Retirement is the Wrong Goal

Porch

Do not spend the rest of your life here, watching traffic go by.

“Retirement is the ugliest word in the language.”
–Ernest Hemingway

When I first went into the Army, I was full of vim and vigor. My friends and I, during weekends at the Officer Basic Course, would sit at one of the local watering holes and talk about doing our 20 years and then deciding whether or not we wanted to retire. The Army, at that time, had a pretty decent retirement program, where you’d get 50% of the average of the last three years of salary as a retirement check. Back then, a lieutenant colonel with 20 years of service (which we all assumed we’d make, and for about 97% of the people who stayed in, that’s the minimum rank they’ve achieved) made about $54,720 per year, so we were looking at a retirement pension at age 42 of around $27,360 per year. Given that most of us were making $19,634.40, that seemed like a lot of money (to compare, in 2013, a lieutenant colonel with 20 years of service makes $97,416 per year, and a brand new second lieutenant makes $34,516.80 per year).

I wasn’t convinced that I was going to be a career Army officer, so for me, it really came down to a mental calculation of whether or not I could last 20 years – and not be killed somewhere along the way – to get to retirement, where, I figured, I’d be set for life.

As it turned out, I only got to the quarter pole before getting out of the military. God bless my friends and classmates who continue to stick it out. When I decided to get out, one of the mental goals I set for myself was to earn and save enough money so that I would be financially better off for having left the Army than I would have been had I stayed in the Army (2 years away from what would have been 20 years, we’re ahead of that position, thank goodness).

Yet, even though we’re financially better off, we continue to work.

What happened?

Isn’t retirement the goal?

Why Retirement is the Wrong Goal to Aim For

While retirement is a great goal to aim for if you really want to stop working and doing anything but travel/volunteering/lounging around, it’s not the be all, end all ultimate goal in life. For many of us, retirement is the mental picture we have when we are finally able to do whatever it is that we want to do without having to worry about working for me.

There’s one issue with that mental picture. We’re using the wrong word to define the goal that we’re looking to accomplish.

What we really want to achieve is financial independence. Financial independence doesn’t necessary immediately lead to retirement.

What is financial independence?

Financial independence is a state where you no longer need to earn a salary to meet your living expenses. Your investments provide you with enough capital so that you could, if you chose, meet all of your living expenses. You could quit tomorrow and be able to maintain a lifestyle that you desire.

Achievement of financial independence leads to freedom. While, yes, if you’re not financially independent, you could always go get another job, pick up and move, take your chances elsewhere, or even start your own entrepreneurial venture, you have to balance doing what you want to do with the need to continue to meet your financial obligations. You’re in a position where not earning money is, over the long run, unsustainable, because you’ll have to tap into your principal enough to where you’ll eventually run out of money. When you have financial independence, on the other hand, you get to choose what it is that you want to do with the rest of your life. You could continue to work. You could stop. You could volunteer. You could [FILL IN THE BLANK WITH LEGAL, MORAL, ETHICAL ACTIVITIES HERE]. The world, within the limits of spending within what you can safely withdraw from your accounts, is your oyster.

Why should financial independence be the goal instead of retirement?

The answer is quite simple. Retirement is a subset of financial independence. While you cannot, or, rather, should not retire without achieving financial independence, you are not forced to retire once you’ve reached financial independence. Retiring is just one of many options you could choose to pursue.

When you set a goal of retirement, you’re planning on an end point. Days of sitting around doing nothing, watching the traffic go by as you sip iced tea on your front porch may not be the big motivator that gets you out of bed in the morning.

However, I don’t know anyone who isn’t excited or compelled by the idea of reaching a point in their lives where they have the freedom to choose to do whatever it is that they want to do every day. Imagine how much more enjoyable work would be if you could work in a situation where you didn’t feel pressure to perform every day to keep your job and to keep the concomitant paycheck. You’d be able to go in and work because it’s what you wanted to do and because you felt like you were making a difference. Even if you’re in a job where you feel like that now, if you don’t have financial independence, then, somewhere in the back of your mind, whether you acknowledge it or not (and, trust me, Monkey Brain acknowledges it whether or not you do), you’re going to be thinking about your paycheck.

Does reaching financial independence mean you should work for free?

