Strive for financial independence not early retirement
Strive for financial independence and not early retirement?
What on earth do you mean?
Are you looking for financial independence?
Are you looking to flat-out retire early?
Is it just semantics between the two terms?
These are simple, straight-forward questions.
Simple questions don’t always have easy answers. My motto is: personal finance is personal.
Stuff like this rolls through my mind often.
Other bloggers and podcasters in the personal finance space think about this stuff as well – and we’ll get into that conversation in a bit.
There are a host of sites and channels that now consume the financial independence subject. Many others discuss early retirement. Are they one of the same? Not to me.
When combined together, it has been said the Financial Independence Retire Early (FIRE) movement is spreading. While probably true, running to retirement is not a destination I care to join.
I believe you should strive for financial independence and not early retirement.
Financial independence provides the right mindset
I’ve never been convinced about the “retirement” element in the FIRE movement.
There are certainly admirable concepts and stories that I enjoy reading about and listening about, from various bloggers and podcasters on the subject of FIRE, but the hype around “retire early” is a total misnomer. My reasons are very blunt and simple.
One, there are only a handful of people that I know of, in their 30s, 40s, or 50s, who do not work for income at all.
Two, early retirement as a concept doesn’t make sense for anyone currently busting their a$$ to side-hustle, work multiple jobs, and/or save >50% of their primary salary as they run towards something else. Anyone that is hard-wired to hustle that hard, that much, that often, is effectively an entrepreneur or one in the making (even if they don’t claim to be). I might even put yours truly in that entrepreneurial category as this blog has grown in popularity over time.
Three, the most common denominator for the FIRE community is recapturing time or “life energy” as some folks put it. The fallacy is, what you spend time on today is just as valuable as your time tomorrow, or in retirement. Meaning, the value derived from experiences, time with others, and much more, is hardly worth more in earlier decades than any senior years, or vice-versa.
This makes, in my opinion, financial independence (whatever that means to you) a very worthwhile and noble pursuit – that is centralized around your life choices. It becomes your lifestyle by design.
The concept of “retire early” is just a footnote.
Financial independence (FI) delivers lifestyle by design
After I wrote about my six phases to financial independence, a path we can all pursue on our own terms, I thought it would be interesting to further explore the concept of lifestyle by design.
Lifestyle by design is arguably an even better term than financial independence since it speaks to the tailored approach you can make your days, weeks, or months using money as your tool. You can work. You don’t have to work. You can volunteer more. You can do pretty much anything you want.
Whether you wish to live alongside extreme frugality (I don’t), within modest middle-class means like these guidelines suggest, or you aspire for a more luxurious existence, lifestyle by design can help you to engineer the best ways to spend your time. Ultimately, that’s most of us want…
Over tweets, emails and other in recent weeks, I figured it would be interesting to have a chat with a passionate investor, fellow blogger, and someone who actually took the leap on making his own lifestyle by design choices in recent years.
Dale, welcome back to the site!
Dale, you’ve been on my site before. You started your Cut The Crap Investing blog and you wrote about your path to changing your lifestyle – quite the journey!
Yeah, I’ve had an ‘interesting journey’ as shared in that post. From advertising writer and creative director to a second career, to Tangerine as an advisor, to now a blogger and freelance writer – times have certainly changed.
I fully agree with your points above.
I was fortunate to make this leap because my wife still works, and we’ve paid off our house and vehicles. The personal finance basics allowed this venture, changing my lifestyle by design.
Many a book has been written about “the power of why”. What’s your take on the FIRE movement and “why” so many 20-, 30- or even 40-somethings strive to leave the workforce?
I think that is the big head-scratcher for me.
There is the theme that so many want to leave the workforce because they hate their jobs and they hate the working life. It’s not up to me to tell them how to design their life, but I’d suggest that not liking your job is a very terrible thing.
Instead of leaving the workforce one might try to fix the work problem – find a job that you really like. Get a little bit of Richard Branson in ya. He will suggest that if you hate your job, make plans to leave that job.
Why not have your cake and eat it too? Find a career you like, find a career with purpose. And hopefully that career is well paying (enough). To your points above, I suspect the FIRE movement is more about entrepreneurial spirit than any hate-on for their corporate life.
In my opinion it will usually take an extended period to pay down your debts and build an investment portfolio to the level that could truly sustain a lasting retirement.
