Top of Mind


Which Sounds Better: Retirement or Financial Independence?

This week, in my review of content that might be of interest to Top of Mind readers, I stumbled upon a Tweet from Dan Otter of 403(b)wise (actually a retweet from Scott Dauenhauer) that discusses the wonderful-sounding concept of financial independence. After all, who wants to be financially dependent?

Upon further reading, however, I discovered that financial independence is just another term for retirement. Both concepts refer to living without the income of a full-time job. However, it doesn’t take an expert to conclude which term sounds more attractive to plan participants, particularly those who are younger. For many millennials, “retirement” sounds like a far-off concept about which they may not be concerned. But “financial independence” – now that’s something for which everyone, including millennials, would sign up!

And it turns out that there is a whole cottage industry of people who are retire—uh—achieving financial independence, on their own terms. Including those like Mr. Money Mustache, who reached financial independence at the ripe old age of 30! And, better yet, these are not get-rich-quick stories, but those that follow the time-honored principles of achieving a successful retirement – saving early, maximizing earnings, and exercising spending discipline—without the magic bullets that some might think are necessary.

And while not everyone can retire at 30, simple compounding tells us that the average individual in their 20s can accumulate millions in retirement savings if he/she saves $500 per month right now (Mr. Money Mustache, according to his blog, started out saving even less, but increased the amount in future years). The problem is that saving for retirement is the last thing on the minds of most 20-somethings.

What if we changed the messaging to affect positive change? Rather than telling younger participants that they should save for a distant, and perhaps foreign, goal like retirement, we could use a more attractive term such as financial independence. Would success stories like that of Mr. Money Mustache motivate younger employees to save? I don’t know the answer, but I do know that traditional methods are largely ineffective with this demographic, so perhaps it is time to morph retirement into financial independence! 

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Investment products available through Cammack LaRhette Brokerage, Inc.
Investment advisory services available through Cammack LaRhette Advisors, LLC.
Both located at 100 William Street, Suite 215, Wellesley, MA 02481 | p 781-237-2291