Much was made of the slogan freedom 55. At the time it signified that a person could retire at 55, living the quality of life they wanted on the savings they had accumulated. Unfortunately many people lost a lot of money during the recessions in 2000 and 2008/09. Freedom 55 has been set aside for the time being. We all want to have financial independence in retirement. More importantly, we want to be financially independent at a certain point in our lives so that we can make our own decisions about work vs retirement.
In fact wouldn’t it be nice at age 45 to have sufficient income to allow you to make a decision about continuing to work, changing jobs or travel for awhile without worrying about money. There is a way to do this and it is just simple mathematics.
Financial Independence in Retirement
All consumers need to do is invest 10% of their incomes regardless of how much you make in a diversified group of stocks. They need to be blue chip stocks and they need to pay dividends. They should have an excellent record of paying dividends and increasing their dividends. While it is slow and boring, it is like the race of the tortoise and the hare. The tortoise won because he kept going and finished the race while the hare fooled around and did not focus on the race.
As your income increases so should your savings commitment. As your savings grows, there will come a time when the dividend income is larger than the money you add to the account every year from your salary.
If you begin later in life, you will have to save more to achieve the same result. You might have to work longer as well. But this approach will clearly ensure you are financially independent at some future point in your life.
Remember save 10%, don’t touch it, invest in blue chips only, diversify, reinvest the dividends and watch your savings grow!