I think that’s phase 4 in your six phases of FI.
Most who seek an early retirement will still need to work for many decades. You obviously don’t want to be unhappy for decades. Strive for fulfillment. I’m trying to.
So on the theme of lifestyle by design, fulfillment, the personal finance book Your Money or Your Life popularized some early phases to FI (financial independence): FI thinking leads to financial intelligence leads to financial integrity leads to financial independence. What’s your take on those steps or building blocks?
I think the path to financial independence does absolutely happen in stages or phases.
There has to be some initial awareness that something needs to be done. There has to be that awakening. That might happen as the result of complete dissatisfaction or realization that a person or family is moving in the wrong direction financially and perhaps with that life plan. Maybe there’s that ‘enough is enough’ moment?
Once there’s that awakening, then comes the education process. They’ll have to discover what’s going wrong, why it’s going wrong. And then they’ll have to learn how to change their borrowing and spending and then investing behaviours.
I love how that book weaves money and happiness together. It’s a trade-off. It’s about balance.
That’s the premise of the book, framed by the title. It kind of puts a price tag on life and the things or experiences that we can buy with our money.
I like this bit that the editors wrote in an extensive online overview of the book …
“Aren’t we killing ourselves — our health, our relationships, our sense of joy and wonder — for our jobs? We are sacrificing our lives for money — but it’s happening so slowly we barely notice.”
Money certainly can buy happiness. Money can also buy sadness. Know what makes you happy. Know the costs.
This piece from that same online overview sums up or adds to that thought.
“Financial independence is an experience of freedom at a psychological level. Financial Independence has nothing to do with rich. Financial Independence is the experience of having enough — and then some. The old notion of Financial Independence as being rich forever is not achievable. Enough is. Enough for you may be different from enough from your neighbor– but it will be a figure that is real for you and within your reach.”
I would suggest people find their “enough”.
That leads me to this. The concept of FI is rooted in the Crossover Point – whereby income from your invested capital surpasses your monthly expenses, the basic necessities of life and various components to fund your lifestyle are covered by investment income. Is that “enough” or “too much” or “too little” in your opinion?
As per the above quote, I think this is entirely personal. It depends on what you want to do with your life. If you do not want to participate in any income-producing work, then you certainly need your investments and pensions to cover your remaining life income needs (and more if you want to leave a legacy).
Many will take that semi-retirement approach. Perhaps we have enough of a financial cushion from our investments that we have the confidence to leave full-time work for part-time work. One might consider themselves “Financially Independent” if their portfolio income covers a portfolio of spending needs, and then part-time income covers the remaining financial needs?
Of course that’s called semi-retired. Is that FI?
I’d suggest that it is a form FI or “enough”.
It’s “Findependence” as author and blogger Jonathan Chevreau put it well.
I am in FIWOOT mode. I like that mode.
That said, looking at our bank accounts over the last several months it appears that my wife and I have enough by way of her working full-time and the additions from my portfolio. I used some portfolio income to take my daughter to the UK last month. But several thousands of dollars has also pooled in my RRSP account. I guess I don’t need it for now.
You know Mark, I never really had much of a money plan, I had a life plan. I valued life experiences (family and health) way more than money and making money. I guess I had some lifestyle by design all along.
So maybe it’s not FI but LI – Life Independence.
My cousin in England works part time, she’s an accountant/bookkeeper. She has work independence, life independence. But she spends every penny, on life. She travels every chance she gets. Several major trips a year. For her, money buys the experiences that travel can bring.
My cousin practices LINR. Life Independence Never Retire.
So many acronyms! Kidding aside, I’m personally a huge fan (and in active pursuit as you know) of FI. Hence the post! What are your thoughts on FI vs. RE? Should really anyone under age 50 strive to retire?
Ha, I just wrote on that on Seeking Alpha. What would it really take to retire? If you link to that article you’ll find a great site that details what it costs to retire in the US, state by state. Google search will help Canadians discover the true cost of retirement as well.
As controversial in some respects as that post might be, I think many people actually underestimate how much it costs to retire, and what size of portfolio is needed to sustain a lasting retirement. They might be playing with FIRE. Of course the earlier we retire the greater the longevity risks.
