The concept of retirement has been redefined since its inception. Initially, retirement was the idea that indicated a government and/or corporate scheme be set to support individuals in old age. The calculous for such schemes were pegged to life expectancy (60-65 at the time_. The retirement lifestyle of leisure was established during the US retirement booms of the 50’s and 60’s. However, this model of retirement is no longer sustainable as the population ages across the west and social security, pensions, and equity retirement accounts all contract. Moreover, life expectancies have risen drastically and continue to do so (+80 years and climbing). This notion of retirement is now, irrelevant and unsustainable.
The new retirement model is financial independence.
In today’s economic setting, the idea of retirement has morphed, and is no longer pegged to age, it is age agnostic. Today, retirement is pegged to the control of the ultimate currencies of life such as time, flexibility, and mobility. One is effectively retired when one controls these aspects of one’s life, i.e. be your own boss, and don’t be a slave to your work.
Today’s Retirement = not having to 'work' for money
There is pretty much only one way we know-of to retire early, whether you are in your 20's, 30's, 40's or beyond, this path is rooted in one simple concept called, Passive Income ≈ Cashflow. In other words, if you can figure out a way to generate enough passive income for yourself/your-family, then you can just live off of that, and not have to spend your time and energy hard at work for money alone.
What is Passive Income exactly? Simply put, Passive Income is a way of generating a set or fluctuating amounts of money every month/week/day that generally doesn't require the input of your constant/continued time and energy to maintain.
If you weren't fortunate enough to be born into wealth, and/or if you do not have at least $1-5Million pile of cash in savings (our estimated baseline budgeted amount needed to retire with relative ease if you live in America) to retire-with/ live off-of comfortably; then, your only real viable pathway to retirement is passive-income.
Plan of Action
Now that we've established our strategic pathway for retirement in being passive-income, the obvious next question becomes: how does one generate passive-income streams?
Productive assets can be classified in a number of different ways, for example: real estate investments, business investments, stock/equities, digital, bonds/fixed-income, and/or any other investment vehicles that generate constant passive Cashflow.
Recently the notion of early retirement has been popularized by the FIRE Movement.
“The objective is to accumulate assets until the resulting passive income provides enough money for living expenses in perpetuity. Many proponents of the FIRE movement suggest the 4% rule as a guide, thus setting a goal of at least 25 times estimated annual living expenses.”
While the general principle of asset acquisition, passive income and the reduction of spending are absolutely solid principles of financial management and early retirement, the problem with this movement is the proselytization, suggestion, and advice of a recipe-like “early retirement plan”, which is certainly effective, but will not work for everyone, and should not be hailed as the only path forward. The important note on this issue is that assets do not have to be low cost index funds as most FIRE proponents recommend. Productive Assets can be wide ranging: online businesses, digital products, various content, IP & royalties, real-estate, various forms or lending/ fixed income, and more.
Unless you love going to work, if you want to retire at any age, by now, the picture should be clear: instead of trading your most valuable asset (i.e. your time) for money, trade in other assets like ideas, physical goods, and/or capital to generate passive income/ cashflow.
If you don't have any of these, well, then you’re shit out of luck. You’re gonna have to get a job and go to work. But hope is not lost, while working for money, make sure you invest what you earn so that you can start generating income off of your investments. In other words, don't save your money, invest your money, in a way that will generate a dividend (i.e. income).
The simple math is: Passive Income > Expenses. Do not live to spend your cash, that's the sure way to guarantee you will not be able to retire, ever. Your goal should be using your money to generate Passive Income, not Savings!
Converting Earned Income into Capital Gains vs. Cashflow
So, you are either an employee, an investor, or an entrepreneur, or a combination of these. Each one will determine your type of income. Most people are employees, they generate earned income by selling time. Investors and Entrepreneurs typically aim to generate Portfolio Income (i.e. Capital Gains), and/or Passive Income (i.e. Cashflow).
One must invest to own assets in order to differentiate between the two.
Here are a few examples:
Real Estate: Buy properties and rent it out.
Business: find/create something to sell and automate it.
Intellectual Property: create content, write a book, start a blog, film a movie, build an app, and/or create any other kind of consumable idea, solution, entertainment, etc. Once created, you can live off of the royalties, advertising/sponsorships, automated sales, rents, dividends, and/or repayments.
Rent Assets: you can rent out anything you own, a bike, a car, a house, a washing machine, your money (lend it out with interest), etc, etc.
The Future of Retirement
What does the future of retirement look like? This question is also rooted in: what the future of humanity looks like? How will society be organized? What will the nature of work be? How will productivity be measured, sustained, and expanded?
While it is hard to say for sure, and assuming capitalism survives in one form or the other, we can look at two distinct possible futures. One in which governments and corporations take more control and responsibility over individuals (movement towards the socialist side from an economic perspective), or one in which individuals become much more sovereign and financially stable as investor-entrepreneurs regardless of whether they are employed or not.
I don’t know about you, but I would much rather live in a world in which individuals are financially stable and in control, as opposed to a govt. or corporate sponsored form of citizen care such as UBI, Social Security, State Pensions, etc. This is not to say that these ideas shouldn’t be pursue at all, but simply to illustrate the two edges of the economic spectrum as it relates to individuals. If for some reason you are having a difficult time wrapping your head around this, we’ll leave you with this clip of @Naval: