A Friendly Guide To Retirement Part 1: What Is Retirement Anyways? – Seeking Alpha

The most common reason to start investing is to build a nest egg for our retirement days. Believe it or not, the concept of retirement is relatively new. In fact, before the 1900s, Im pretty sure retirement wasnt even a word. Back then, as many people started working and living longer, the idea of having a few years to relax before passing away made sense. In fact, people used to retire because they were not able to work anymore. Governments had the great idea of funding a solution to take care of the elders; they called it a retirement pension. Across many countries, this idea is similar: Once you reach the age of 65, you can stop working and still receive a check to cover your basic needs. At first, It was really to compensate for the gap between the age where you can barely work (65) and the age you should expire (70). Giving everyone a 5-year break after having worked their entire lives makes total sense. However, retirement isnt the same anymore as our life expectancy keeps increasing:

How Retirement Has Evolved Over Years

I think the financial industry had a major role to play in our interpretation of retirement. These companies have found a way to make more money off our backs by creating a whole new marketing concept: enjoying life after work. Instead of having a couple of years to slowly die in our rocking chairs, we are now sold the idea that we could travel across the world, learn new languages, play golf and practice all kinds of other hobbies. After all, we have roughly 20 years in front of us once we retire. The first 10 years tend to be the time when we are still healthy and have enough energy to enjoy retirement. But as with anything else, enjoying has a cost.

So while we work our asses off to pay down our mortgages, student debts and car loans, our dear financial advisor comes to us with this great after life product we can buy. Another payment to be added to our monthly budget. How about $500 bi-weekly set aside for the next 30 years? You could become a millionaire before you retire

So now you are all pumped about this new concept; man, you will finally be free and you could enjoy a 20-year vacation! You are happy now? Then get back to work to finance this new dream!

Financial Freedom, Financial Independence, Early Retirement And So On

At first the idea of retiring and being a millionaire was brought to us as the ultimate mean to our life. You know, the good old go to school, get good grades, get a good job, get a promotion, save like a mad man and live like a king for the last 20 years. The picture of the rocking chair has been replaced by a golf cart or an umbrella by the ocean. For this almost-never-ending vacation, you need to endure your life for a good 30 years and earn it. Some people havent bought this. This is where new concepts of financial freedom, financial independence and early retirement came to life.

What if you can stop working earlier? What if you dont have to wait until the age of 65 to call it a day? Hum, this sounds even better, right? But just like being on vacation for 20 years sounds appealing and comes with a price, retiring earlier also comes with a price tag - and there is no Black Friday deal on it!

Retiring Is A Number Game

Regardless of whether you want to follow the model and retire at 65 or you want to play the rebel and stop working at the age of 45, the idea is the same: You need to find a way to generate enough income to support your lifestyle. As retirement is not a right, but a luxury, some people can afford it more than others. In order to achieve it, you need to play the numbers game.

Lets forget the idea that you could build a multi-million-dollar company and live from this forever. Lets focus of what 90% of the population will do; work until they stop and retire. While it seems quite complicated at first, your retirement plan will be a combination of very few factors:

Other sources of income (rental income, various pensions, sideline, etc.)

The interesting part is that you have a certain level of control over each of them. You obviously have more control on the number of years you save and the amount than you have on your investment return.

Another very important factor is the amount you need to support your lifestyle. For someone interested in living simply without luxurious tastes, a sum of $2,000 per month could be enough. I worked over a decade writing financial plans for my clients, and the income someone needs to retire with is quite different from one individual to another. Some need $2,000/month and others would need easily $8,000 to enjoy retirement.

In the next article, we will go deeper into the amount you need to retire comfortably. We will run some calculations and see how we can come up with a solid plan. In the meantime, Id be curious to know how much you think you need to retire?

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A Friendly Guide To Retirement Part 1: What Is Retirement Anyways? - Seeking Alpha