When I first started this site, I went in with the intention of this being all about my journey toward quitting my job – hence the “Route to Retire” site name. I was all about having enough money to never having to work again… my quest for financial freedom.
But is early retirement the same as financial freedom? Spoiler alert… it’s not.
Financial freedom can definitely be the catalyst that gives you the power to retire early, but it doesn’t need to be the sit-on-the-beach all day sipping piña coladas retirement (though that should be at least a small part of your plan!!).
So what’s the difference between early retirement and financial freedom?
Let’s start with financial freedom. Financial freedom is the most important part of this whole post. In a nutshell, you’ve reached financial freedom (also known as financial independence) when you no longer need to work in order to cover all of your living expenses. Simple enough, right? 😉
There are a couple of ways to achieve this. One is to save enough money (whether through savings, IRA’s, passive income, etc.) so that the amount should *hopefully* be able to cover all your expenses until you die. The other way to get there is to cut your living expenses down to the level that your money saved (and any passive income) can cover everything. A perfect example of the latter method is Mr. Money Mustache. His family achieved this goal by happily living off what many would call a small amount of money each year (less than $27,000 in 2012).
Early retirement, on the other hand, is usually a direct result of gaining financial independence. Financial freedom states that you don’t need to work to cover all your expenses. Although there are a number of opinions on this, early retirement is basically taking advantage of that and quitting work before the retirement age. The difference of opinion is that some would say that early retirement means never going back to work again. Others argue that it means having the money to retire early from your career and then being able to chase after other dreams through different jobs or careers if desired.
When I started this blog, I had all intentions of just sitting on my butt and enjoying life while doing nothing important once I got to the point of financial freedom. However, as time passes and I continue to write, I started thinking about other things I want to do. And because of that, when I reach the point of financial independence, early retirement might not be a big part of of the years that follow (although I will definitely spend a little bit of time kicking back).
Financial freedom for me will come before I’m 50 years old (hopefully before). I could probably make it happen quicker, but I decided that I’m not ready to sacrifice my standard of living. So for right now, I continue to build-up my savings in my 401(k), Roth IRA, dividend stocks, savings account, and the accumulation of rental property.
The stopper for me right now is the mortgage on my house. We live in a nice house – nothing extraordinary, but a nice house in a nice neighborhood. We bought it for a great price of $235,000 at the end of 2008. Since then, we actually took advantage of the market and refinanced it a couple of times that took us from a 30-year to a 20-year and finally to a 15-year loan.
Even with that, we’re paying extra on the principal every month and should have the loan paid off right around the time that I turn 50. And right now, getting that loan paid off is all that remains between me and financial freedom. At that point, my expenses will obviously drop dramatically and I should have accumulated enough wealth that I don’t have to work ever again to be able to cover my expenses.
Could we sell the house and buy something a little “cozier” and less expensive possibly in another area? Sure. But, we’re happy where we’re at right now (until I can pull off convincing my wife to move to Panama!) so I’m making our plans with the intent of us just chipping away at the ol’ mortgage payment.
Ah, the smell of financial freedom – very exciting! At that point, I will likely retire early for a while with the exception of this blog. Then, I’ll see where the journey takes us and maybe take on some new adventures.
Are you on your way to financial freedom and, when you get there, will you be choosing early retirement? Or do you have other plans or dreams in mind?
Thanks for reading!!