Financial Independence, every American’s Dream
This July, we will gather together with friends and family to celebrate America’s Independence Day. Many of us will sit down to eat our all-American hotdogs and watch the local fireworks. The holiday got me thinking of what independence really means. I also started thinking about what it means to be financially independent. I asked various friends and family how they would finish the sentence “Financial Independence is to be…”. The results ranged from being debt free to being able to retire. There also was a difference in the way millennials, gen-y women answered and older women answered.
Millennials and Gen Y embrace the F.I.R.E
The younger millennial and gen-y women that I spoke saw financial independence as being debt free and being able to make enough money to cover ones needs. Perhaps it’s indicative of their young age that retirement was not at the fore front of their mind, yet as we spoke more in depth, it became clear that they were focused on being debt free and living frugally so that they could retire early. This got me to researching millennials and financial independence and the movement called F.I.R.E (Financially Independent Retired Early)
The F.I.R.E Movement was first introduced in the 1992 book Your Money, Your Lifeby Vicky Robins. It picked up momentum with the 2010 book Early Retirement Extreme by Fisker and the 2011 blog by Mr. Money Mustache. The movement encourages extreme savings, well above the standard 10% that most financial advisors and counselors recommend. It assumes that you will stick to a rigid 4% withdrawal maximum. While I always emphasize the importance of maximizing your saving when it’s feasible, this theory left me scratching my head.
First, there is no provision or wiggle room in your savings for the unexpected, illness, divorce, death, or cost of living increases. Secondly, the budget that you have when you’re younger may be very different than the one you need as you age. Next, what about your quality of life as you are saving in this extreme fashion? I am a firm believer in the work/life balance and worry about the toll this can take on someone. Lastly, many times those who practice the FIRE theory are finding that they must be willing to, at times, work part time or seasonally in order to maintain themselves.
Retire like a Golden Girl
On other side of the spectrum were the women 45 and older who expressed that financial independence for them was a more conventional retirement. It was having enough money to be able to enjoy their later years without worrying about the unexpected. They were planning on retiring at 65 years or older and enjoying their sunset years. Many wanted to have enough income from retirement and investment accounts to not only live but travel as well. They were open to downsizing their lifestyle if needed to enjoy fruits of their labor. The plan to retire at a more conventional age afforded them not just more time to save but also social security benefits and Medicare.
Regardless of the age, the one common thread was being able to support one’s lifestyle without being tied to job. Both sets of women wanted to have saved enough money to do this. What has changed is the concept of retirement. Advancements in health care and the general trend to living more active, fuller lives has led to retirees living not just longer than ever but more active lifestyles in their later years. In the end, Financial Independence across the board meant saving some of your income today so you could live your dreams tomorrow.