This magazine, like its sister web site and competitors, is devoted to the topic of money. That’s an obvious statement but stay with me. We all need money to live, both in the present and the future. This basic fact has created the entire industry dedicated to the notion of saving for a rainy day so we’ll have enough money both for today’s needs as well as tomorrow’s. And the week after, the year after that and so on, bringing us ultimately to the concept of Retirement.
Retirement is the greatest marketing bonanza ever conceived for the financial industry. If a mutual fund company, bank, trust company, credit union, caisse-populaire, insurance firm or ETF maker runs an ad, what is the major concept behind its marketing? Typically, it features a mature couple frolicking on a beach or golf course, care-free, active, smiling, still in love and doing nothing that resembles work.
I don’t know when work acquired such a bad reputation but I’d venture to say that in Canada, this phenomenon started to gather steam when London Life popularized its Freedom 55 campaign. Never mind that only a fortunate few government employees with indexed Defined Benefit pensions retire by 55, the catchphrase grabbed the public imagination. It seems to have succeeded in planting the idea that “Work” is a bad thing and “Freedom” from work is the ultimate good that must be pursued — even if it means sacrificing the present for the future during the 30 prime years of a typical working career (age 25 to 55).
In 2008 (yeah, bad timing!), I had a brainstorm and came up with a phrase I felt would better capture the zeitgeist of saving, investing and life purpose. As summer approached, I was thinking of America’s Independence Day, which falls on July 4th. I stumbled on the idea that Financial Independence is really what the financial industry is selling, but the phrase takes two words and has seven syllables compared to Retirement, which takes just three syllables to articulate.
So I contracted the phrase Financial Independence into a single new word: Findependence (with a more manageable four syllables). It was a short leap to add an F in front of Independence Day to create Findependence Day. Thus was born my book of that name, published later that year and in a U.S. edition in 2013. Three websites followed (starting with www.findependenceday.com) but the phrase has yet to displace Retirement.
One problem with selling Retirement to the young is that old age seems impossibly far away. If you’re a millennial entering the workforce, retirement is perceived as something far in the future, one step before the equally remote prospect of death.
But “Findependence” is a goal that can be achieved not 30 or 40 years from now but in just 10 or 15 years. It’s not unreasonable for a 25-year-old taking their first steps on the career ladder to set a goal of Financial Independence by age 40. Indeed, on my Financial Independence Hub are posts written by two millennials who declared just that: they intend to be debt-free by their mid 30s, after which they will work not because they are compelled to financially, but because they want to.
Does that mean “early retirement” for them? No, because Findependence is not synonymous with Retirement. Search the term on Wikipedia and you’ll find an entry that’s simple to grasp: financial independence is the state of being able to have enough wealth to live “without having to work actively for basic necessities.”
If you are Findependent, your assets generate more income than your expenses. Note Findependence is not correlated with age. If you have modest means and are frugal enough to build a nest egg in 10 or 15 years, you may be “findependent” by 40. But if you’re a high-earning big spender requiring hundreds of thousands of dollars of income each year, findependence may not be in your grasp even by the traditional retirement age of 65.
You can see why people confuse the terms since government pensions like CPP and OAS don’t begin until one’s early or mid 60s. But if your needs are modest, you can establish “early findependence” solely with a portfolio of dividend-paying stocks, perhaps supplemented by part-time work.
It seems likely that few boomers will embrace the “full-stop” retirement of their parents. The latter may have enjoyed a quarter century of golf, reading and daytime TV but most boomers will embrace a semi-retirement funded by modest pensions and investment income supplemented by part-time employment income or consulting work. Some may have royalties from literary or musical creations, licensing fees from entrepreneurial ventures, fees from serving as corporate directors and other income.
Jonathan Chevreau is the author of “Findependence Day” and the ebook” A Novel Approach to Financial Independence”. He recently launched the Financial Independence Hub and can be reached at [email protected] He also writes for the Financial Post, Motley Fool Canada, MoneySense and Investored.ca.