Retirement: Nothing to do With Age, Everything to do With Arranging Your Finances

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 or Loss

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.

Financial Independence, Not “Retirement”

Substitute the words “financial independence” whenever you see the word “retirement.” Retirement is not something you do at a certain age; it is not another life; it is something that happens when you are financially independent and can choose whether or not you go to work each day.

Why? As you see or hear the word retirement, you will start to consciously make the substitution of words. This will raise your awareness of the issue as well as work towards getting you to re-think what it will take to be able to leave the workforce. Will it really take reaching a certain age; achieving a certain amount of money saved; or will it take the ability to have sufficient income to cover your expenses in the lifestyle you want to live. When you are able to leave work with the income you need, you will be financially independent. Start planning to be financially independent – not retired

Don’t Save Up Money to Draw It Down in Retiremen

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.


The Mortgage or the Retirement Account?

One of the worst financial plans you can have is one that only asks the question, “Is it better to pay down your mortgage or contribute to your retirement fund?” If you have a home and a government-regulated savings plan, you will be required to either pay tax or interest when you want access to the money. At the very least, you need to have some savings or investments that are accessible without any restrictions in addition to your home and your retirement fund.

Because if you are saving for the long-term, you need to think long-term. There are many different ways to save for the future – one is inside a government-sponsored retirement plan, and others are to establish your own savings programs in such things as real estate (besides your home), non-retirement plan investments, insurance, mortgages, businesses, etc.