Reflections on Financial Independence, Retirement and Mortality

A fellow financial blogger in pursuit of financial independence and early retirement, CreateWealth8888, passed away earlier this month. From his blogger profile, it appears that he has done significantly better than most have in the pursuit of financial independence and early retirement:

• Maintained a 5 person household and put 3 children through university on a single income since 1995
• Started investing, and only in SGX listed stocks since 2000 (age 43)
• Achieved financial independence with enough to retire on until 2041 by 2013 (age 56)
• Finally retired at the end of 2016 at the age of 60

How many amongst us can say that we have done better than he has? Especially given the constraints and the resources available?

The twist in the tale is obviously how mortality caught up with him at the early age of 67, when he had barely more than 6 years of retirement to enjoy. And of course, almost 2 years of this was in some sort of Covid-19 restriction or other.

This does give us pause to reflect upon how financial independence, retirement and mortality. These are but different facets of the way ahead facing us.

What is Financial Independence for, if not for Early Retirement?

What is Financial Independence for?

While attaining financial independence has become more and more popular as a life goal, there is as yet little thought as to what it implies. Many of the people along this path see financial independence as a way of freeing themselves from the day-to-day shackles of working life, not so much as a way to escape it completely, but as a way to ensure they no longer feel threatened by the loss of income. Less common, despite the origins of of this in the FIRE movement, do people aim to get out of working life altogether, or in other words, retire early.

But what is financial independence for, if not early retirement?

Perhaps we are often so busy, juggling between day-to-day life at work and at home, while saving and investing for financial independence, that we have no bandwidth to think about what comes next. Or to envisage the type of life we want for ourselves after achieving financial independence. Needless to say, retirement, the lifestyle we want, how to finance it without a day-job, how to transition into it, and the challenges of doing so, are not things where there is any consensus or even any sort of information easily available. After all, those who have made the transition successfully are probably too busy enjoying their new life to give advice to those who simply have no time to even consider it!

What we know and do not know about Mortality

The other aspect of financial independence and early retirement is what we know, and do not know about mortality. Sure there are plenty of statistics from life tables showing us that the life expectancy for retirees at the age of 65 is over 84 years for males and 88 years for females. But there is considerable variation around these median lifespans. Just as we cannot assume a 20 year retirement from age 65 to plan our retirement finances (and we usually plan for at least 30 years or until the age of 95 to be safe), neither can we assume that we have at least 20 years of retirement until the age of 85 or 88 to enjoy.

While the armies of financial advisors and planners have no issue with advising us to be conservative, save harder and invest for longer incase we live too long, there is little credible advice on how much is enough, and when to pull the trigger of retirement in order not to squander the little time available for it. After all, life is all about managing the contradiction most of us face in terms of trading time and health for wealth when younger, only to trade wealth for time and health when older!

In any case, it is clear from this episode that we should not leave planning for an early, or earlier retirement till later, lest we end up having too little of it! It is not just time we may end up having too little of, but also health and mobility too.

Many financial paths to independence

One of the more whimsical things which many of CreateWealth8888’s friends recall fondly, is how he held somewhat non-mainstream views on investing and fiercely defended his views. For example, sticking to SGX listed stocks while the world around him swarmed into technology stocks, Chinese stocks, US stocks and even cryptocurrency. And yet, he had more assurance than most around him that his investment system would work out for him.

Which is a reminder to everyone seeking financial independence that a good dose of humility is usually needed. After all, investing and decumulating for retirement is far less of of an established discipline compared to any other branch of financial economics, simply because there is no real theory or validated hypothesis to base it on. All the confidence around how well the various withdrawal strategies, such as the 4 percent rule, work, is solely based on empirical observation which does not guarantee that they will work in the future. Neither do approaches like dividend investing, REIT investing, value investing and the whole lot of them. Running more simulations, whether based on historical data or projections, do give us a little more confidence, but not that much more!

Rather than argue endlessly about which style of investing or which method of decumulation works better, perhaps the energies should be focused on acknowledging that there is no one right answer to the exclusion of all others. And with uncertainty, being diversified across strategies, just like being diversified across assets, may be a better approach. Other aspects where a lot of useful thinking, modelling, simulation and so forth can be done would be around methods to deal with sequence of returns risk, ways to identify when sequence of returns risk may end up biting us in the long term, and responding to changes in economic, healthcare cost and lifestyle inflation without crimping our retirement lifestyle.

In short, it is quite clear that the final word on how to plan for financial independence and early retirement has not be spoken yet, nor has the final chapter been written. There is plenty left to explore!

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