Earning 480 pay cheques from school leaving to retirement is being re-engineered by many of the current workforce who are not waiting for the magical age of 65 to down their tools and head to the country.
Increased longevity, the rise of the experience economy and a change in the perspective of what retirement actually is, has resulted in a global rethink of the age 65 and what retirement is really all about.
The traditional linear road to a well-funded retirement that follows the predictable trajectory of school, university, job, marriage, children, travel and then retirement; interspersed with climbing ladders, moving jobs, buying bigger homes and better cars is on the table for a redesign.
According to Crue Invest Director, Craig Torr, the concept of retirement has always been synonymous with financial freedom, and traditionally there are about forty years to achieve this status.
“Retirement is really about financial freedom and people are living that reality in their 40’s, 50’s and 60’s now because of their relationship with money in earlier years,” said Torr.
Re-imagining retirement begins with unpacking exactly what is means to retire. The point at which a person is able to financially ‘retire’ marks the point at which they have accumulated sufficient assets to generate enough income for the remainder of life.
“Our challenge in the re-imagining process is to embrace the idea that we are not restricted to a forty-year period in which to achieve financial freedom. If we are prepared to devote our time, money and energy towards this end-goal, the timeline is ours to determine, plus what retirement actually looks like in comparison to the traditional view, is up to us.”
Replacing the term ‘retirement’ with ‘financial freedom’ is empowering and removes age-based limitations and reinforces the personal desire to save towards absolute financial freedom, whenever that may be. While the term ‘retirement’ denotes being in the last stage of life, ‘financial freedom’ is a timeless phrase achievable by absolutely anyone with the right mindset and a financial plan to support it.
“Saving towards absolute financial freedom is a much more appealing objective than ‘saving for retirement’.
This rephrasing is less about semantics and more about framing a mindset from the get-go that we are not working so that we can reach age 65 and ask ‘What am I going to do for the rest of my life?’ We are working towards reaching a point in our lives where we can say, ‘I can do whatever I like for the rest of my life’. You might not know now, or even at the point of reaching financial freedom, what it is you plan to do with the rest of your life, but you have bought yourself freedom to spend your time as you choose, and that is priceless.
Torr reiterated that working towards financial freedom at an earlier age has a significant impact on the way we make every-day financial decisions.
“On the journey to financial freedom, we will be challenged to find a balance that allows us fulfillment in the present, while simultaneously staying focused on the end-goal. Your vision of financial freedom, which you need to define in your own financial terms, needs to be clear enough to hold up as a lense for all financial decisions. Every vehicle upgrade, every overseas trip, every capital outlay delays your goal and extends the period during which your choices are limited and time is not fully your own.“
There are some key milestones on the way to financial freedom: providing you with greater autonomy and freedom of choice.
Traditionally, retirement means stopping work for pay, whether in the form of formal retirement, early retirement or semi-retirement. On the other hand, financial freedom means working for passion and purpose alone.
Retirement is generally defined as sufficient personal wealth to cover living expenses without accessing assets, but all-encompassing financial freedom means different things to different people.
‘How much is enough’ is a thoroughly personal question. Every person has their own measure of what constitutes peace-of-mind and personal freedom, and the extent of the legacy they wish to leave behind.
Here are six of Torr’s key milestones on the path towards financial freedom:
Unless you’re a trust fund baby, everyone starts off life being financially dependent on a parent or guardian. Until you reach a point where you earn more than you spend, you are financially bound to someone else. Your first pay cheque marks the first step, and this is the best time to draft a financial plan and start saving.
In the black
With earnings exceeding your expenditure, you are considered to be ‘in the black’ and can meet all your financial obligations. You are able to service your good debt (vehicle and home) and cover your basic living expenses without incurring further debt. Your standard of living can easily be compromised by interest rate increases and inflationary hikes, and your finances are carefully managed.
Although this stage may include some secured debt, a portion of your net monthly income is now channelled towards saving for the future. At this stage, short-term and high-interest debt has been eliminated and an emergency account set up to protect against unforeseeable expenses. All debt should be secured, low interest debt on appreciating assets such as property. Consumer debt should be a thing of the past, and surplus income should be channelled towards wealth-building. At this stage, you would have created effective financial buffers through emergency funding, an access bond and regular debit-order investing, although your financial decisions may still be reactionary.
At this point, you have settled all debt including home and vehicle debt which marks the end of the survival period and the beginning of hard-won prosperity. All income is directed towards wealth-building and you have the freedom to take more proactive financial decisions that are specific to your personal goals and dreams. You might still need to generate an income to cover living expenses, although these would be dramatically reduced as you are no longer servicing debt. You might also enjoy added work flexibility, giving you new levels of autonomy and choice.
Once you have amassed sufficient wealth, you will reach a point where your lifestyle expenses can be covered by your passive income. Freedom of choice and autonomy over your time are hallmarks, and you are now free to work (or to not work) for pleasure, passion and purpose. Your living expenses are no longer regulated by your pay cheque, and there is freedom in your budget for travel, luxury and impulsivity. Your finances can support your philanthropic and charitable goals too. Regular reviews of your investment portfolio are essential and the skill of a qualified financial planner is required to ensure that the cashflow from your investments is optimally constructed and that your investments are tax-efficient.
Your passive income is sufficient to support your chosen lifestyle and you have a sizeable financial legacy to bequeath. With this level of net worth, you can risk and indulge in whatever interests you desire, knowing that even a failed business venture will not erode your underlying wealth or the legacy you wish to leave behind. This age of abundance is void of financial worry and allows you to be the master of your most precious asset: time.
Issued by Crue Invest