Did You Know Your Pension Isn’t Guaranteed?
Sometimes when I talk to people about financial planning, their response is ‘Oh I have...
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In the early 90s, I was approached by an Ameripise representative who wanted to sell me retirement planning services. I was taken aback, given that I was in my early 30s and broke, but I have to give the guy credit for being forward-looking :).
He asked me, “When do you want to retire?” “Never,” I replied. I still hadn’t thought about what retirement would mean to me personally, so it only existed as the widely accepted notion of reaching the point in life when you don’t do much of anything productive, not something that I had any desire to aspire to.
In his recent piece on FIRE, conventionally an acronym for “Financial Independence, Retire Early,” Ben Le Fort refers to a proposed modification for the last piece of the acronym. He says, “John and David from “Debt free Guys” appeared on the Bigger Pockets Money Podcast recently and used a phrase that crystallized this concept for me. They suggested FIRE should be renamed ‘Financial Independence, Retire (to) Entrepreneurship.’ ”
This resonated with me, as I’ve felt for a while that retirement should not be about the proverbial (and long defunct concept of a) gold-watch sendoff to years of doing nothing of substance or consequence. Rather, in my mind, retirement should be about doing what we want, what we value, what makes our life meaningful to us, without having to worry about money.
Over the years, I’ve read blog posts written by people who could be (and maybe are) poster children for the FIRE movement. These are people who retired in their 30s and started living a life molded by their desires, choices, and ideals. They traveled the world, moving every few weeks or months from one country to the next. They blogged about their new life, which over time seems to develop into a business centered around sharing with the world their thoughts and experiences of a life after checking out from the rat race.
One concern I had, considering if that sort of life was what I would want to develop for myself and my family, was that their $30k/year budget was tiny by First-World standards. They were able to do this, among other things, by carefully picking the countries they live in for more extended periods. After all, rent and food are much cheaper in, say, Cambodia or the Philippines than in Sweden or the US. However, what works when you’re a healthy 30-year-old may not work as well as you age. How well will their plan hold up when they hit 70 or 80 and need ever more (increasingly expensive) healthcare?
This raised the question of what retirement meant to me, and by extension what it means to you or anyone else. It also made clear that the answer cannot be a singular unchanging one, because as long as we live, our needs, desires, and goals evolve, so our definition of retirement itself can’t be static.
Even if your definition of financial independence isn’t static, you have to come up with a definition for “mission success.” Having worked with several NASA projects, here’s what I learned that can help in this process.
First, come up with the maximum plausible (positive) outcome. Then, assuming things go wrong or that you simply can’t afford the full-blown successful outcome, figure out how little of that outcome would still make the mission (in this case, your life) worth it. That smaller outcome becomes your “minimum mission success criterion.”
From that definition of minimum mission success, you flow down your requirements for achieving it. Those requirements then guide your designs, leading to your plan of action, your schedule, and your budget.
Of course, if your resources allow for more than that minimum, you can always “up-scope” your plans to get closer to your maximum mission success.
If your personal ideal of retirement is sitting in front of a TV all day long every day until your last day, it may not matter very much where you live (beyond having good TV programming) or what sort of home you live in (beyond the basics of indoor plumbing, reliable electricity and water, and acceptable protection from the elements). If that’s the case, find the least expensive location and housing solution that allows your ideal retirement, and budget around that.
On the other hand, if your ideal retirement is traveling the world, staying in “destination” locations for months at a time, your baseline “freedom” budget will be much higher, especially if you don’t want to limit yourself to cheaper Third-World countries.
If starting your own business is how you envision your personal ideal, then you need to figure out what sort of business that will be, what budget will make it possible, and how long and how much you need to have on hand and coming in from non-work sources to provide a runway for successfully launching that business.
As you can see, Financial Independence is no less a personal goal than any other aspect of personal finance. Whatever you decide you want to pursue, make sure your planning takes into account the risk that things won’t go to plan, and the likelihood that as you age, your needs and goals will evolve, with whatever that may mean for the financial resources you’ll need to put in place before you declare your Financial Independence Day.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.