Retirement and the process of saving for it is not a new topic for anyone that has ever read a finance blog before. The question that few people ask however, is what exactly is retirement?
If we want to go the dictionary route, retirement is simply: “The period of one’s life after leaving one’s job and ceasing to work.”
That’s all fine and good, but to really plan for retirement we have to get a little more specific. Retirement means different things to different people, to accurately plan for yours you have to decide what your definition of retirement is.
- For a large number of Americans retirement is something that only happens when they’ve become too old to work anymore. They didn’t save anything on their own during their working years and will live out the rest of their life relying on social security or a pension if they were lucky enough to have one. This type of retirement is the equivalent of being sent out to pasture. Working for 40+ years and having little to show for it isn’t the way most of us want to spend our later years, but the lack of emphasis on saving and the need to “keep up with the Joneses” makes this a reality for all too many people.
- The most popular version of retirement is one where retirement represents a time starting in your 60’s where you’re finally able to do all the things you couldn’t do during your working years. It’s a time where you travel the world, golf everyday, or move to an expensive retirement community in Florida. This version of retirement requires diligent saving in a 401(k) or IRA in addition to any pension or social security that may be received. Typically when you hear or read about retirement planning or advice, this is the version that is being talked about.
- For a growing number of people, especially those in the younger generations, retirement in the traditional sense isn’t a goal at all. For these people financial independence is the goal. They don’t strive to stop working so much as they strive to stop needing to work. Retiring from the corporate world is only an opportunity to begin focusing their attention on projects of passion. To achieve this retirement scenario requires a true dedication to saving, investing and creating multiple streams of income. If your goal is to retire early you’re going to need to do more than live off of savings, having your money work for you across multiple avenues is a necessity.
In reality, the only difference between the last two scenarios is the age at which they happen. Financial independence is required for a lively retirement regardless of the age you wish to make it happen. That means whether you want to retire at 30 or 65 you should focus on creating streams of income to replace your paycheck. You should focus on saving more than you spend and you should focus on building a large investment portfolio.
My version of retirement involves reaching financial independence as soon as possible. I have no desire to cease working altogether, but not having to work out of obligation is the overall goal.
Now I’ll turn it over to you, the readers… What is your goal for your retirement? What steps are you taking to achieve your goals?