
Thinking about our future selves requires us to stop and assess where we are today. Unfortunately, everyone out there has not been hardwired to be future oriented. As a result, this “live FOR the moment” rather than “live IN the moment” mindset can lead to unfulfilled dreams, stress, and frustration.
One of the best ways to help us to prepare for the future is to really spend time visualizing what that future has in store. From a personal financial planning standpoint, this process should be driven by a sense of hope and optimism rather than be marked by fear and anxiety. So no matter which season you are experiencing right now or how near or far retirement may seem, set aside some time to genuinely plan out your “retirement” – however you may choose to define that word.
My personal definition of retirement is a state of financial independence where I am free from any debt obligations and where my passive income is sufficient enough to meet my family’s lifestyle needs (with some left over to try and help others). My vision of true financial freedom also means that I am able to spend meaningful amounts of time with the people and causes that matter the most to me in life while doing things I enjoy for both work and play. This definition is still a work in progress and I am grateful to already be doing many of the same things that I look forward to doing during my so-called retirement years.
Most often, my weekly blog messages discuss important financial steps to take to improve financial health. Today’s message is a reminder that we all must take time out of our busy schedules to plan for the future. Go beyond the numbers and mountains of financial data and focus on dreams and possibilities.
Then don’t stop at just planning for retirement, start living it out today. This is often called a “retirement dress rehearsal” and is a simple yet powerful tool to help “try on” the possibilities of retirement to see how they may feel. Whether your retirement dress rehearsal means estimating your retirement cash flow needs and living on your expected retirement income for a month or simply taking an extended vacation to your planned retirement destination, it is an important step to take.
This is especially important for those who are within 5 years or less from retirement. If your financial independence date is farther out on the horizon, start with simply making sure you know what you are planning for in the first place. What does the term financial independence mean in your life?