Absolutely, positively not.

Look at me as an example. I charge an hourly rate for private consulting. I offer a premium training course. Sure, I put out a lot of free content, but I’m running a business with the intent of creating value and getting paid for my work.

Why?

It’s because what I do has value. I have knowledge and experience, skills and wisdom which are valuable to some people, and money is the trade for that value.

Just because you reach financial independence, it doesn’t mean that you suddenly have no value in the marketplace or that your abilities are worthless.

It does mean that you get to choose how much your time, skills, knowledge, and wisdom are worth. When you’re working because you need the salary, you don’t have that type of negotiating leverage. Sure, you can negotiate salary, but you’re not truly dealing from a position of strength. You need money, so you don’t have the ultimate walkaway power.

When you’re financially independent, you possess that power. You can choose to volunteer your time, do pro bono work, to sit around and read books all day, or continue to work or build a business. You do these things because you want to and not because you have to.

Financial independence means personal freedom, and it’s one of the most liberating feelings in the world.

Retirement may or may not create that sense of personal liberty. Financial independence will.

That’s why your goal shouldn’t be retirement. It should be financial independence.

Were you aiming at the wrong target all along? Tell us about it in the comments below!

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This article appeared in the Control Your Cash Carnival of Wealth. Go read them, and build a bridge to somewhere. You’ll understand when you click on the link.

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About Jason Hull

Jason Hull is a Fort Worth financial advisor. Before becoming a Fort Worth financial planner, Jason co-founded, built, and sold a software development company. He is a CFP candidate, has a MBA from the University of Virginia, and a BS from the United States Military Academy at West Point. He is the owner of Fort Worth financial advisor Hull Financial Planning.

Comments

  1. Good post. I agree and I have been aiming at the wrong thing. I use my “regular retirement date” as the finish line – when I know that I could become financially independent before that date, if I had the courage. It is the conflict of getting out sooner vs. getting more that has me frozen in place. I will work towards managing my exit from the workplace more from an independence angle rather than a retirement angle. Thanks

    • Steve–I think most people err on the side of getting more. That’s fine. I’d be miserable if I had to spend my entire retirement recycling soap shavings and making sweaters out of dryer lint because I’d cut it too finely to have any room for error. But, assuming that you’re going to work until they make you stop, Social Security kicks in, etc. is also the wrong approach.

      I’d frame the timeline as reaching the milestone at which options open up – when can you do what you want to do rather than the job that you do now because you need the money? Then, I’d work on shortening that timeline as much as possible. Reaching the date where you can change the wording from “I have to work” to “I want to work” puts you in control and really changes your attitude. Hope that path is quick for you!

      Thanks for commenting!

      • Good post, Jason. I like the idea of targeting when options open up. We’ve done a great job saving thus far, but probably haven’t done enough projecting to see where we are at with respect to a work optional lifestyle.

        • Thanks, Brian. I’d rather be in a position where I’ve saved a bunch and then look at options than in a position where I’ve not saved enough and then start trying to figure out what my limited options are. The projection is the next logical step; it allows you to expand out your thinking beyond the traditional two family income job situation.

  2. Great post, Jason! The “Internet Retirement Police” have been all over this controversy for years.

    After reaching financial independence, I think money reverts to a scorecard for making sure that people value our time & efforts. The distinction to the FI person is whether they feel they need that money to pay their bills, or whether they’d be willing to donate it all to charity.

    I think a claim to FI can quickly lose its credibility when someone takes a “really interesting job” (with a salary) or seems compelled to keep running up the score from “enough” to “stinkin’ rich”. But maybe it’s just an attempt to raise the probability of remaining FI from 95% to 99.9999%. I can’t claim to have the answers to this debate, either.

    • I expect to see these soon:

      0166-6 Old Melbourne Gaol - leg irons, neck collar and handcuffs

      I suspect that the credibility of FI claimants rests on a couple of things:

      1. Did they actually calculate FI properly? Some people may think that they have enough when they really don’t. It saddens me to see this happening with older people whose income-generating years are mostly behind them.
      2. Do they have FI, in that they could quit tomorrow and be just fine, but want either a) a higher expense lifestyle, or b) a little more cushion in terms of room for error? We’re in that situation. Plus, we wouldn’t go anywhere on our adventures until the dog is in the great treat factory in the sky, so continuing to do work that we enjoy isn’t seen as particularly onerous or an enormous opportunity cost.
      3. Have they fallen for the trap of relative deprivation (a topic I’m covering in a forthcoming article)? I’ll leave that cliffhanger for ya.

