This week brings us U.S. Independence Day. It’s a reminder of several conversations I’ve had with clients and friends lately. In each case it was mostly the same conversation with different details: What will retirement look like? How will they know when they are able to make the move?
We do not typically talk about retirement in the traditional sense of a party with an engraved watch and a life spent on the golf course after that. Today, it’s more likely we are talking about Financial Independence Day.
Financial Independence Day means you have put your family in a position where you do not need to work for money. For example:
- You have reduced your expenses to a point where you can pay your monthly bills without having to work full time.
- You have saved enough money that you know you can spend money from savings every month to cover your bills and still be confident that the savings will last longer than you do.
- You have identified a new job or business that is more fun than work. You plan to enjoy doing what you love and the new enterprise will create enough income to cover your bills.
Probably you will combine two or three of these into a new “retirement lifestyle” plan. A successful financial plan will help you clarify the opportunities in your situation and prioritize your goals to be sure you focus on the most important things first.
Here are nine steps to take to achieve financial independence :
- Dream your future. The entire point is to make this your vision. Think about how you want to live. Where do you want to live? What work do you love to? What values are most important?
- Work out the details. Be specific. With a little research, you can price out the cost of living your retirement dream. When you have a handle on that, you have an excellent start to begin making your dream come true.
- Reduce expenses. Carefully review your monthly spending. Be sure that everything you spend each month is important to you. Spending $10 each week on coffee instead of saving for retirement is $42 a month or $500 per year. If you save $42 a month for 10 years at 6 percent growth you have $6,885.
- Increase your income. If you can get that big promotion or add a part-time job or side-hustle, the extra earnings can go straight to the savings.
- Pay yourself first. You probably have heard this advice before: If you take retirement savings off the top each time you get paid, you won’t miss it. Most of us manage to get by on the money that’s available. Save first and figure out the rest.
- Invest your savings. Many people are able to save some money but worry about the volatility of the stock market. When we are talking about retirement savings, we are generally talking about saving for 10 years or more. Over that time, U.S. stocks (about 9 percent average historical return) will outperform U.S. bonds (about 5 percent average historical return). If it’s long-term money, you owe it to yourself to get the better return.
- Diversify your savings. Some people get money saved and invest it but fall in love with their favorite stock or the stock of their employer. It’s much more prudent to put your money in a low-cost exchange traded fund that owns a large basket of companies. That reduces the chance that a specific event or market trend will cause a large change in the price of your investment.
- Stick with it. Remember, great wealth is often built slowly year after year. Time flies. Ten years or even 20 will fly by quicker than you can imagine. Build out your plan then stick at it to give it a chance to build momentum. Remember, as I showed above, $10 a week can add up to almost $7,000 over 10 years. If you are patient, you will surprise yourself.
- Get some advice. Often outside perspective from a trained and experienced professional can be extremely helpful. Be sure you carefully select the professional with whom you work. In the financial industry it’s easy to run into folks who have a great story about a great product, but it might not be the right product for your situation.
I suggest you consult with a CERTIFIED FINANCIAL PLANNER™ professional who has extensive training in all areas of financial life. And you can make it easier to get advice with less bias if you find a financial planner who works only on a fee. A fee-only planner works for you and has all her incentives aligned with you. You may also have heard talk about fiduciary financial planners. Fiduciaries are legally required to act in the client’s interests at all times. So a CFP® professional, fee-only, fiduciary planner would be a great choice.
To find a CFP® professional near you, start your search here.
Remember to ask these two questions:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-only, CFP® professional can help you make great financial planning choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.