Exploring the Differences Between Financial Independence and Retirement

Welcome to the Childfree Wealth Podcast, hosted by Bri Conn and Dr. Jay Zigmont, CFP®. This month, we'll be discussing retirement in the United States as it pertains to childfree individuals. We'll explore how the traditional retirement plan that we are taught from a young age doesn't fit childfree individuals and why retirement is a choice for us.

As childfree individuals, instead of following the Standard Life Plan, we have the option to choose a different path. Instead of pursuing retirement we can pursue FILE or Financial Independence Live Early as an alternative. We'll delve into what FI or Financial Independence means and how it can be achieved prior to the typical retirement age of 65.

Join us this month as we dive into the topic of retirement for childfree individuals and discover how you can achieve Financial Independence Live Early. Tune in to the Childfree Wealth Podcast, where we empower childfree individuals to live a wealthy and fulfilling life.

Resources mentioned:

• Am I spending too much or saving too much? https://childfreewealth.com/blog/spending-saving-too-much
• Childfree Retirement https://childfreewealth.com/blog/childfree-retirement
• Choosing the FILE Lifestyle https://childfreewealth.com/blog/file-lifestyle

The Childfree Wealth Podcast, hosted by Bri Conn and Dr. Jay Zigmont, CFP®, is a financial and lifestyle podcast that explores the unique perspectives and concerns of childfree individuals and couples.

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Disclaimer: This podcast is for educational & entertainment purposes. Please consult your advisor before implementing any ideas heard on this podcast.

Transcript

Bri

Hey, Dr. Jay. So last week you talked about the Standard Life plan with Katie. How is that different for people who are childfree and not really sure if they want to retire or what path they want to go down in life? It really had me thinking a lot more about what I want in the future. So can you tell us more about what you’ve learned from clients?

Dr. Jay

So in the financial planning literature there are you have essentially have two boxes: you're either pre-retirees or retiree. That's it. There's nothing in between. Like, there's like, okay, I did my 20 years. I got the watch, I retired. But I don't know if that's true anymore. So do you think, like if you put in X amount of years, you're going to retire?

Bri

I do, actually. I do. I don't want to be working, you know, like full time my entire life. But I also do eventually want to stop working.

Dr. Jay

So you’re going to do what we call a phased retirement. You’re going to cut from full time to part time and then maybe not work?

Bri

Yes, that sounds more like what I am hoping for.

Dr. Jay

So as I dove in with clients, I find that people ask me, “Well, when can I retire?” My first question is, “Well, do you want to retire?” They go, “What do you mean? Like, do I want to?” I go, “Well, what would you do?” And they go, “Well, what I'd love to do is stop doing what I'm doing and do something else.”

Well that’s an encore career is the other word for it. But like, I want a change of pace. That is not a retirement. That is, I want to quit my job I'm at. And people go, well, when can I do that? Well, that's a different question than when can I retire? You know, I'm working through this concept. We've got pre-retirees, retirees. There may be a third bucket of non retirees, people that really don't care about retirement or it's not a goal, you know.

We’ll, cover a little later concept called FILE, financial independence live early. But it's like challenging this idea that you have to retire and like sit on the couch and watch TV. Yeah, that that's just the classic. You know, I was talking with some of this morning about their retirement and they're actually going to retire. And I was like, and then they're like, okay, I'm going to go do my like to do list on the honeydew list of all a bunch of things they had to do in the house.

I’m like, “Cool. Then what?” He goes, “Then I'll go back to work.” Then you're not retiring, you're shifting jobs, you're shifting to something else. And the key with retirement is to know not necessarily what you're retiring from. Yeah, we all know what we want to stop doing, but what are you retiring to? And one of my colleagues, Cody Garett at Measure Twice Planners, calls it..

He takes a spin and he says, when you’re talking about retiring early, it's RE. He says, “No. How about we move instead to recreational employment.” I’m like oh, I like that. You know, I'll do something I enjoy. Like open that cupcake shop or something. I don't know. And how does that shift? I think the challenge is if you really don't want to retire and do nothing, that's going to shift your financial plan.

So if you retired, stop didn't do work at all, what would you do with your time?