All said, a high-earner with an aggressive savings rate who takes on a higher risk portfolio might be able to build a sizeable portfolio in 20 years. I’d suggest building in a very big buffer though. Life can throw us some surprises.
Can anyone achieve FIRE? (i.e., high salary, middle, low?)
Not sure about low income Mark. You can only cut back expenses so far.
Certainly anyone who makes a decent or even average salary might be able to retire early, if early is sub- 60 let’s say.
It’s not always what you make, but what you keep, and then how you invest.
Therefore, it’s a combination of good income + high savings rate + cutting back on expenses. Invest the difference wisely. That’s the simple formula for FI as you well know.
As someone who is semi-retired, my advice would be to others striving for FI:
- Have a consistent, regular investing schedule.
- Strive to max out your registered accounts first (TFSAs and RRSPs in Canada; 401(k) and Roth IRAs in the U.S.).
- Rinse and repeat as much as you can.
I like your straight-forward Better Way to Budget.
What’s your take on many FIRE devotees focusing on the “4% rule”?
You touched on this concept in your six phases to FI post.
I think it’s a great starting point. A reminder to everyone thought, as a former advisor, it’s just a benchmark and a way to calculate ‘how much you need’ and then again how much you can spend.
And while we’re on the subject, a reminder it can fall apart just as quickly.
There are too many moving parts to retirement funding. I think it may be more beneficial to quickly deplete one bucket and save another bucket, or delay to government programs like Canada Pension Plan (CPP) or Old Age Security (OAS) to help you sustain that “rule”.
I know you wrote a valuable post about when to take your Canada Pension Plan (CPP) here.
A good financial plan goes beyond any rigid spend rate.
Lastly Dale, many FIRE bloggers seems to be renters. I think that’s great since not everyone should own nor needs to own a home to realize their life plan. Do you believe being a renter can help accelerate financial independence for many people?
I think you can get there either way. Certainly equity tied up in a home can change cashflow.
You definitely don’t need to be homeowner to reach financial independence. Many would argue that it might become more predictable or attainable if they rent instead of buy. Buying and maintaining a home is very expensive. There’s no guarantee that the home will pay off as an investment. It might not be a massive contributor to our net wealth.
(Mark: I shared the definitive answer to the mortgage paydown vs. investing debate here.)
Speaking for ourselves, our investments are typically liquid whereas our home (and other real estate is mostly illiquid). That’s a big factor you need to consider.
Strive for Financial Independence (FI) – which is really your lifestyle by design
We all have choices. That’s my message.
If “early retirement” is what you’re seeking, who am I to tell that’s wrong?! Go for it. Don’t let such semantics for any terms bother you.
I know when it comes to our financial plan, we’re striving for financial independence and not any retirement. I hope to always work. This will keep my body and mind active. It will keep me engaged. It will keep me socially connected.
Financial independence will offer choices. That’s both exciting and motivating to me. We’re on a path to make financial independence happen in a few short years.
The term retirement on the other hand sounds outdated and boring.
Are you a fan of financial independence or retirement or both? Is it just semantics? If you have achieved FI what advice do you have for GenX (me) or GenY? If you’re in GenX or GenY – what are you striving for?
Great points and it’s relevant to my situation now. We’d been chasing FIRE for so long, and now that FI is upon us, I don’t really want to retire early right now. I just landed a really fun short-term contract gig for 2020 that I’m excited about, and work is actually more fun now than it was in my twenties. Weird right?
Sounds awesome Kim. I would love to be in that position myself, in a few years. I’ve heard that work is more fun, you become your true self, etc. after all the daily stressors of making money are gone. Congrats on being “in that place”.
I hope things are well! Any big travel plans coming up?
“There is the theme that so many want to leave the workforce because they hate their jobs and they hate the working life. It’s not up to me to tell them how to design their life, but I’d suggest that not liking your job is a very terrible thing.”
This line really hit home for me. Yes, hating your job is a very terrible thing! I have only been working for 3 years (after close to a decade of university), and in that short period my job has taken its toll on my health, damaged relationships, and all in all made me a much more miserable person than I thought I’d be at 30 years old. Leaving and taking a paycut is really, really hard though, especially when I take into account the sunk costs of my education, my family’s views, my high salary, and the fact that I love the little part of Canada I now call home (and where I have very little employment opportunities outside of my current position).