      If I ever get to the point where money is a scorecard in my life, I hope someone slaps some sense into me.

      • Heh. Financially, it’s good to wake up some morning and realize “Holy cow, I overshot the mark!”

        I’m looking forward to a post on relative deprivation– I probably overshoot that mark too…

  3. Financial independence is my goal too, not retirement. I haven’t reached complete financial independence yet, but I am on the right path. My current goal is to continue that path without making too many sacrifices in the present. So far, it’s going well.

    • I think if people looked at FI as the target rather than retirement, they might be willing to make more of the necessary tradeoffs to get there. For Gen Y (and even X), retirement seems So. Far. Away. Plus, they view it as a terminal point. If you were working towards your perceived freedom, you might view that tradeoff a little differently and be willing to do more, like you are, to get there.

      I also agree that trading off too much now makes your life worse, not better. There are plenty of Mustachians out there, but I am not one of them.

  4. It’s good to read an article about tackling the retirement problem, and view it from a different POV. If I view retirement as living life as if it’s Groundhog Day, there isn’t really any motivation for me, whereas with FI, I know that I’m using my money to buy my freedom.

    The way I’m aiming for my FI is to amass a $500k portfolio, cut my work hours from FT to PT, provide enough for my monthly expense as well as support my parents, without touching my portfolio, and let it ride for 10 to 15 years.

    • Ugh. The idea of retirement as Groundhog Day (unless it was a repeat of one of the happiest days of my life) would be an incredible turnoff. I’d never save!

      Sounds like you have a decent plan going on. The sooner you can reach that target number, the sooner you can let the magic of compounding work for you. I wrote about a similar approach over at PT Money; you might want to check it out.

      Good on you for supporting your parents. I hope they are appreciative and I know that’s quite a sacrifice. My parents did that for my father’s mother for many years, and I know it was a struggle for them.

  5. I would never dream of retiring unless I was financially independent, but there are so many people that do it every day! I just don’t see me being permanently financially independent much earlier than traditional retirement age.

    • You’re right. There are a lot of people who retire anyway, despite all of the warnings about the Boomer generation having to delay retirement. I strongly suspect that they get to a certain age and decide they’ve simply had enough. To adapt, they have to dial back their lifestyles significantly. I can only imagine that their Monkey Brains turn into howler monkeys when they have to undergo hedonic adaptation in the reverse direction.

      It’s possible to make that adjustment – millions of people do it – but why put yourself in a position where you’ll need to do that one day?

      Keep up the side gig; a little side income now can go a long way 30 years from now, although, admittedly, I’d pursue side work using your CPA given the comparative potential return on time invested. Not that you were asking, mind you… I just know how much we pay our CPAs!

  6. I agree that many are probably after financial independence when they say “early retirement”, but some could also see “being able to choose to retire early” as a measure of achieving financial independence.

    You also need to manage your expenses to achieve this goal. If you want to live like a king, you will probably never get there!

    • Hey, Greg – Thanks for commenting!

      I agree with you in that most people who use the term financial independence follow it up immediately with “retire early.” There’s even an oh-so-clever acronym for it: FIRE. I think of it in the way that you’ve described it, as having the choice of what I’m doing because I’m no longer tethered to earning a paycheck, though, to be clear, most of us who are FI are still tethered to earning money. It’s just our assets doing the work instead of us.

      I’m not against lifestyle inflation, but only when it’s done with intentionality. We’ve had lifestyle inflation. Otherwise, we’d still be living in a postage stamp sized apartment eating Chicken Voila! every single night. If people think about the tradeoffs necessary with lifestyle inflation and the likely repercussions, then I’m fine with it. It’s the mindless lifestyle inflation (“Oh! I need that man cave!”) that drives me up a wall.

  7. Oh come on, Jason. Recycling soap shavings can be fun! Lol. I am always astounded though, seriously, at how spoiled we can be. Maybe if we had scrounged at little during non-retirement, we could have saved more.