Bri

I would probably travel a lot more and go hiking. Granted, my body is in good enough health, although I really hope I am. I'm working hard to make sure I have good health throughout my life so I can continue doing that and I would love to volunteer more. I used to volunteer quite frequently and I don’t do as much of that now, so I really want to do more of that and just spending time with family and friends.

Dr. Jay

Okay. So if we embraced the die with zero approach and so those are listening. You probably heard me talk about the die with zero approach before. The concept is that you have a combination between time, money and health. Right now you got more health than you’ve got time and money. When you retire, you might have less health, but you have more time and money where if we get rid of the retirement concept and said, okay, what happens if instead you like turn down work, you know, like maybe working 30 hours a week instead of 40 or whatever it is where you could do more travel now and spend more time with family now. Would that make you happier?

Bri

Absolutely. I am actually a very big proponent of a 30 hour work week. The 40 hours just doesn't feel like you can adequately do all the like household things you need to do, but also spend time with people around you. So I actually already embrace a 30 hour work week and really enjoy it.

Dr. Jay

Great. So if you're working the 30 hour work week, that's actually going to make it harder to retire because you're making less money. Are you okay with that?

Bri

Yes, because it allows me to do the other things I want in life. And I'm not somebody who really enjoys spending money to begin with. So I don't need a ton to live on.

Dr. Jay

So here's the interesting debate we started with, “Do you want to retire?” And you said, Yeah, I want to retire, but what I really want to spend time traveling and enjoying and spend time with family. Cool. We said, all right, we can do that, but it slows down retirement. You said, that's okay, too. So retirement itself doesn't sound like a strong goal it’s more of I want to have the time to be able to do what I want to do when I can do it.

Bri

Yeah, I want the option to retire. My wife and I talked about this last week quite in depth, but we both agree we want the option to retire, but that doesn't necessarily mean that we'll take it. We are both people who like to have things to do, keep busy, and whether or not we switch more into that recreational employment like you're talking about or not, that is just important for us to have that ability to do it.

Dr. Jay

That's fair. And where I'm going with this is retirement itself as a goal is an option, not a requirement. Just like we talked about, buying a house is an option, not a requirement. And when you live in the childfree life, you can do different things. And Katy and I dove deep into this life plan. Retirement is the goal of that life plan.

Like you retire and you pass your money on to the next generation. You don't have to do either of those. And that shifts everybody's financial thoughts. And I work with clients on this. You know, I start out, what would you do in retirement? It's very rare that I hear people go, I'm literally going to sit on the couch and watch TV.

Okay. And by the way, the research says if you sit on the couch, watch TV, you lose about 1% of your brain matter every year. And I don't know about you, but I don't have 1% of my brain matter to lose every year. So you got to be doing something. Well, maybe we can tune the finances to be able to do something now.

And that's where this concept of FILE comes in. Financial Independence, Live Early. We're going to do a separate episode on comparing FILE against FIRE, find somebody to retire early. But in the financial world, it's about that dimmer switch for work, about doing the right amount of work at the right pace, for the right job, for the right purpose, for the right finances to find that balance.

And that's a different goal that if you're saying, “Hey, I want to save for X amount and retire as soon as possible.” You know, I’ll go, “Well, when do you want to retire?” They say 65. Why? 65 or because that's Social Security age. That has nothing to do with whether you'll be ready to retire or not. And by the way, let's be real real if you are Gen Y or Gen Z, the chance of Social Security being around, they're not as good.

I'm Gen X and I'm not even sure we're going to have it, you know. So that age is not the thing. When you're ready to retire is when you have enough money to pay your bills that you can live off it. So what I heard is you said, hey, you and your wife want to get to a point where you have enough money that retirement is an option or not, which, by the way, is what you're actually looking for is financial independence.

Bri

Yep. That is we are very, very strong on reaching financial independence. That's one of our things we are aggressively working towards right now.

Dr. Jay

So a goal of financial independence is different than a goal of retirement, you know, so that the old school way of saying financial independence, is we call it “F You” money where you have money that you can tell your boss what to do with the job. Like I'm out, gone. That still works. That's is still the same concept. But I don't have to like… I can pick and choose.

So if your goal is financial independence, you can get to that a lot earlier than 65. You don’t have to wait to retire.

