Retirement: a new approach

It almost seems a losing battle to write about Financial Independence (or “Findependence,” as I call it) when most financial gurus insist on using the term Retirement.

Even though there’s a huge difference between the terms, it never hit home until I looked at the Wikipedia entry for Financial Independence. It says the term is “generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities.”

Is that retirement? Might be, but consider the finer points the online encyclopedia makes. The key insight is this: “It does not matter how old or young someone is or how much money they have or make. If they can generate enough money to meet their needs from sources other than their primary occupation, then they have achieved financial independence.”

Wikipedia drives the point home with two examples. The first is someone who is just 25 years old but has simplified life to the point they can live with expenses of just $100 per month. Using its definition of Findependence, if they have assets generating $101 a month or more, they have achieved financial independence. They are free to do what they want without excessive concern about money.

Now let’s look at the contrary example—a 50-year-old who craves such a luxurious lifestyle that it’s necessary to earn $1 million a month just to cover expenses. If the outlay of this so-called millionaire exceeds that $1 million in monthly income, then “they are not financially independent because they still have to generate the difference each month just to stay even.”

Quite an eye-opener. As noted elsewhere this issue, MoneySense marks its 15th anniversary this year. We often profile individuals who claim to have “retired” in their 30s or 40s. A good example was the first time the magazine ran the cover line, “Freedom Now.” It was May 2002 and highlighted Dianne Nahirny, then a tender 32. She went on to write a book titled Stop Working… Start Living.

Or consider Derek Foster’s similarly titled book, Stop Working, Here’s How You Can! We and other media gave these and similar individuals a lot of press, citing them as extreme instances of Early Retirees.

But I never bought the line they had actually “retired.” If nothing else, they had not “stopped working” but found a way to bring in money by writing books about how they had “retired” early. Foster wrote several books on this theme, which is a lot of working for a supposed “retiree.” Add lucrative speaking and consulting gigs and what they had really done was make a major career shift from employment by corporations to self-employment: they had not “retired” in the classic sense of the lifestyle of someone who took a gold-plated pension at 70 to kick back and enjoy gardening, bridge and daytime TV.

Rather than retire, these authors and others like them had achieved the commendable goal of early Financial Independence. They did so by minimizing expenses rather than maximizing income, as in the first Wikipedia example. To paraphrase from the cover of the U.S. edition of my own book, Findependence Day, they had achieved financial independence “while they were still young enough to enjoy it.”

And isn’t that what it’s all about? In almost every issue of MoneySense, couples ask whether they’re “on track” for retirement, or have enough money to slow down and find a less stressful way to make a living. I sometimes wonder about this obsession with ceasing to work, as if work by its very nature were a horrible thing. What our readers really want, I think, is some assurance they won’t spend the rest of their days working in huge corporate bureaucracies, putting up with long commutes five days a week, endless meetings, office politics, jockeying for position within org charts and constantly being asked to do more with less.

Some may choose to do nothing the moment it’s financially feasible: quite understandable if you’ve reached 65 or 70. But my vision of Findependence for the baby boom generation does not entail doing nothing but watching birds from a rocking chair. I enjoy working at MoneySense and the lines between work and play often blur. But if it all ended tomorrow, I’d still do my own thing, whether to write more books, paid blogs or book reviews, give the odd talk, contract editing or whatever. That’s why I declared my own Findependence Day last year when I turned 60. If push came to shove, I’d take early CPP, tap a few modest employer pensions, start to draw down retirement savings and fill in any shortfall with occasional paid work.

Some media colleagues declare they’ll “never retire.” Perhaps not but they should still strive for financial independence. The earlier it’s attained, the more options and flexibility you have. You can still be a productive citizen after findependence: possibly even more productive if it lets you pursue your grandest dreams.

For more, visit MoneySense editor Jonathan Chevreau’s Financial Independence blogs at Moneysense.ca or FindependenceDay.com

About Jonathan Chevreau

As MoneySense’s Investing-Editor-at-Large, he is also author of Findependence Day and co-author of Victory Lap Retirement. Reach him at [email protected], where he is the founder of Financial Independence Hub.