    As one in the generation just barely before the Boomers, I get a little put out with the lack of ingenuity for both spending and saving. It’s about way more than recycling. It’s about learning how “things,” even soap and sweaters, fit into living a fulfilling life.

    When I spent a week in Italy, I was shocked at how the people suck in life with very little materialism. Now, don’t get me wrong, I am all for capitalism. But we really can enjoy life without having a big budget.

    That said, I never plan to retire. Who would want to live a non- productive life? And the stats on death rates after retirement are startlingly proof that all play and no work make a Jack a bored (and probably boring) boy.

    Second careers–now there’s an idea.

    Thanks for making us think.
    Marjorie
    http://www.lunchwithmarjorie.com

    • Hey, Marjorie–I’m a poster boy for second careers.

      I’ll offer up one counterthought to what you wrote, though it probably aligns with what you think: I rarely find that “things” fit into a fulfilling life. Friends, experiences, people, and nature fit into a fulfilling life for me.

  8. Um, sorry, one more thought. We have had most of our “things” in storage for five years. I imagine most of those things are completely unnecessary. Only occasionally do I say to myself, “Hmm, wonder where the muffin pan is?” or something like that.

  9. “The military guide” is absolutely right; the “Internet Retirement Police” (IRT)have been all over this issue for some time now.

    I’m not sure if you’ve run across that label yet Jason, but basically this is a collective group of people who have been trying to address those who are substituting FI with retirement, and using them interchangeably as if to suggest they’re one in the same. In my opinion, this problem stems primarily around the fact that a claim to be retired is viewed by the general public as a pinnacle of financial success, but a claim to be “FI” is probably not even comprehensible by at least half of the public, so when FI is what is really meant, the word retirement is substituted in there. I understand and sympathize with this dilemma because bloggers want internet traffic, and Forbes wants to sell magazines, but still I’ve lost count of how many articles I’ve read about someone achieving “retirement” and within that same article, there is admission of multiple jobs that said individual does for pay seemingly working even harder than I do in my 40hr/week federal job. In essence, these articles are really about FI individuals, not retired individuals.

    Also, I saw someone pointed out earlier, that there are actually plenty of people that retire, who really aren’t ready to do so because they’re not really FI yet. So this is yet another example of where you can “bona-fide” retire (choose to no long work part or full time for pay), yet be putting yourself in a position of dire straits because you’re not really FI yet.

    So your article is “spot-on” and sorely needed. If we could get to the point that the general public not only understood the difference between the two, but also realized that it is FI, not retirement, that should be their goal and is the more brag-worthy of the two achievements, then there’d be no need for spokesmen in this subject to talk about being retired instead of FI, and there’d be no need for an “IRP” to try to help even leaders in this subject understand the difference.

    We’ll all know we have made it when Money Magazine posts an article on their main page about how a 30-year-old has achieved financial independence, and folks in the comments section, and readers in general, “oohh and ahh” over this grand achievement. And within an article bearing that title, the interviewee would be free to talk about paid work without any fear of condemnation from the IRP, because FI really can do whatever they want, including working at a job.

    So, again, thanks for this article Jason. Hopefully it catches on.

    Bradley

    • Hey, Bradley – thanks for the kind words and thoughtful response!

      I have to admit, I suspect that a lot of the pooh-pahing from the “IRP” comes from jealousy. Occasionally, my U.S. News articles would get cross-published on Yahoo, and the trolls would come out from under the bridge with all sorts of useless, ad hominem attacks. If someone has the time and energy to razz the stories of FI vs retirees, they need to find more productive uses of their time.

      That said, I think the financial planning profession needs to update its general thinking. How many “retirement planners” are there versus “financial independence planners?” I’m the latter. I should do a much better job of articulating that fact. Financial planning should start with helping someone figure out what their goals and values in life are. That has absolutely, positively nothing to do with money. Money is merely the instrument by which you meet some of those goals.

      I like the acronym that the folks at The Early Retirement and Financial Independence Community use: FIRE – Financially Independent, Retire Early. Can’t get the second part without the first one.

      There’s no shame in continuing to work once you reach financial independence. People have myriad reasons for continuing to do so. The shame is when they continue to work just because they think they should or must.