Discover How You Can Redefine Financial Independence To Retire At Any Age
- Why traditional retirement isn't sustainable for the future.
- How the desire for fulfillment is redefining the meaning of retirement.
- Steps to consider taking to transition to early retirement sooner.
Planning for retirement is out. Financial independence at any age is in.
It’s so “old-skool” to work like a dog for 40 years, scrimping and saving so you can retire and do nothing of substance for the remaining 30 years.
That’s no prescription for happiness. It makes no sense.
Increasing longevity has changed every aspect of retirement planning – from asset allocation to life fulfillment and everything in between.
People are retiring younger, adding encore careers, lifestyle businesses, and working into their seventies and eighties – not because they have to, but because they want to.
It's time to retire the word “retirement” and redefine our lives toward fulfillment – which means financial independence at any age.
Birth-School-Work-Death… Plus Fulfillment?
There used to be 4 stages to life – “birth”, “school”, and then “career” followed by a progressive decline to “death.” The traditional approach to retirement planning has always been about financing that final decline to death using savings accumulated during “career.”
But something changed. People in their 60’s aren’t declining toward death. 60 is the new 40. Retirees are living longer, healthier lives with dreams and ambitions yet to be fulfilled.
When Social Security was created, the average life expectancy was 65 years. Now, 90% confidence intervals for a healthy couple at 65 are breaking the age 100 barrier and continuing to rise.
What this means in plain English is retirement life expectancies are exceeding 30 years. That's a game-changing result.
The whole concept of “retirement” was never intended to fund 30+ years of leisure. It's a broken model bursting at the seams evidenced by the trouble with Social Security, underfunded pensions, and the rise of self-funded 401(k)s to shift the burden of savings from the institutions to the individual.
Related: 5 Financial Planning Mistakes That Cost You Big-Time (and what to do instead!) Explained in 5 Free Video Lessons
The reason for these changes is simple. Financing 30+ years of leisure is mathematically very different from financing traditional retirements of 20 years or less:
- With post-career lifespans exceeding 30+ years (and growing), there's no such thing as a “safe withdrawal rate” in retirement where you can spend principal from savings.
- Instead, workers today must build a nest egg large enough to support post career lifestyle strictly from cash flow for decades.
- Additionally, inflation effects become more unwieldy when compounded over longer time horizons, creating an unprecedented level of uncertainty about asset purchasing power.
- Finally, asset allocations must be changed to include growth, introducing new portfolio uncertainties about sequence of returns effects, and the negative consequences of volatility compounded by spending from assets.
In short, achieving financial security following the old-school retirement planning model requires more savings than most people can accumulate, to fund a lifestyle most people don’t really want. It's a serious problem.
Get This Article Sent to Your Inbox as a PDF…
Welcome to “The New Retirement”
Fortunately, there's a solution, and those who embrace this “New Retirement” model are finding it a more satisfying life plan than the traditional model.
The New Retirement is about breaking the old “career” stage into two separate periods, thus allowing you to achieve financial independence at any age. It's about pursuing fulfillment rather than leading a life of sacrifice.
It works something like this…
You launch a traditional career, just like the old model where you pursue income growth and financial security. The financial purpose of this stage is to establish your foundation:
- Buy a home.
- Satisfy base lifestyle needs including furnishings, clothing, transportation, etc.
- Build your nest egg including both tax-deferred and taxable savings.
The problem occurs when you get stuck at this stage, repeating this foundational do-loop in an endless quest for more-better-different without ever advancing to the next stage.
You get stuck with ever-increasing lifestyle needs while engaging in a futile attempt to build enough savings to retire, only to realize late in life how the mountain is simply too tall to climb.
The “New Retirement” is about breaking this do-loop by changing the playing field once the foundation is established, so that you move from “accumulation” to “fulfillment.”
It’s about enjoying a lifestyle business or encore career that allows you to build a life so satisfying, you never want to retire from it.
Here’s how it works…
Introduction to the New Retirement
The new retirement recognizes that traditional retirement planning was just a euphemism for elderly financial independence, and that financial independence can be enjoyed at any age.
