Ask 10 people what it means to be rich, and you’ll get 10 very different answers.
Some will say that rich means no worry, although of course rich people worry all the time. Once you have a certain amount of money, you naturally worry about losing it, for instance.
Some will say that rich means being self-sufficient. Which sounds great, but there are self-sufficient people who earn much less than the average person. And there are high earners who are dependent on that next bonus check to keep their head above water.
Still others will paint their wealth in terms of free time, personal fulfillment or the capacity to give back. Charity is a calling, even a full-time job for some.
Let’s set aside “rich” for the moment and consider the responses so far. It begins to sounds like rich really means “freedom.” Freedom from worry, freedom from troubles, freedom to make choices and live according to one’s own design.
Perhaps the better way to phrase the question then is, what does it mean to achieve personal freedom?
One measure is the ability to come and go as you please and to work, if you find work rewarding. Being debt-free is important. Personal development is a plus for many. That might be the same as pursuing a hobby or a pastime, but not necessarily.
Now the killer question: Do you need to wait until retirement to do any of this?
The truth is, not really. Just like employment is a means to an end (income today), saving and investing is a means to an end as well, and it is the same: income, but without the necessity of employment.
Building a lifetime of worry-free income, then, is the real goal of retirement saving, not “being rich” or “quitting work.” After all, more than a few retirees have quit for six months and then found themselves so bored that they return to work anyway.
For them, work was fulfillment. It can be hard to redefine your life in a few months. Impossible even. There are social connections and validation at the workplace that are hard to replicate elsewhere.
Your exercise for the next few weeks, if you choose to accept it, is to take an honest inventory of your life with three questions. These are important. It could result in you redefining your idea of retirement.
1) What do I want to do every day, if not show up at a job? Or is a job what I need?
2) How much income do I need to have the freedom to choose between working or not working, realistically?
3) How much money do I need to generate that level of income indefinitely?
Some people will never be able to answer the first question. Often, it takes a change in life to force us out of a personal rut.
The second answer isn’t that hard to come by. You know what you earn now and how much you spend. Retirement may precipitate a move to a cheaper city or state, of course, but once you leave a career behind, geography is less of a constraint.
As for the income part, that’s easy: Build an income-oriented portfolio with a dash of growth assets to protect against inflation.
Once, that kind of investment advice was costly and full of hard decisions. The trend toward low-cost ETFs and asset allocation plans has brought once-sophisticated strategies down to ordinary investors, and at a fraction of the price.
The best part is, your investments can be as simple and worry-free as your life. All it takes is a little bit of thought.