Planning for financial independence and the risk of forced retirement

People often mistake financial independence for early retirement. While both are part of the FIRE (financial independence, retire early) concept, they are not the same. Once you have ‘enough’ money to be financially independent, retiring early is an option that you can consider. But it’s not necessary to opt for it.

So, if you don’t want to retire early, then that is perfectly fine. But given the new realities of the employment world, what would you do if you are forced to retire early?

Imagine that you are 52 years old and plan to work till the age of 60-62 . All of a sudden, you are let go by your employer (the reasons can vary: due to the availability of younger, lower-paid employees, lack of updated skills, technological or industry disruption, etc.). Given your age and experience, it then becomes extremely difficult to find a suitable job.

This is a real risk. Even if you don’t aim for early retirement, you could be forced into one. And this is a good enough reason why people should plan and prepare for early retirement even if they don’t want to.

And the possibility of being kicked out of the job at not so young an age and finding it tough to find the next job is not the only scenario. There are other such possibilities as well.

You are healthy now. But things can change. If your health issues make it difficult for you to continue working in future, then you may have to plan for an early retirement. I know a few individuals in their early 50s who had to quit their jobs due to health issues. They always wanted to work till their 60s. As is always the case, your health decides how your life pans out eventually.

Another possibility, though not as dire as the pervious one, is that you may one day get fed up with the job or work profile that you currently love. If you have the flexibility of ‘enough-money’ at that point of time, you can choose to not work instead of being forced to so because you do not have any money.

So, what should you do if you don’t want to retire early?

Let’s say you are 35-40 years old and do not subscribe to the voluntary-early-retirement school of thought. And you plan to work till 60 or even later. In such a case, it might be a wise idea to do your retirement planning, assuming that your retirement (forced or regular) will happen around the age of 50-55. That, of course, will mean you need to save and invest more. But that is fine. If it is feasible for you to do that, given your current finances, at least you will have the flexibility and buffer if, god forbid, the forced retirement scenario plays out in future.

I have often heard people say that early retirement is a privilege reserved only for the rich. But whatever your view might be, do understand why you may not end up working till 60 even if you want to. If you see merit in this idea, then prepare for some degree of early retirement, even if you don’t plan to retire early. Nobody wants to be forced into anything, let alone retirement.

Remember, just like in the game of Monopoly, being forced into early retirement is like getting a ‘Go directly to retirement’ card – no passing ‘Go’, no collecting $200, just a lot of free time and less money than you planned for.

Dev Ashish is a registered investment adviser and founder of Stable Investor.

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Published: 27 Sep 2023, 10:31 PM IST