Here at KHC Wealth Management, we don’t really like the word “retirement.” Instead, we encourage people to think about their “financial independence” date. This is when you have built enough financial resources to support your lifestyle and achieve your goals once you are done working. So as the United States gets ready to celebrate its Independence Day, now may be a good time to consider yours.
Do you know when you can achieve financial independence? If not, and you are in your 40s or older, you may want to work with a financial planner and create a plan to determine your date. This date unique to each individual because it’s based on how much you spend now, expected income growth from your career, how much you expect to spend once you leave your primary career, what goals you want to achieve, how much you have saved and are saving, and your likely life expectancy – or expectancies if you are a couple.
There are many formulas out there that calculate when you can leave your primary career – the traditional form of “retirement.” I believe you should beware of these general, high-level calculations. This is your to entire future and leaving your career is a critical decision. There are numerous variables when it comes to financial independence, and the good news is that we can control or influence most of them.
I have a good sense of my financial independence date because my financial planners complete an annual financial plan for me. My date has changed due to life circumstances and a career change I made. My financial plan allowed me to make these decisions with knowledge that I may have to work a little longer to hit that date, but the work I am doing is more meaningful to me. I know how much I need to earn from my career, how much I need to save in order to “fund” my lifestyle now and in the future. This plan helps me stay on track to achieve my goals and gives me the information I need to make trade-off decisions – do I really need to renovate my kitchen again or would I rather save and invest that money to help hit my financial independence date? When I do hit financial independence, I would like to travel more and get away for a month each year during the cold Kansas City winters.
I don’t expect to fully “retire” from my career. I will celebrate my financial independence day, though it’s doubtful it will include fireworks. I encourage you to work with a CFP® professional to develop a long term plan so you can determine your “Financial Independence” day and make sound decisions going forward. Happy 4th!