Bri

Yeah, absolutely. I follow some different people who have retired early and I think that's great for them personally. Not the option for me. I'm not looking to retire when I'm 40 because I think I would just be rather bored. But I do want that financial independence and ability to do what I want.

Dr. Jay

Yeah. So one of the ones that comes out of the FIRE land and by the way, if you want to go down an interesting path, there are all different versions of FIRE and we can go into that separately, but different ways of doing FIRE. The bottom line, a lot of the math they use is based on the safe withdrawal rate.

The safe withdrawal rate says over a 30 year timeframe you can take out about 4% out of your net worth every year and not run out of money. Now, by the way, there's an assumption there. It says not run out of money, which if you're doing die with zero, that safe withdrawal rate may not fit you. There's also some debates out there about is 4% the right number, three and a half or four and a half or whatever.

But let's just go with the 4%. There's enough data behind there to play with it. Well, the 4% rule, if you invert it, says if you have 25 times your annual expenses, you are financially independent or working to retire. So if you're spending 40 grand a year on expenses, that means like what you're actually spending money on. Not like, you know, I’ve got a $40,000 income that's different because you're income and taxes but you're spending $40,000 a year.

That means you're about $1,000,000 to retire. 40,000 times 25 and at that point, you can retire or you be financially independent or do whatever you want. That's the magic number. And I hate these “magic numbers,” but people like if I hit this number, I can do this. Here's what I find. Let's say Bri hits $1,000,000 because that's her number.

I'm making it up. That's not a real number, but I'm just going to put Bri in this thing. Bri hits that million dollars at 42. What do you think, Bri? Would you quit work or would you keep working?

Bri

I think I would keep working. I asked my wife the other day, I was like, “What what year do you think you want to be done?” And she's like, “46.” I was like, “What? 46? I was thinking 50 maybe like, I don't know, about 46.” So 42 I'm pretty sure I would keep working for a while.

Dr. Jay

So I'm playing with numbers because I see these people, let's call them their forties, hit their FI number, $18 million, they can retire. And I'm like, Cool, now what? And they're like, I'm going to keep working, just like Bri just said. And I'm like, Okay, so now you are earning money to give to an estate that you don't care about.

Bri

I don't know. I, I struggle with the die with zero. I know it. I'm learning more about it. But I, I'm still I just like the security of having money. Like if I die and there's some left. Well, we already have plans of where it's going to and so...

Dr. Jay

Well, and I hear this one, you know, I don't want to run out of money, so I need to keep working. And I'm like, I'll do the math. And we, we put it through software. We'll do 1000 simulations, and I'll show them they're not going to run out of money. And they're going, “Yeah, but $1,000,000, is not a lot of money right now.”

And I'm like, “Okay, so if you had 2 million will you stop working?” “Yes.” Then they hit 2 million. And guess what happens? They move the goal posts.

Bri

Yeah, I think I think that's going to be me as much as I don't want to say that I think it will be because I know that I really struggle with… I never feel secure even though I am and I'm okay. I just don't ever feel like that. And I'm working really hard to get to that. And I don't know that even when I hit that FI number, I'm not sure that I'll feel secure.

Dr. Jay

So this is where people, you know, we start off with a discussion about retirement. They go, “Well, I don't know if I can retire because I don't have enough money.” And I'm like, “You do.” And I've had this moment with clients and I feel bad for him, but I'm like, “Listen, you hired me as a certified financial planner to go over these numbers with you. I've got a PhD, MBA and a CFP®, and I'm telling you, you're okay.” And they're going, “Yeah, but what if I'm like, What if aliens come?” Okay, what if who knows? Who cares? Nothing we can do. If you're asking the question of when am I going to feel secure about my money, it has nothing to do with the dollar signs.

It has to do with your money behaviors and your own money beliefs.

Bri

Yeah. And I have worked really, really hard on it, but it's it's still a struggle for me to feel secure, even though, like, I know that I'm okay. I've looked at numbers, my habits are good, all of that. I just… I still have that inner struggle about it.

Dr. Jay

We all do. Like, seriously, so do I. And I know. I know the math of it, the math of it, and the emotions of it are two different things. If you ask, When can I retire? It's a math question, but then their emotions are what gets in the way. We've actually got an article, I'll link to it in the show notes about are you saving too much or spending too much?