I’m still not sure if I’m shooting for full retirement, financial independence, or just enough financial security that I can switch jobs to something else on my own terms. I’ve even started my own blog to help me figure things out and explore these sorts of questions (my take on this question can be found at http://backwoodsfinance.com/job-i-hate-pursuit-of-financial-independence/). But whatever flavor of FIRE you want to call it, this movement has been a life-saver for me. Thank you Mark and Dale – excellent articles like this one keep me thinking!
You definitely don’t want to be miserable at age 30, or any age. Life is short. It will disappear before we know it.
I know we could be “retired” now if we wanted to in our mid-40s but I need purpose in life; I like to be a bit driven, and this blog is a motivator to show (myself mainly) that if I put my mind to something and stay disciplined enough, I can likely achieve FI (not full-on retirement) at a younger age than most.
I think at the end of the day, whether is FIRE or FI or FIWOOT or some level of financial security, have a plan; dream a little and with some commitment and luck you might find it.
I will check out your post.
Happy pursuit whatever you want to call it!
I think most people should focus more on Time and forget about Money. All FI, RE or FIRE focus on money. Is that what really matters? Once I came back from my 12 month trip with my family, I realized that money has nothing to do with my happiness. Before I left, I couldn’t afford this trip (leaving with a family of 5 with no savings, no jobs and traveling for a year through North and Central America). Yet, I did it, I came back and I still have my home. I just found ways to make it happen.
Money could have been a big obstacle. Once I decided it wasn’t and that spending time with my family matters the most, I found what I needed to leave. It’s all very personal and it’s always a matter of perception :-). I don’t think we need FI, RE or FIRE. We just need to find what makes us happy and reach out to it. I know people who think they are FI with $500K in savings and stop working, some others claim to need $175K/year to be FI…. perceptions!
Great read 🙂
I’d be very interested to hear how a family of five did a 12-month trip through North and South America with no savings. I totally agree that travel doesn’t have to be expensive (I have done a fair bit of budget backpacking), but you need something to pay for food, transportation and accommodation (unless you are hitchhiking the whole time and exchanging services for food and accommodation).
You bring a very good point!
The total cost of our trip was roughly 84K for the full year. Here’s what we did it:
#1 We rented our house (we didn’t make money, but we kept our home for when we came back).
#2 I worked on my online business while traveling (I was making less than 2K/month in profit when I decided to leave, but I worked evenings and nights for 18 months prior to our departure to build a stronger business). I was making money as I was traveling. All my savings for the trip were spent before leaving (RV modifications, equipment, etc).
#3 I finance the RV purchase and kept paying for it 2 years after my trip. I recently sold it with a $5K loss (price vs loan). This was a huge money pit for our trip, but that’s the only way we could travel with a family of 5 for a year. It was worth every penny paid the bank 😉
#4 I borrowed some “love money” for about 20K.
We came back in 2017. 2 years later, my net worth is higher than when we left in 2016. It would be even higher if I haven’t left, but no money in the world could buy a complete years with my wife and children spending all the time in the world having fun.
We loved it so much that we are leaving for Vietnam for 1 month in January :-).
I love it, thanks for sharing Mike. It just goes to show that where there’s a will, there’s a way!
Wow, Vietnam for 1 month? Great stuff Mike. I’ve love to see you write about that more on your site, how you are financing that; making a “go” of that, etc. with your family.
Great stuff and a new adventure for you.
I’ll certainly will!
Having my own business really opened the door to what you call FINWOOT I guess. It took me two years of hard work, but I intend to travel one month per year with my family starting with Vietnam in 2020 :-).
I’ll discuss how I can do that (and how I’m a bad parent for having my kids not going to school for a month! haha!)
That’s no nice to read Mike.
I like your ‘Time is the only currency that matters’. I keep stealing, er borrowing that, enough times until it’s mine. Again, you can take the guy out of the ad game but you …
Keep stealing! I beleive people need to hear that as often as possible and from as many people as possible 🙂
Well, you had a bit of savings for your trip (otherwise you couldn’t afford >$80k on credit cards?) but I get what you mean 🙂
I’m learning my time and my health are an extremely valuable commodity as I get older.
That’s the thing eh? One person’s FI = $500k. Another is $1M. Yet another is > $2M. Everyone is different. I firmly believe if my wife and I can get to our dual goal of > $1M portfolio (w/o pensions, etc.) AND have no debt, we should be good.
