Retirees have some of the same characteristics as those who are financially free. But I have come to think of retirement and financial freedom as very different things. I view retirement in the United States as a phase in one’s life after they have invested 30 plus years into employment. Retirees may have enough money coming in each month primarily from Medicare and Social Security benefits. As a result, they no longer need to work.
Being financially free is something completely different. I think of financial freedom as building your personal finances so that money will no longer be the driving force behind your decision making. Many Americans, myself included, are working for an employer with the primary purpose of earning a paycheck. If we had enough cash flow outside the monthly paycheck from our employer, we would most likely decide to do something more personally satisfying with our time. For example, we may chose to invest more time with our family, pursue a meaningful business venture, explore an interest with a non-profit organization, or otherwise enhance the community in which we live.
Most people interchange financial freedom and retirement because they tend to intersect during the same phase of life. Many of us are not able to amass enough cash flow to leave our jobs until we can actually retire. I have established a few of my own ideas for the characteristics of financial freedom versus retirement.
Characteristics of Retirement
- You invest 30 years or so in employment and continue to work until you are eligible for Social Security and Medicare.
- You are dependent on Social Security and Medicare as part of your long term financial plan.
- Without these social programs, you would be unable to easily afford life’s basic necessities, such as health insurance, housing, food, clothing, and transportation.
Characteristics of Financial Freedom
- Your monthly cash flow is appropriate so that life’s basic necessities such as health insurance, housing, food, clothing, and transportation can easily be paid for.
- As a result of your cash flow, you are able to pursue your passions in life.
- You are self-motivated to work on projects and these projects can be done on your time schedule.
- You may choose to capitalize on social programs that you and your family qualify for, but without these programs you are able to continue with your current lifestyle.
Are you striving for financial freedom or simply coasting toward retirement?
Brian Jaeger is the author of 2million's Personal Finance Blog. For the past 5 years Brian has chronicled his journey to reach his financial freedom goal of a $2 million net worth.