And it's about this keep moving the goalposts and saying, Well, that's part of that standard life plan. You need to like just keep earning more money, give it away. And when I've worked with clients, so I meet with clients monthly and I'll take about three or four months and I'll get all their finances in a row and have a whole plan laid out.

And I'll be like, “You're okay financially.” Then what they'll do is they'll spend the next two or three meetings with me questioning the plan. “What about this? What if Social Security doesn't happen? And what if I need long term care? What if I need this? And what about…” We go through all all the what ifs. And some people, it takes more than two or three meetings.

It might take a four or five or six, but we go through what ifs. Then they finally feel comfortable with it. The bigger challenge then is then what? So, okay, I've got the money. I can retire now. What? And I’ve actually been tracking. I spend more time talking to my clients about spending money than saving money. And we get get into, we call it the deaccumulation phase of the now we're spending our money and they're like, but, but, but, but I'm like, Hey, we went through all the math.

You feel comfortable, do what you want. They're like, “Well, can I take that extra vacation?” Yeah. Like I've actually had the discussion. I call the blueberry problem where they're buying the frozen blueberries because they're cheaper than the fresh blueberries. I'm like, by the fresh blueberries.

Bri

I do that same thing. My wife the other day was like, “How much did the sausage cost? Like, could you buy the name brand?” I was like, “It was a dollar more. But, you know, I could.”

Dr. Jay

Like now by the way, when you're in the rent and ramen phase, you're barely making ends meet. Okay, fine, get the frozen blueberries. But at some point, you need to enjoy your money and actually go on. And if you say, “Hey, I wanna retire.” Cool. Great. My, my idea. Retirement. So my wife and I embrace the gardener and the rose. She's the rose right now.

She's growing in her career. My turn as the rose, we’re going to get on a boat and travel the world. Now, by the way, buying a boat is a terrible financial decision. It just is. You know boat stands for bring out another thousand. It’s a hole in the water you just throw money into. Fine. I'm not doing it for the financial purposes I'm doing because I enjoy it.

And the hard part there is shifting your mindset. And I've got a plan and I've got, you know, by the time I hit 59, I'd like to do that. But then the other part of it is, you know, so I, I did, I bought a boat recently and I was on it this weekend and not as nice as the one I want to buy.

But yeah, it’s just a starter boat. And I went up on Friday and by Sunday morning I'm like, Alright, I'm ready to go home and get back to work. I'm like, How am I on the boat going? I should get back to work. You know, this is the psychosis in our own brains. You know, I run, I'm the founder of Childfree Wealth. I'm the owner, I run the company. The way I say it is I work for a crazy man. Me. Like that crazy man was like Sunday night you better get back to work. I don't know if I'm going to be able to completely retire and quit and stop. I'd like to, but it's not a financial thing. It's a mental thing.

It's balancing. I don't know. I mean, my my challenge to people is, do you really want retirement to be your goal? What I'm hearing from you Bri is you want safety and security around money to be your goal.

Bri

Yeah, absolutely. I need… I know the numbers are good and I know that we're going to be okay, but I just still struggle to feel like that. And that is what I need more than anything, is just to always feel like I'm okay.

Dr. Jay

Do you have a magic number in your head?

Bri

Oh, I told my wife that we can both buy the cars we want when we have a combined $10 million net worth.

Dr. Jay

Cool. 10 million. All right. And by the way, my wife and I had this had the debate. We can retire at 5 million and at 10 million we call what's called Fat FIRE. You know, where you can have your own private chef. I'm like, both of those are ridiculous numbers. You don't need that much to retire.

Bri

Yeah, I know. I've seen I've seen numbers before, and I'm like, “Oh, my god, we could buy the cars before then.” But it's still just like, I don't know, it's still stuck in my head.

Dr. Jay

Let's use the $10 million number because people make up these numbers for retirement. You and I have similar numbers. By the way we have completely different lifestyles & we’re in different generations and different like, I mean, we shouldn't have the same number. Let's just… the math doesn't work. But at 10 million, you can you can have $400,000 a year in expenses and not run out of money.

Bri

Oh, if you met my wife… well you have met her. But if the listeners had met my wife you would understand how we could get there. She's an airline pilot, and she's already looking for her plane and the other day I was talking to somebody… but I'm like, the one I want is a $75 million jet, which is quite wild.