You don’t have to wait until an arbitrary age like 65. You can be financially independent far sooner than you might have previously believed.
Similarly, financial independence doesn’t have to mean doing nothing and never earning another dime, like in the old-world retirement model.
You can redefine financial independence to include part time work, encore careers, and other income streams that take the pressure off your savings. (See the parable of the Investment Banker and Mexican Fisherman.)
For example, you could…
- Work 6 months out of the year and do whatever you want the remaining 6 months. An accountant could prepare taxes from February through April 15, and again in September-October for late filers, taking the rest of the year to pursue his passion for fly-fishing in the summer and snow skiing in the winter.
- A pilot could convert his expensive flying hobby into an additional income stream as a part-time flight instructor and occasional pilot-for-hire to corporate executives.
- An artist could convert his passion for wire-frame sculpture into a community of wire-frame art enthusiasts via a web site that monetizes through selling supplies, courses, and seminars.
- Or a financial junkie like me could grow his passion for sharing financial insights into an income stream that supports a location independent lifestyle while working just 10 days out of each month.
The objective is to interject a new stage following a traditional career that isn’t about sacrificing your life to make a buck, but instead focuses on fulfillment and some income generation.
In other words, convert the Birth-School-Work-Death life plan into Birth-School-Work-Fulfillment-Death life plan. This gives several huge advantages over the traditional retirement model where no earned income exists:
- The additional income from the fulfillment stage reduces the spending from savings, so your savings accounts can continue to compound and grow.
- You achieve financial independence at any age and lead your dream life much earlier, because the total savings required to support lifestyle when small amounts of earned income are included is dramatically lower.
- You reduce the risk caused by long-term inflation since it's far easier for your savings to outgrow inflation when you aren't spending from principal at the same time.
- You reduce the negative impact caused by sequence of returns and volatility because spending principal isn’t magnifying these problems.
- You gain the underrated benefits of productive work including a sense of contribution, community, mental stimulation, social connection, and much more.
Balance Is the Key
In short, a whole new stage to life has been created by increasing longevity called fulfillment. Unfortunately, many workers haven't realized it yet and are still laboring under the old model.
This new stage allows you to cut the “work” part of your life plan short and advance to “fulfillment” much sooner.
We used to live in a world of polar opposites where you worked hard and built wealth until you hit the magical age of retirement, where you suddenly flipped the switch and lived the pro-leisure circuit.
Now, that model no longer makes sense:
- Most people want to enjoy life while they work and not sacrifice their healthiest years at the altar of the almighty buck.
- They want more leisure time to pursue personal interests.
- They want more time for family.
- Few people want to completely stop working because work plays an important role in a balanced, fulfilling life.
The New Retirement has surfaced as an alternative that allows you to build your financial foundation (including a small nest egg) using a traditional career, and then continuing by switching horses mid-career.
It's a way to redefine life from the polar extremes of career, followed by retirement, to something more balanced where the focus is on quality of life.
The idea is to build a life so fulfilling that you never want to retire from it. The sooner you make that switch the happier you will be.
The lesson is clear: don’t wait to live your life or put off your dreams until old-age.
If that sounds good to you, then the only question remaining is, “What’s keeping you from making it happen?”
What are your next steps? What are hurdles must you clear? What knowledge gaps must be filled?
I know it's self-serving, but that's what financial coaching and education is all about. You can learn more here.
And let me know what you think about these ideas in the comments below. How does the New Retirement relate to your current life plan? What changes are you motivated to make?
Anybody can learn to build a secure retirement -- and you don't need a financial advisor.
My course, Expectancy Wealth Planning, has been called "the best financial education on the internet" and provides all the knowledge you'll ever need to build the life -- and retirement -- of your dreams.
This article is great! A new perspective on retirement will help us all carve a better life for ourselves. Your ideas are realistic. Very well written. I will share with my friends and “like” it too.
@mrsmelon Thanks! I’m glad you found these ideas useful. I appreciate your support and feedback.
