Financial independence vs. retirement

By Janice Roberts
Editor

Discussing the meaning of retirement and financial independenceGoogle “retirement” and you’ll find a staggering 208 million results. Google “financial independence” – a term which would be synonymous with retirement in an ideal world – and you will find about 15 million results, says Daphne Byers, Advice Partner at The Wealth Corporation.

Why the significant difference in popularity between the two terms?

I’m sure everyone’s comfortable with the definition of “retirement” as being the point at which you stop work in all its forms. However, most people have to think hard before they can give you a definition of financial independence.

Wikipedia describes it as a “state of having sufficient personal wealth to live without having to work actively for basic necessities.”  Or, in other words, a financially independent person is someone whose assets generate sufficient income to meet their expenses.

This is a far more modest definition than most people come up with. Many people consider financial independence as being synonymous with being rich first and retired second.

Financial independence is the key to a secure and happy retirement. The good news is that achieving such a state is a lot easier than you’d think.  Rather than lots of money, what is required is a lot of discipline.

Sensible savings and investment habits, along with sensible spending habits over the long term, are all that’s needed. That being said, delayed gratification can be a hard pill to swallow.  This isn’t a new concept, in the 1700’s Benjamin Franklin is was quoted as saying “The way to wealth depends on just two words, industry and frugality.”

What you need is a sound financial plan that takes your current circumstances into account, as well as your long term goals. That way, when you’re forced to choose a “need” later over a “nice” now, you’re better able to do so. You also need a sounding board to help you make life’s big financial decisions and a hand to hold when markets fall, along with your confidence.

A financial advisor will be able to help you to determine your lifestyle goals in the future and construct a financial plan to help you to realise your goals. They should also be there for you when you’re choosing whether or not to buy a holiday home or send your children to private school, for example, so as to help you to make informed and financially sound decisions for your future.

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