Pursue financial independence, not just work till retirement

Many Straits Times readers have been talking lately about retirement and not having enough money in their Central Provident Fund accounts ("CPF flexibility good but women still at risk" by the Association of Women for Action and Research; last Saturday, "How about personalised sums, payouts?" by Mr Tan Hong Choon; Feb 6, and "Grant option of early, targeted saving for Minimum Sum"; by Mr Sim Beng Tiong; Feb 6).

Traditionally, retirement planning requires an individual to work for 40 to 50 years, and the objective is to save and retire to what is sometimes a life of no work and no purpose.

There should be a change in our mindset to that of pursuing financial independence, which is defined as an outcome wherein an individual can generate enough passive income to pay all expenses for the rest of his life.

The passive income could come from savings and investments, and possibly from a side business or property (either rental or investment).

Financial independence frees one from the obligations of having to work a particular job in order to secure a salary.

For example, an engineer in his 20scould also buildincome streams that will help him meet his needs for life and reach financial independence.

This could be giving tuition or having a hobby that generates income. When one starts young, opportunities can be created to increase one's income streams as one ages.

Working towards financial independence via saving and investing can be accomplished in a fraction of the time it normally takes people to achieve retirement goals, provided these income streams are sound.

The most important benefit of this approach is the freedom that traditional retirement does not provide. One is not obligated to work until the age of 70, and there will then be opportunities to try new pursuits.

Wong Shih Shen

This article was first published on Feb 16, 2015.
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