The Moving Target of Financial Independence


Financial buzzwords have a knack for shifting definitions. In some contexts, what they mean heavily depends on who says them. One of the current popular examples among financial advisors is financial independence.

Fundamentally, financial independence has a simpler, literal definition. You might have heard it called “work optional”. Whether or not your clients want to “retire” quite yet, they want to be free to make decisions without income being the deciding factor.

As younger generations look for more creativity and flexibility in their financial plan, we’re seeing the fundamentals of investing adapted in real-time to serve an evolving set of needs. Here are just a few of the ways that we are seeing portfolios shift accordingly.


The Starting Line Is Getting More Flexible

Rewind the clock 10 years – what does a common retirement plan look like?

“I’m going to work until I’m 65, at which point I’m going to stop working and live off all of my different retirement sources. As a result, I’m going to invest a certain way up to 65 and I’m going to invest a certain way after 65.”

What do we do when our clients want to move that finish line earlier? They might want to retire in their 50’s. It’s also becoming more common to hear ambitious, younger investors target a work-optional lifestyle in their 40’s.

So, what happens to the traditional retirement plan? I think we’ve quickly found that the old planning model is too rigid. The strategies we select and the vehicles we use have to be conscious of a more flexible starting line for independence.

We serve our clients best when we find ways to help their money serve them instead of keeping them in servitude to their money. Sometimes this leads us to ask questions like how can we augment income in partial retirement? We need to encourage our clients to be creative in thinking through their options instead of adding too much weight to the portfolio as if it were the sole criterion of their decision.


It Has to Answer the Longevity Question Too

We also have a very antiquated notion of longevity built into retirement systems. As many of us are well aware, life expectancy has increased greatly since the retirement age was established.

The especially unique part of this discussion is that while averages are lengthening, not everyone ages equally. Some clients are running low on energy by the time they hit sixty, while some dream of staying in the workforce into their seventies. I just think our entire retirement system needs to reflect the new longevity reality, not just in length but in diversity.

If you think of this in the context of target date funds, they were originally designed to get clients “to retirement”. Now, portfolio construction and management are equally aimed at getting them “through retirement,” with the end goal stretching further on average.


The Key is Sound Financial Discipline

One last thought on the changing definition of financial independence – advisors with integrity have always had to compete with louder voices spouting suspicious advice. The digital age shows no signs of slowing down in this regard.

Despite the noise and the newest “financial hacks” we encounter, we can’t neglect the core truth upon which we build financial independence: moderation and discipline.

While accumulation certainly helps, stability isn’t measured by assets. It’s measured by consumption against our assets. You’ve probably heard some version of this story: a business owner in their 40’s sells their company for a sizeable check and retires early. Within 5-10 years, they’re back in the marketplace looking for another gig – because they went on a spending spree.

So, when a client asks you “How much do we need to be financially independent?” The best place to start is with consumption, not accumulation. Spending plus longevity equals the answer.


Portfolios That Serve Your Clients

At WealthPlan Group, we are committed to building an environment that helps advisors serve their clients better and accelerate their growth. One of the key ways we do that is through our TAMP platform, allowing advisors to elevate their investing experience and recover more of their time to nurture relationships.

I invite you to read more about our approach to outsourced investment management here and consider the impact an established investment partner would have on your practice

You can view our investment philosophy, approach to diversification, and available models for your investment strategies.

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