But the one she wants, I thought was $700,000. Turns out it's $1.5 million.

Dr. Jay

So you got a jet? I got a boat. It doesn't matter that we all have to have dreams. I mean, the reality check as we all we all might be just driving a Toyota Corolla and just call that a day. But, you know, like, yeah, you know, people talk about these magic numbers. If you want to retire earlier, lower your expenses or have more money.

But if you want safety as security around money, it's not about retirement age or a certain number.

Bri

Yeah.

Dr. Jay

That's the hard part. Is that mental work that needs to be done to balance. And we're going to do a separate episode specifically on achieving financial independence. But where I'm going with this is you need to figure out what your goal is first before you figure out what's my financial plan. If your goal is retirement, cool, follow the fire path. There’s a whole bunch of tools on how to retire early and work through that. And we can go to extremes. I mean, there fire folks that are like making their own soap and living on rice and beans and ramen noodles just to retire as fast as possible. And I'm not judging. I'm just saying that's one way. Now there are other people, we’ll call them coast FIRE.

Well, we'll dive into that but you can find that balance. What I find is that one of the hard parts of the FIRE community is what happens once the dog catches the car, what happens when you hit that retirement and then what? Yeah, and it's always an entertaining reading stories about people that have retired early two years later.

Two years is magic. Like you have like a year of, like, fun stuff to do when you retire. Then the second year, your list kind of is like mostly done. And then you're like, huh, I have 30 more years left. What do I want to do with my time? By the way I'm not judging what you should do. Whether it’s go to work or volunteer or, you know, work on a garden or fish.

I don't care whatever you want to do. But if you don't have something to retire to that second year, you're like, “This is boring as heck. And I need to figure out what to do with most of my life and what to do with my money.”

Bri

Yeah, there's one couple I follow on Instagram and they retired a couple of years ago and she actually became a notary and she just notarizes things for free for people because she thought it would be fun and that was her like retirement dream. So she is a notary and then she also goes and volunteers a ton.

Dr. Jay

Yep. I think where I'm going with this is retirement is a choice, not a requirement that and that's a societal thing that we do not have like the category of a non retiree doesn't exist. I mentioned the term a phased retirement. People like “Oh, I'm going in and out of retirement or cutting back or whatever.” Some of that's growing.

But it's also okay to just say, hey. I was talking to somebody the other day who's a therapist and she's like, “Look, I'll cut my my client base down so that I'm doing like one day a week. But I also work with clients.” That's beautiful. Now, here's the thing that completely changes the financial plan. It's a different math of if we're going to spend the 30 years in retirement not making any money or we're going to keep working as long as we can, those are two different paths, and it will change your choices throughout life.

You know, and my challenge to all of you is first thing is if you say, hey, I want to retire, cool. My first question is, why? And don't be surprised when the answer is because that's what you're supposed to do. But once you get past that, my question, “Okay, what are you going to do? What are you retiring to? If you can't answer that, then really what you're saying is, I want to get out of the job I'm in now, which then I'm like, “Well, then don't wait to retire, make the changes now.”

And it's a mental hurdle to do that. If you do decide, Hey, you want to retirement, you've got to get your arms around the finances enough to know when enough is enough. In the US, 25ish times your expenses gets you there. Well, I can't retire early because then I got to pay for health care. So you pay for health care it’s really not that bad.

You can still make it happen.

Bri

You know I hear all that all the time.

Dr. Jay

What's that?

Bri

I that's what I hear all the time, especially as I have, like, my parents and other people around me. They're like, Oh, no, we’ve got to stay for health care til I’m 65. I’m like, “You can buy that.”

Dr. Jay

Yep. And if it's a couple, you know, the math I use is… rough math because it depends on state. Call it 25 grand expenses for health care, which is not cheap. I'm not saying it is, but really, if you're working for 25 grand, that may not be the reason to do that. I here recently…

Somebody had my favorite example. Now they said I work for I, I work for beer, bowling and benefits. Like that is an awesome thought. Now is that what you want to be doing? That's your choice. But you know, yeah, you're going to work just to pay for your hobbies and all that, great if you want to do that. If you don't, you can take other things.

Bri

That's a very good point.