Thanks for the comment.
I didn’t have savings for that trip. I put lots of money on the RV to make sure it was top shape to travel, but I had barely nothing left in my bank account.
When I left, I had about $3-5K in my bank account. I wouldn’t call that savings. The trick was to generate money while traveling. The first 2.5 months in North America was rough on the budget (this is where I borrowed love money) and then, I was able to live from my websites in Central America.
If you can’t make it with over $1M + pension + no debt, you definitely have very expensive taste! haha!
@Don G said “I actually didn’t have a plan for retirement and still don’t 6.5 years into it.I just live each day, one at a time and really enjoy almost every single one of them.”
That just about sums up my plan. I’m mostly looking forward to having time to just think, read, contemplate, walk, take photos, look around, watch the sun rise and set, listen to the birds, and so on, for as long as I want do those things. When I reach age 65 I can attend university for free! So perhaps I’ll do that. Who knows, and who cares. I’m FI.
I think that’s great Bob. And DonG. I’m striving for those very days myself so maybe my focus on FI is very much retirement – although I still plan to work on the blog and have some part-time income in “retirement”.
Congrats on your FI Bob. Anyone that gets there has earned it.
Beauty!! You absolutely nailed it with your description of retirement and all the simple things that can bring so much enjoyment.
When I actually think about it, I’m pretty much doing the same things as I did when I worked. I just have more time to do them and am generally never in a rush. My wife and I and family had a great life while I was working and that has carried over to retirement. I now spend way more time with my wife and grandkids, take way longer on my morning coffees, go for way more walks with my wife, sit in the lazy boy and crank up way more tunes, take more holidays (generally all dispersed camping trips – which take way more planning), still get a couple runs a week in (at a slower pace of course), do some biking in summer, skating and x-c skiing in winter, spend more time on my investments (even though it’s not needed – I just like it as a hobby), and on and on.
I know there’s retirees that are enjoying retirement in the same way as Bob and I are. I’m just a little tired of so many people “preaching” that to have a good retirement you need a bunch of hobbies, need to be contributing to society somehow, etc, etc.
Bob – enjoy another great day at your own pace. I know I will be. 🙂
Lucky you Don and Bob!! You’ve “made it”. Kudos.
Great interview. I recently read that book and it was pretty good. Makes you realize that you can be FI if your expenses are really low and you become happy with what you have. I found that the book didn’t really take into account the money you may need when you’re in your 80s or 90s and unable to get up the stairs by yourself and need to go to a care home or hire care at home (which can be a lot).
As a Gen Y I’m more striving for FI and I would be happy to work on a part time basis at least until my kids don’t need extended benefits anymore (haha).
Ya, you have young kids so I can appreciate your strive for FI and then some part-time work as they get older. You’ll well on your way. Kudos.
Great point GenYMoney, we recently sold my Mom’s home/cottage, she has mid stage Alzheimer’s and is now it a retirement home but not a full care facility, yet. Apartment is $3400 a month base, plus this and that. Dog walkers several hundred dollars a month, yes she took her dog, we had to do that. We have tracker service for the dog, it’s quite cute. Mom’s meds, med dispenser, it’s $400 per month if she will eventually needs meds administered by residence. Residence trips and events. Vet bills. And I’m missing some stuff.
She will eat through her house proceeds if she stays healthy enough for several years. She’ll go broke.
Yes our expenses can go down considerably in later retirement and then you get the big bills when it’s retirement home time.
A good financial advisor will help clients plan for this.
This stuff does not get enough attention IMHO. Of course most lean FIRE US folks would get wiped out by the first severe medical event, or this end of life stuff.
Very good article. I always like reading comments from Dale. I especially like that he always stresses that finances and investments and lifestyle etc are “personal” and each to his own.
This leads me to your comment: “The term retirement on the other hand sounds outdated and boring”. As a retiree, I actually take that as quite an arrogant insult. I interpret that as you saying that if you fully retire and don’t do the stuff like you’re going to do, then you must really have a boring life. That’s very closed minded for the person you seem to want to project yourself as.
I didn’t mean to insult Don G. What I meant was….I see “retirement” and “early retirement” as in not working for 20- or 30- or 40-somethings as a waste.
