FIREd up about the Flexibility of Financial Freedom

I was comforted to recently read this post on Adventure Rich where Ms. Adventure Rich admits that they don’t have a set FI target date or amount.  I felt some imposter syndrome setting up a FIRE blog when we don’t have an FI date or number, either.

But in reality, this isn’t a blog about me retiring early.  Ideally I am done “working” before 65, but I’m not going to be bowing out of the workforce decades early.  What really interested me in the FIRE community is the Financial Independence facet.  Money = Financial Freedom.  So rather than having a FIRE goal, it is really a Financial Freedom goal, similar to the FFLC (Fully funded lifestyle change) espoused by Slowly Sipping Coffee.

So what does Financial Freedom mean to me?

Career Flexibility

Most days, I actually don’t mind working; I enjoy the mental challenge and the social interaction.  I have worked for my company for a long time and have some great benefits, generous PTO, and a manager that respects me and doesn’t micromanage.

But I also don’t want to be tied to a job because it pays a lot, or have to work on someone else’s schedule for the next 25 years.  Companies get acquired, managers move on, job responsibilities shift, and sometimes great jobs become stifling or downright horrific.  Financial freedom means that either I or my husband can choose to quit a job if one of us lands in a bad work situation; or that we can weather the storm if one of us gets laid off.  Working towards a financial freedom goal also means that we will have the flexibility to shift careers, work part-time, take a sabbatical from paid work, or start a business.

Time

Maggie at Northern Expenditure wrote:

“…it is so unfair that the most important working years coincide with the most important years for our children. Why did parents have to spend so much time trying to build careers at the same time their children were trying to figure out how to walk and talk and learn?”

We had our daughter at the beginning of this year.  I don’t want to sacrifice these early years we have with her just to retire a few years before she leaves the nest. For me, saving and investing means we have the financial flexibility to make lifestyle changes that align with our values – spending time with our daughter.

Overcoming Uncertainty

My dad died unexpectedly at 52.  My mom is a cancer survivor.  I’m 39 now, and even though I work to maintain my health, there are things outside my control that could lead to physical limitations as I age.

On a trip to Italy a few years ago, my friend and I stayed at the property featured in the photo at the top of this post, in one of the towns in the Cinque Terre region.

Our room was at the VERY TOP.  So.many.stairs. There is often a level of physical fitness that is required for the type of travel I enjoy, such as sightseeing or hiking through the wilderness.  If I postpone all this traveling until I retire, my physical body may not be quite as willing to cooperate.

Meaning

Do you find meaning in the work you do every day?  I’ve spent my career in the corporate world.  I care about the overall mission of my company, and believe we are doing good work.  But it’s usually hard to find meaning in the day-to-day of the actual job.   I think quite a lot of people in large organizations feel this way, especially those who are seeking FIRE.  Financial freedom means the option to pursue ‘work’ that provides meaning and fulfillment, rather than just focusing on a paycheck and benefits.

What are your reasons for pursuing Financial Freedom?

The Paradox of Choice: Retirement Investing

In a previous life I worked as a financial education consultant, traveling the US and talking to my company’s retirement plan participants about their retirement plan.  We focused on the basics.  Why they should save in their 401(k).  How the power of compounding interest can work for you.  What is diversification? What is your risk tolerance?  How do you use this information to choose how to invest your money?

I have long been a personal finance geek.  But the reality is that the vast majority of people aren’t.  And it can be downright overwhelming for the average 401(k) plan participant to figure out where to invest his or her money.

I was reminded of this fact recently.  The company I work for does its match in company stock, and the stock has done so well over the long term that a lot of people are over-weighted in it (that’s a story for another day).  A couple of months ago the stock hit a new 52-week high, and I decided it was a good time to move a little more of my match money out of company stock.  I had a coworker who wanted to do the same, but she didn’t know WHERE to put the money once she sold the stock.  The paralysis of having to make that decision almost kept her from taking any action at all.

Barry Schwartz outlined this phenomenon in his book, The Paradox of Choice.  I may get overwhelmed by the wall of 50 different types of laundry detergent at Target, but many other people are paralyzed when their retirement plan offers too many options.

So what’s the average Joe to do?  I couldn’t give advice to plan participants in my financial consultant role; I could only educate.  But at the time I was in this job, target date funds were starting to become popular additions to retirement plan investment lineups.  When our plans offered them, we would explain how they worked and how a participant could determine if it was the right choice.

So what is a target date fund?  This link to Vanguard (one of my favorite investment companies and a FIRE community favorite) gives some of the highlights.

  • You invest in one fund that does the diversification for you.  In Vanguard’s case, the target date fund is a blend of their other underlying index funds.  It is diversified to include a mix of US and international stocks and bonds.
  • The asset allocation is based on the target retirement date.  If you are far from retirement, it is more heavily weighted in stocks and as you move closer to retirement, the mix of investments gradually becomes more conservative.
  • You don’t have to rebalance your investments – the fund company automatically does it for you.

Of course there are caveats to every recommendation, and every fund company that offers target date funds has it’s own style and approach (Vanguard’s 2040 fund will not be the same as Fidelity’s or T. Rowe Price’s).  But don’t let the perfect be the enemy of the good – it’s better to have a solution that is 80% effective than to have no solution at all.  I told my coworker that in her upcoming meeting with a financial advisor that she could get advice on where to invest for the long term, but in the meantime I gently steered her towards one of the target date funds offered by our 401(k).

 

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