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The Changing Faces of Financial Independence

Traditionally, financial independence meant people could live well without having to ever work again. This is also called being independently wealthy.

Whichever label you use, it means someone has acquired sufficient assets to sustain their lifestyles—either through inheritance, career success, wise investing or a combination of these. Financially independent people are regarded as fortunate because they don’t have to work—a concept predicated on the assumption that no one would work if they didn’t have to.

In a nation where substantial wealth has been created in recent decades, this concept of financial independence has been changing, along with personal values and attitudes toward retirement.

The Notion of Retirement

Retirement has traditionally been viewed as the end of one’s productive work life, when people trade the workaday world for pure leisure or even indolence, a permanent vacation enabling them to indulge in their pastimes full-time, as long as their health allows.

This notion has evolved in recent years as more individuals continue working at some level, even though they may not need the money. They may work simply because they enjoy the activity and the sense of self-worth it brings them. Some people take on a new line of work, such as teaching, because they’ve always wanted to make a contribution to society that their previous careers didn’t allow. Or they may work as a volunteer in an organization dedicated to a social cause they value. Just sitting around the house all day or playing golf isn’t enough for these people; they want personal fulfillment.

Part of this has to do with new definitions of what it means to get older, and the fact that people are living longer and staying healthier than they were when the now-antiquated concept of retirement was formed. Thus, they’re not only able to work longer before retirement, they're also able to work part-time after retiring. Most of all, they choose to work because they’ve abandoned the self-limiting definition of aging.

How Work Has Evolved

Another factor changing attitudes toward retirement is the evolution of what work actually is. Before the Internet, working at home was uncommon in many professional fields. Internet connectivity and the new ease of sending documents and other attachments, combined with secure access to corporate intranets, has revolutionized how some people work. Now, working part-time at home in retirement or doing contract work for a new employer to stay involved in one's profession is a natural transition for retirees in many fields.

All of these factors have changed what it means to be financially independent and the kinds of lives people live. Further, values have moved away from the traditional emphasis on keeping one’s nose the grindstone for 40 years, then doing nothing. Now people are aware that certain working conditions and attitudes toward jobs can create damaging stress, and they’re abandoning a traditional approach to work and retirement by adopting creative solutions.

What it means to be wealthy, and how such people spend their time, varies with age, individual predilections, temperaments, level of wealth and professions. Here are some the dramatis personae playing new and varied roles in life’s work/retirement stage, enabled by different levels of financial independence.

Ready to Retire But Laying Back

These individuals or couples are financially prepared for retirement relatively early. Though they may only be in their early 50s, they have accumulated enough assets to retire but don’t stop working completely. Some keep working in their profession, but with reduced hours so they can phase in retirement pursuits. These might include leisure endeavors and travel, or goal-oriented avocations, including public service or other activities that aren’t financially motivated. These people pursue involvement to stay mentally active and play a role in society.

Less Hands-on Proprietors

These are business owners who are financially ready to retire but don’t want to give up their businesses altogether. They want to retain a nice income stream from the business, but perhaps hire a manager to fill their day-to-day role, then take themselves out of things, except for providing direction. They want to take a step back but keep one hand lightly on the tiller while they phase in retirement and decide how to spend the additional time this role change affords.

Young, Prosperous and Taking a Break

These late millennials have accumulated substantial wealth for their age and see nothing wrong with taking time out—maybe a year or more—to enjoy some of this money before jumping back into the workforce. If they don’t have kids yet, it’s easy to travel and forget about the working world a while, other than contemplating their next professional move when the long vacation is over.

Tag-Team Couples

These couples have accumulated enough wealth for one partner to retire early, but not the other. So, if they’re in professions or have employers that allow flexibility, or are self-employed, they take turns working until their assets grow to the point where they can both retire. Some couples may have a retirement home where one partner can live all summer while the other spends weekends there. When they’re both retired, they may choose to sell their primary residence and move into their vacation home.

To realize their personal plans, these individuals have something in common: sound financial plans that account for tapering, halting, on-and-off or alternating incomes. If they had a long-term financial plan that assumed they would work until age 65 and they shorten that work duration, reducing anticipated income, they must adjust their plans. They need to ensure they have enough wealth to sustain them sufficiently through retirement and still provide a legacy for their heirs.

By forging new social definitions of retirement, baby boomers are altering notions of financial independence, and these changing definitions will likely continue to evolve. Following in their parents’ footsteps, the next generation may re-write these roles once again.

Recent article by Trey Smith: How to Transfer Financial Values to the Next Gen