If you’re in your late-50s or 60s or beyond, I have no issue with folks stopping to work because they’ve done it for 40 years.
The other angle is just that. You retire, and don’t have a plan to fill your days, then what? That makes no sense to me.
I suspect this is hardly you.
I hope that clarifies! Let me know your thoughts of course.
I disagree again as I actually didn’t have a plan for retirement and still don’t 6.5 years into it.I just live each day, one at a time and really enjoy almost every single one of them.
Anyway, I still think you’re being judgmental as to what you think retirement or whatever should look like (but that’s fine as i just wanted to say my piece).
Don, I think we are aligned really – I just plan to work a bit in my 50s and hopefully 60s.
I don’t think anyone that is healthy and capable in their 30s and 40s should just flat-out retire and do nothing. Then can still make valuable contributions to society and be productive, but that is their choice of course!
If you have retired and are able to see every day as a new adventure on your own terms, not working at all, fill your days as you please then you are FI. I’m certainly not one to be judgmental or tell folks how to live whatsoever. I just know I’ll need to stay busy and for me, that likely includes some work for income even when I might “have enough”. I have a hard time staying still and doing nothing. Not a great trait to be honest and trying to work on that over time.
Your retirement or FI days should be whatever you want to make them. You’ve done very well.
Yes Mark, I think many will get a big surprise when they retire early. The life plan is more important than the money plan. I’ve read from many that constant travel gets boring and predictable. Oh, another wonderful city or country I’ve never seen before. We can get desensitized to most anything. We need purpose.
Some will difficulties filling the time, some will not. But I’d guess the number of “Why I went back to work” articles will be common. And it won’t be the money.
A sense of purpose is essential. It’s what keeps us young I suspect. Furthermore, active body, active mind is good for many reasons.
Great article gentlemen and I totally agree. Love the Lifestyle by Design phrase. At my “retirement” party (age 56) I made it very clear I was not truly retiring but simply changing direction. Leaving one career for something else – although I am still waiting to see what that is. I have no problem filling my time and even working a few days a month which pays for my ski pass. As humans I truly believe we need to use the talents and gifts we have to create a fulfilling life. Don’t work to retire, work to create an amazing life. At this point for me I don’t want to have my time scheduled. I like the freedom of using my time to pursue the things that I choose. That is true FI.
“As humans I truly believe we need to use the talents and gifts we have to create a fulfilling life. Don’t work to retire, work to create an amazing life.”
Absolute gold Gruff. Well said. If you have the time to do what you want to do, work or not, that is FI. You have options. That is blessed.
Thanks Gruff403 big thumbs up.
Many thanks to Dale and mark. A good reading. And as you might already know, I agree with both of you regarding FIRE. I cannot FIRE any more anyway as I am in my 50s already, LOL. I always said the same thing as Dale. If you hate your job, find a new one. If you don’t like your career, find a new one. Education is very accessible in Canada and education changes lives, much better choice than just saving every penny while doing jobs you hate. Saving for tuition if you really hate your job, it’s an easy target and I think you would enjoy studying. The journey to FI should be enjoyable, not full of sacrifices, not for me anyway.
I like the term lifestyle by design. I am all for FI. FI provides options and choices we really need. We can say “Fuck you moeny” when we want to. I am not there yet but approaching that direction already gives me enough courage to change my life. I am in the process of negotiating some of my job perspectives. I am all prepared to leave the job to be a stay home mom or look for another job with less pay if the negotiation failed. Without the portfolio we have, I won’t have the courage to do so being a person always feeling very insecure.
I don’t like LINR though. You never know what life will throw on your way so you need to be ready for rainy days.
Well, who cares too much about FIRE anyhow. Focus on FI – and you are!
I hope to work full-time for another 5 years, part-time for another 5 past that, then we’ll see. That’s the plan but who knows what life has in store.
Continued success to you.
Thanks May, sorry I was not getting email notifications of comments, I’ll check that setting. Yes I could not LINR, but she is as happy as ever with the travel. I think they are off to Australia any day now. She planned our England trip for me, ha. She’s so good at it.
I need that money in the bank. I’ll admit to saying hello to my money most mornings 🙂
Thanks Mark for having my back. I’ll hit that comment notification button, and I’m happy to clarify or answer any questions/challenges from readers.