Achieve money independence vs. not having to work.
Women may think about retirement as not working, rather than focusing on what it means to be financially free in retirement.
Many women have thought about a day when they would not need to work a nine-to-five job but hold on to traditional ideas about retirement planning. For example, they ask themselves:
Shouldn’t I take more risk while I’m young?
Shouldn’t I take Social Security as soon as I can?
What are other people doing?
Where are other women like me in their retirement planning?
Let us take a deeper dive into some of these traditional retirement planning thoughts.
Money independence vs. not having to work
Do you ever have days when you feel like you just want to quit your job? What holds you back from quitting?
Some professional women, especially Black women, are strapped with six-figure student loan debt. Others are living extravagant lifestyles that require all their money to fuel it. Still other women choose to invest a large chunk of their cash flow into a mortgage.
If you want to pursue financial freedom, you need to move beyond these encumbrances to boost savings.
I recommend that women seeking financial freedom start by calculating how much they need to save to retire on their own terms. Some may call this an early retirement, while others may call it money freedom.
For example, retirement advantaged savings plans such as a 401(k) charge a penalty on withdrawals before age 59 ½. If you want to retire before 59 ½, you should take that into account.
I recommend not saving all your freedom money in a 401(k) account. When women contribute to their 401(k), it is with money that has not yet been taxed. That means your money in the 401(k) will be taxed when it’s taken out after 59 ½.
The total amount you see in your 401(k) account, therefore is NOT the amount you can spend. That money will still needs to be taxed.
Money independence vs. working for money
An increasing number of women I speak with are in search of the freedom that allows them to work in organizations that align with their values. Does that sound like you?
What if you could work with an organization at a reduced income because your savings and investments allowed you to do so?
Your money freedom status can allow you to live the lifestyle you’ve always wanted, while pursuing a career you find to be more enriching. Does this sound like a better retirement to you?
Is your current retirement investing aligned with your gender equality and other values? Check out “Can Women Actually Retire Successfully by Investing in Gender Equality?,” and “Can Women Really Retire Comfortably with Index Investing In Gender Equality?”
Investing in alignment with your values may be difficult through your employer’s retirement plan. You can more easily accomplish this using your own IRA and taxable investment accounts through the right custodian and a knowledgeable financial advisor.
Rethinking Our Language about Retirement and Time
Listening to a TED talk by Keith Chen made me think about a different viewpoint. In Chen’s talk, Could your language affect your ability to save money?, he says that as English-speakers, we discern time periods. We tend to think in terms of the present and the future.
If that is true, and it makes the future feel like something more distant and different from the present, that’s going to make it harder to save.
What if women instead chose to speak in a “futureless” language? Doing so may subtly nudge you to feel the same about the present and the future, and just may make it easier to save!
Most women think about buying a house or sending a child to college as near-term issues. Retirement is associated with the future. Often, that makes retirement planning something you can delay.
You may also associate the word retirement with feeling old, being less vibrant, needing nursing home care, etc. What if you viewed money freedom as being able to buy your dream house, send a child to college, and travel?
Re-framing retirement into money freedom
What if you knew that having a reserve was the first step toward long-term money freedom? Would it make you more excited to save money if instead of calling it an “emergency fund,” you instead called it your “first six months of money freedom fund?”
When you hear the term “money freedom,” you may think it has to do with being wealthy. Women may not see themselves in that light. But what if you did?
I have had women clients with dramatic increases in income within a short period of time. As an example, what if you started out making $50,000 a year, and 10 years later were earning $500,000 a year?
Without a plan, it would be easy to live into that income as you bought larger homes, more expensive cars, and took more lavish trips. That means you would be dependent on continuing to make more and more money to pay for your lifestyle.
Alternatively, you could choose to continue living on $50,000, saving the rest to build your money freedom.
In search of discovering what you want: Financial freedom or retirement?
Knowing what you want is the first step in the journey. What is your vision for money freedom? Ideally, where would you like to be in 5 years, 10 years, 20 years, etc.? What tradeoffs are you willing to make to reach your vision?
You may discover that once you put pen to paper, or calculator, you’re not willing to make the tradeoffs needed to reach your original ideas about your retirement. You may find yourself changing either the target date, the amount you spend, or the amount you save.
These refinements to your plan, however, should boost your confidence in reaching your definition of financial freedom. Don’t forget to account for your personal values — such as women’s empowerment, climate, and racial justice – throughout your financial plans. Through planning you can incorporate your values throughout your financial plans.
Please share the news with your friends so that you won’t be the only woman living financially free!