How to Know if You’re on Track for Retirement/Financial Independence, Episode #6

Planning for retirement is like building a house. Everyone has a different budget and a different idea of what it will look like, but we all follow a similar process to reach the end result. Today, we’re going to walk through how to understand whether you’re on track for retirement, or even better— financial independence. This is a common question we hear from physicians. Maybe they’ve heard some general rule of thumb or have received guidance along the way, such as save 15-20% of your income or max out your retirement plan through work. However, usually there’s no context behind this and they often have no real idea of what’s right for them or if they’re on the right path to retire when they want, with the lifestyle they imagine. It’s a tough question, because just like building a house, each person’s situation is different. Join us in this episode as we talk about how to understand whether you’re on track for retirement/financial independence, and what you can do to put yourself on the right path if you aren’t already there.

Outline of this episode

What the difference is between retirement and financial independence [1:22]
Why we like to think of pursuing financial independence as the goal [2:34]
Understanding what’s going to create your retirement paycheck [4:50]
The 4% rule when thinking about withdrawing from your investments [7:36]
Factoring your unique circumstances when setting goals [9:18]
Quick numbers on how to get to that target investment account size [10:54]
Our hope for everyone listening [13:28]

A plan to give you the freedom and flexibility to live the life you want

Not everyone has the same vision of what retirement looks like. In the past, people would often work right up until traditional retirement age and then completely stop working and pursue things that they may have been putting off, like golfing, volunteering, or traveling. However, not everyone wants to fully retire.

It can be challenging to go from a full career of working to then suddenly stopping and being in retirement. It’s important to have a vision of what your ideal day, week, and month would look like beforehand. For some people, that may include working part-time or stopping completely to pursue hobbies or interests. There’s no right or wrong answer, but it’s why we recommend that people pursue the goal of financial independence over just planning for retirement. When you make work optional, it’s going to give you the freedom and flexibility to live the life you want, which may or may not include continuing to work in some capacity.

Three steps to building your freedom plan

If you have ever wondered whether the combination of your income sources and investment assets is enough to give you financial independence, this episode provides some insight. We cover important information that you should address when reaching for these goals. You’ll want to start by getting organized and that consists of three parts.

The first part is to get an idea of roughly how much you spend each year. It’s best to round up, since there will always be one-off expenses like cars, paying for a wedding, home repairs, and things of that nature. It is better to overestimate than to come up short. Step two is to understand your income sources. This could consist of part-time work or a pension, but in most cases, it will be Social Security. You will want to see what your monthly Social Security benefits will be at the age you plan to start collecting. The last step is to add up all your investment accounts. This is the combination of cash in the bank, your employer retirement accounts, IRAs, and any taxable investment accounts. Listen to the full episode to hear some simple illustrations of what this looks like once it’s all put together.

What does your life look like when you reach your financial freedom goals?

Our hope for everyone listening is that you’ll spend some time thinking about what you want your life to look like once you’re financially independent. Don’t feel guilty about what your vision involves, whether that’s stopping work completely, scaling back, or continuing full time simply because you love it. The goal is to be intentional with your plan based on what’s most important to you and to have an idea of where you ultimately want to be. This is going to allow you to work backward to figure out whether you’re on track to reach your goals or to know what changes you need to make in order to get there. Only you can decide what your best life looks like but we can help you get there.

Resources & People Mentioned

Download our guide: How to Create a Paycheck in Retirement
Blog post: Pursuing financial independence
Blog post: The math of financial independence
Blog post: How to create a retirement paycheck
How to get your Social Security benefits statement

Connect With Trent and Andrew

Subscribe to The Physician’s Guide To Financial Wellness
on Apple Podcasts, Spotify, Google Podcasts