Our definition of “financial independence” is fairly simple: that you can basically do what you want and not worry about the money!
For example, if a family is able to live on $3500 per month income in today’s dollars, pay the bills and taxes, and do the things they want, whether it’s vacations, golf, hobbies, then we would define them as being financially independent.
There are lots of issues that can jeopardize your financial independence. For example, if you are living on an income that meets your needs now, and you just retired, you may not have the same situation in 5 or 10 years because of inflation and an assumed increase in taxes. You also have the ever increasing concern over where your retirement savings are positioned. Are they safe? Could you suffer losses that would derail the best laid plan? If your savings are not guaranteed, the future income can’t be guaranteed.
Let’s talk about the concept of financial independence for a moment. Being financially independent means something different to different people. Many would say the family I mentioned earlier, that lives comfortably on $3500 a month, because they can do what they want, are financially independent. However someone with a more lavish lifestyle would feel they are living like paupers on only $3500 a month and to someone who only receives $1000 in monthly income this person would appear extremely rich.
From our perspective, and years of working with retirees and pre-retirees, we find the single biggest problem and cause of people not achieving their financial dream is… lack of planning!
Part of the problem stems from the educational system we have. We are taught a lot of irrelevant subjects, such as foreign languages and trigonometry. There is value to learning such things for some students but I would believe very few ever continue to use their newly acquired language, or trigonometry, in everyday life. How many students though are taught how to deal with personal financial issues? Most financial issues are self taught, we’ve had to learn them on our own. Whether you are a blue collar worker or a top executive or anything in between, we are not taught how to take care of ourselves financially.
We are not taught how to plan for our families or our futures. We don’t know what we need to do to make our dreams a reality. We are not taught how to deal with the financial reality of paying a mortgage, bills, taxes, cash flows, budgeting, insurance, long term care, and health care costs, let alone the fluctuating markets. No one teaches this in our school system, at any level! The bottom line is you’ve got to plan your own financial situation carefully, and with as much attention to detail as you would a family vacation.
Are you taking stock of where you are today? Are your goals clearly spelled out? Are you developing strategies and options to achieve those goals? Are you constantly monitoring and updating your progress? Are you accounting for the changing tax laws and wildly fluctuating markets? Are you taking advantage of products that are guaranteed not to lose value? Are you working on this with the same energy and fervor you would planning the perfect family vacation?
Most people don’t plan like this and that is why most people don’t achieve financial independence. The most important thing to understand is that YOU are responsible for your financial future. If you are retired, or soon to be retired, it doesn’t matter… the best time is RIGHT NOW!
William Peiffer is the President of W.R.Peiffer & Associates and is an IRA distribution planning expert. He helps people properly structure their nest egg so they can set up a multigenerational IRA and leave a loving legacy for their heirs. More information can be found at http://www.wrpeiffer.com or at his blog, http://williampeiffer.com