One problem with our society – it’s completely lost sight of the whole concept of financial independence and developing income. Retirement has nothing to do with age and everything to do with how you have arranged your finances so you have enough income coming into your household to live the life you want without having to go to work every day. Retirement is when you have arranged your finances so you are financially independent – regardless of age or how much money you have accumulated in your ‘nest egg’.

Risk, by definition, means “the hazard or chance of loss and the degree of probability of such loss”. Loss has many uses and is described with words such as: detriment, disadvantage, or deprivation from failure to keep, have, or get; the state of being deprived of or of being without something that one has had; the accidental or inadvertent losing of something dropped, misplaced, stolen, etc.; a losing by defeat; failure to win; failure to make good use of something such as time waste; failure to preserve or maintain; destruction or ruin; a thing or a number of related things that are lost or destroyed to some extent; death, or the fact of being dead.  In finance, we talk about risk as it relates to chance, yet always the underlying issue is the fear of loss. And, as the dictionary words demonstrate, also includes an association to death. This means that when making financial decisions, it is critical to understand and to manage your risk of loss in a way that keeps you in control of the outcome.

How could you possibly control the outcome of all your financial decisions? Start by being strategic with your actions by following a written plan for everything from spending to investing. Then work with your financial professional to understand what risks are associated with your plans and to implement loss protection strategies using insurance, investment exit strategies, and interest rate protection plans so you are effectively controlling the degree of loss you are exposed to. In essence, you are not gambling with your money and exposing yourself to catastrophic results if you experienced some sort of financial loss by having a written plan to minimize the various types of financial risk you are exposed to.

Saving up for a specific short-term purpose is exactly what savings are for. Retirement, on the other hand, is a point in time when you are financially independent. This means that you have enough income coming in to your home to support your lifestyle without requiring you to go to work to produce that income. This also means that what you want to do for retirement (financial independence) is to produce income, not accumulate a pot of savings somewhere like you would if you were saving for a holiday, large purchase, down payment for a house,etc.

How do you create income for financial independence? One way could be to accumulate a pot of savings that produces investment income from interest, dividends, etc. But the simple rule of diversification says you use your current income to produce something of value – meaning something that benefits others. You spread your production in multiple places such as different types of investments, different types of businesses, different locations, etc. And, when the results of your diversified labor are able to produce enough income to support your lifestyle, you are financially independent – you can choose to retire, and you support the economy around you in the process rather than burdening it.