I hope you don’t mind me sharing this article with family and friends. I have long talked about this concept, but mistakenly referred to “financial independence” as “retirement”. When people hear the word “retirement”, they think in terms of the old-school model. My points on FI never made any impact because the listener was thinking on completely different terms.
Anyways, this post is EXCELLENT!!! I feel like this statement really is the key:
“The idea is to build a life so fulfilling that you never want to retire from it.”
Blessed are those whose career gets them to the fulfilment stage right from day 1. I have two such friends – one is a 33 year old pastor and another is 28 and has worked in non-profit.
@andrewbpaterson Yes, for those rare individuals who found fulfillment in their initial careers – congratulations! For the rest of us I provide these concepts.
Also, I’ve found a lot of people go through cycles. A career is satisfying in the beginning but becomes stale later on. For example, my first 10 years in the hedge fund business was totally fulfilling, but towards the end I had grown beyond it and needed to change.
Fortunately, I had followed the prescription in this article so that I had the flexibility to pursue a new course and not get stuck in more-better-different. I’m thankful.
Amen Todd. Your article addresses exactly what I am doing.
I ‘retired’ in August and am now spending 3 months in the south of France. December will be spent back in Calgary then January through mid April will be in Costa Rica. I place retired in quotation marks because this is more a rejuvenation than retirement. I can’t imagine a life of just leisure. There are so many things still to play at.
I am now looking at what I want to play at next. Examples are: learn French, then Spanish, learn to sing, create an online business that generates $5000 a year, land development in Costa Rica. Physical fitness is my # 1 priority. PlayAtCreation is a domain I will develop to encourage others my age (59) to create something for ourselves and for others.
Thanks for a post that supports my ideas.
@JohnOrian Thanks for writing, John! Sounds like I was preaching to the choir.
Great post Todd. You continue to be a thought leader in this area. Even though I followed, more or less, the traditional model to retire at 50, the New Retirement better captures the current reality for me and many others. It was the vision of an encore career, helping other people with personal finance, that really gave me the courage and motivation to early retire from my corporate position.
Even though I plan to keep the focus of my writing on the “retirement” question, because it’s the model I lived and that many people are familiar with, you’ve got me thinking about how to expand that message to incorporate the principles of financial independence at any age. Thanks again for the compelling post (and the related FinCon Connection article), and for having the courage and vision to break new ground.
@DarrowK Thanks for joining the conversation Darrow. I appreciate your insights and support.
Love the article! Half way through the article I emailed the link to three others I know who would benefit.
I’m 40 years old and work as a special agent in federal law enforcement investigating financial crimes. Great job, but it’s been difficult to enjoy recently because it completely dominates my time; time I would enjoy doing other things. As a result, it’s been easy to think about “retirement” more and more in hopes of getting to that fulfillment stage. We save what we can, but also have 5 kids which makes aggressive spending more difficult. When I’ve run the numbers on retirement I’ve concluded I’ll either have to work longer than I’d like or live more meagerly than we’d like. Your article is extremely insightful, encouraging and surprisingly quite simple.
Thank you for sharing!
@outsideagent Glad it helped!
I’m 22 this year and looking forward to live a life that is fulfilling (that I never want to retire from it).
Another thought provoking and motivating article. Once again, nice work Todd. Take care.
Admittedly, I belong to the old school. Your “new retirement” concept is truly liberating. This is an additional insight to my advocacy for increasing financial education to people within my circle of influence
Right on. I agree that this is the new retirement.
Something Tim Ferris said in The 4 Hour Work Week comes to mind, which is: Retirement in the traditional sense is “worst case scenario insurance”. It’s to be used if (and only IF) we get to the point where we can’t physically do anything productive to society anymore.
In any other case, we still have the ability to create value in the marketplace, and therefore make money.
Why would we want to quit and do nothing? Most us wouldn’t. We still want to create value for others and the world.
So, why not do it now, rather than later?
Kraig M. Agreed fully. Thanks for joining the conversation!
Thanks for sharing this Todd. I found the reframe of retirement as financial independence to do what fulfills you at any age very refreshing.