I play with electronics all day long, but I don’t believe in binary numbers. Nor black and white, for that matter. Rather, I believe the real-world is much more complex than that and filled with a million shades of gray.
Financial Independence vs. Retirement
The purpose of this blog has always been to track one’s journey to early financial independence. By intention, I’ve always made sure to refer to the final destination as financial independence and NOT retirement!
There is a big difference between the two… Retirement implies never working again (either in a particular field/career, or just PERIOD); financial independence, in contrast, just means never having to work again.
And all along my journey has been about meeting a very elementary criteria:
Passive Income > Living Expenses
Quite simply, by fulfilling that requirement, I would be financially independent.
So, you could argue that I’m already financially independent today. Even on a bad month, with a vacancy and repair items, my cash flow exceeds my monthly living expenses (less than $2,000).
Even though I’m still employed and working the 9-5, I get to bank my entire paycheck (net income) each and every month. But of course real-life is much more convoluted than the above equation… Otherwise, I would have already checked out of the office and hopped aboard a plane with a one-way ticket to a tropical island somewhere in SE Asia…
What it comes down to is risk management… In theory (and definition), if you earn $30,000/year in passive income and spend $29,999.99/year on living expenses, you are financially independent! But just as it is in my own case, I’m sure you wouldn’t feel very secure with that type of situation. And thus, you would feel the need to keep playing in the sandbox, for slightly longer, to try and lower your risks by accumulating more capital.
Which brings me to an interesting term that’s been floating around on the internet as of late… the concept of pretirement.
I didn’t coin the term, but from my understanding, pretirement is sort of a hybrid approach of both financial independence and retirement. As an example, you reach a stage in life where you aren’t yet ready to quit working completely, but you also have a sufficiently strong base of assets where you shouldn’t have to put in the full 40+ hours/week that a wage slave has to.
Pretirement is a way to compromise and bridge that gap to full financial independence. Sort of like tapering… It let’s you enjoy more free time today (and less stress), but you still put in some degree of work (e.g. part-time job) to generate income.
Logically, the whole concept of pretirement makes perfect sense to me! In my own situation, when I talk about pulling the plug on my own corporate career for good, sometime in 2015 or 2016, skeptics will point out as to why my plan won’t work and why I will be doomed to fail. In their minds, by calling it quits prematurely, I would be skating on thin ice and taking on too much risk. The advice given, then, is for me to keep grinding away at my not so pleasurable job for several more years, until a sufficient buffer is built…
And when I hear that, it’s like hearing fingernails raking across a chalkboard. Very dissonant and altogether too binary a way of thinking. It’s the all or nothing approach… which is not the way things ought to be.
Pretirement provides the perfect compromise. I was very hard-working and dutiful during my 20’s, which helped me amass a decent-sized nest egg today. As the assets compound and grow, my net worth/cash flow will only increase over time. In other words, the trees have already been planted… now I just need to wait patiently for the fruit to fully emerge.
But, if all the labor and hard-work was already put in… why should I have to subject myself to the same degree of torture as when I owned an empty plot of land? Why keep toiling away in the hot sun, working myself to the ground each and every day, when more trees are no longer necessary?
At this point, I just need routine maintenance. It makes more sense, then, to go with a tapering plan to wind down the work… Yes, some work is still necessary, but definitely not to the same extent as before!
And as we all know, real wealth is measured by a person’s abundance of time, not by the size of their bank account!
Yes, we all have our fears and doubts… As adults, probably even more so than necessary (but I’ll save that topic for another post). But like most things in life, there’s usually a happy medium somewhere in-between…
Let’s see… I can work 3 more years as a corporate drone, putting in 40+ hours each and every week…
I can work 1 more year as a corporate drone, and then attempt freelance writing (as an example) part-time for 10+ years as I wait for the fruit to become overwhelmingly abundant to feed my needs.
Life is all about balance! And at some point, I think we will all agree that:
Time >>>> Money
Let’s not also forget:
Health >>>>>>>>>>> Money
Money is becoming exceedingly less and less important to me with each passing day…
What do you think? What are your thoughts on pretirement?