“You know I work all day... to get you money... To buy you things."
—from "A Hard Day's Night," as performed by The Beatles
Would you have retired at age 40 if you could have?
"FIRE," an acronym for "Financial Independence, Retire Early," is a movement that crunches numbers for workers engaged in what is termed radical saving. The theory is that you work for about 20 years, bank and invest 50 percent of your paycheck, and by age 35 or 40 you enjoy the financial security to say "Adios!" forever to the working world.
I admire anyone with the discipline to save a significant amount of each paycheck, regardless of the investor’s ultimate financial goal. And as we all know, the sooner we save and put our money to work, the more we benefit from compounding.
There are, of course, a couple of potential hurdles for young workers following the FIRE philosophy. The major one is the possibility that another large market downturn akin to the Great Recession can derail their investment plan. Or, annual returns simply might not match their expectations. Also, if you stop paying into Social Security at age 40, your annual benefit will suffer significantly when you reach your official retirement age. And you’ll need to carefully guard against trivial consumption, because you'll likely be spending down your assets over the remainder of your life.
The flip side is that many people enjoy working and don't know what they’d do without the challenges and socialization offered by the workplace. Therefore, their saving and investing schedule is quite different than the millennial who desires to retire at 40. Obviously this is not true for everyone; I know folks who count down the days to retirement and never look back. But for many others, those years in the workforce serve an important function in their lives, and their participation fulfills the desire to be productive. Some of us would be lost without a structured, daily work schedule; some people meet their eventual partner at work; others form lasting friendships.
So for some, work is a means to an earlier retirement; for others, it can provide a comfortable retirement and a valued social outlet and stimulation. Loneliness, especially among older Americans, is now a recognized health issue. Staying active through work, volunteering or social gatherings is an important part of a healthy lifestyle.
Whether you’re retiring early or working past age 70, it makes sense to develop and implement a plan for saving and investing, one that can translate to comfortable retirement years, however long they may be.
Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.