In our talk about goals, we touched briefly on the idea of financial independence. It’s often stated as a goal that people wish to reach before they retire. While we said it was a great goal to have, and it is, financial independence can be complicated and personal. There is no magical number that once you reach it, you are financially independent. It very much depends on your personal situation and what you expect from retirement.


Financial independence means having enough resources to be able to live without help from anyone or anywhere else. But “living” is very relative and everyone will have different expectations as to how they should be able to live in retirement.


Each situation will be different. If you’ve maxed out your retirement plans and paid off all of your debt, it would be safe to say you are much closer to achieving financial independence than someone who invests little and has a $300,000 mortgage. But often the distinction can be much less obvious. How are you to know what financial independence looks like in your life?


Don’t get too obsessed with a number (I’ll be financially independent when I have $1,000,000). There is much more to it than that, and you have to decide on your expectations. Do you expect to live the same lifestyle as you were when you were working, therefore needing to produce the same income? Do you expect to downsize and cut expenditures to match a smaller retirement income? Do you expect to travel? There are a lot of things to consider.


One thing that should be a major consideration is debt. Entering retirement with a debt load (especially a mortgage) can have a big impact on the potential for financial independence. Having to pay down debt with the extra pressure of not bringing in income through working is not a good situation to be in. You should consider paying down your debt while you are working or making a change as you enter retirement (selling your current home to pay off the mortgage and downsizing to a place you can afford to buy outright).


If financial independence is your goal, take some time to decide what is important to you and how you expect your retirement to be. Once you do that, you’ll have a much clearer picture on how to achieve it.