Achieving Financial Independence at Any Age – Forbes

Balloons flying free

Retirement can be defined as achieving financial independence in the third stage of life - typically after age 62 when you can claim Social Security.

Theres also a rapidly growing movement around FIRE (Financial Independence Retirement Early) where people aim to achieve financial independence and gain complete control over their scarcest resource, their time, at a much younger age. There are multiple FIRE communities with tens of thousands of people online who are trying to achieve financial independence in 10-15 years vs a traditional career of 40 years; one of the most active is ChooseFI. Theres even a movie coming out about it in 2019 Playing with FIRE.

Its worth noting that early retirement is still the exception with less than 1% of the population retiring before 50.

Traditional Retirement Still Dominates

What is Financial Independence

JD Roth, one of the original personal finance bloggers, defines it this way: without the need to earn more money. You might choose to work for other reasons such as passion or purpose but you no longer need a job to fund your lifestyle.

Hes even written a handy article on the six stages of financial independence - which is a great way to break down the problem and assess your own progress.

How to Achieve Financial Independence

To answer the question of how to achieve financial independence its worth examining the approach taken by the FIRE community since they have a bigger hurdle than traditional retirees, because they cant yet use Social Security or Medicare and have to fund a longer time period.

So lets look at the method used by FIRE and then we can explore some of the additional levers that traditional retirement people can use.

FIRE Method

The FIRE method basically comes down to a few core ideas - cut your expenses, save > 50% of your income and invest efficiently. Frugality is key for FIRE and youll see why below.

The typical approach to achieving FIRE is:

Traditional Retirement Method

Even though FIRE is hard to achieve and may by very hard for people with children, special needs or who live in HCOL (high cost of living) areas, there are still lessons for folks pursuing traditional retirement.

Traditional retirement provides for some key benefits for older people since they can take advantage of mortality credits - basically the fact that they have a shorter life expectancy means higher benefits in programs and products like Social Security, Medicare, Annuities and home equity products like Reverse Mortgages.

The retirement planning method that we follow at NewRetirement is:

The good news is that the body of knowledge about how to plan and achieve a secure retirement is growing. As more people enter retirement the market is getting more efficient with lower fees and more transparency across the board. A great way to get started is to use a simple retirement calculator to see where you stand and take the first step.