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Financial Independence vs Retirement: Differences And Which is Right for You


Money makes the world go round… but when is enough enough? You’ve probably heard the terms “financial independence” and “retirement” used both together and separately, which can make it hard to know how the two concepts differ. Both involve holding sufficient funds to live off of for the rest of your life, but there is one key difference:

Financial independence is having enough money in savings, recurring passive income or investments to pay for your living expenses for the rest of your life, whereas retirement is quitting your job and leaving the workplace to live off of savings, recurring passive income, or investments. In both cases, you do not need to work.

Retirement takes shape in many ways, though all forms of retirement rely on the same fundamental concept of having already obtained financial independence (which is having enough money to take care of you and your dependents for the rest of your life) and quitting full-time work. Below, you will find a table which outlines the different types of retirement.

The Many Faces of Financial Independence and Types of Retirement

Here is a breakdown of the differences between various types of retirement.

Traditional RetirementRetiring at the customary age of 65 (in the United States and many other countries) and living off of some sort of pension or other social security system in addition to any personal income, savings, and investments
FIRE (Financial Independence, Retire Early)Retiring at any age below the traditional retirement age (though many who reach FIRE are younger than 40) and living off of personal income, savings, and investments; many sub-types of FIRE exist, including FAT and LEAN FIRE
Semi-retirementRetiring from full-time employment and working part-time, either employed by someone else or yourself, and living off of that part-time income and personal income, savings, and investments
Mini-retirementRetiring from full-time employment for a short period of time by living off of personal income, savings, and investments; typically used as a milestone for personal financial achievements 
No retirement, but financial independenceAchieving financial independence, or the ability to cover all living expenses through personal income, savings, and investments without having to work anymore, and choosing to remain in the workforce full-time anyway

As the last row on the table iterates, it’s important to understand you can reach financial independence without choosing to retire. Through careful financial planning and investing, you can accumulate enough to satisfy your financial wants and needs without the income from your job but choose to remain working in that job anyway.

How to Prepare For and Achieve Financial Independence and Retirement

Before you retire or semi-retire in any of the ways listed above, there are a few principles to follow to help you achieve financial independence, which is the foundation of any solid retirement. 

1. Calculate your FI number

Your FI number is the number you need to have invested and saved to live purely off those investments for the rest of your life. A basic way to calculate your FI number is to take your annual expenses and divide it by the percentage you expect to withdraw from your investment portfolio each year to live on in retirement (i.e. if you spend $60,000 per year and plan to withdraw 4% annually, your FI number would be $60,000 / 0.04 or $1,500,000 after tax). Check out this article on calculating your FI number for a deeper dive. This number can seem large, but the magic of compounding means you don’t actually have to invest $1,500,000 — you really only need to invest around half of that to reach your FI number!

2. Increase your savings rate.

Save, save, save! The more you save, the quicker you will be able to achieve your FI number. A typical savings rate for someone who is looking to achieve FIRE is around 50% (i.e. if you make $50,000, you save around $25,000). Even if you make less income, you can find ways to increase your savings rate.

3. Lower your expenses.

The easiest way to increase your savings rate is to lower your expenses! Use spending rules such as the 30-day rule to make more meaningful and premeditated decisions. Eliminate unnecessary purchases, and find ways to decrease your housing or other fixed costs. By lowering your expenses, you not only save more money now, but you will also need less money to live off of in retirement.

4. Focus on income producing assets.

If leaving the workplace appeals to you, figure out ways to build passive income (which is income produced without active work), such as a rental property, side hustle, or dividend generating stocks.

As you follow these financial independence principles, you might be contemplating which retirement road to embark down. Consider the following lifestyle factors to help you determine which type of retirement and financial independence is right for you.

Your Age’s Impact on Financial Independence and Retirement

Your age is the one item in this blog post you cannot do anything about — and that’s okay! That’s why four types of retirement and financial independence were described above. If you are older than 60, you might want to consider waiting to retire for a few more years, as you are close to the required age for receiving certain government or employer benefits. If you are younger, however, it’s never too late to start planning for financial independence and an early retirement or semi-retirement if it appeals to you.

Your Career’s Impact on Financial Independence and Retirement

You spend an average of eight or more hours a day doing a certain body of work, and the circumstances surrounding your job can affect which type of financial independence and retirement you strive for. Do you like your job? Is there higher earning potential or position advancement opportunity? Do you feel fulfilled by your work? Does your work stress you out more than what is considered normal or healthy? Is your job unsafe physically, mentally, or emotionally? If you answered yes to the last question, please consider talking to a trusted love one or competent professional about your situation to determine the next best steps. But if you love your job, you might consider pursuing financial independence through traditional retirement, and reaping all of the benefits of a full career. If you’re somewhere in the middle, think about becoming financially prepared for either semi-retirement or a mini-retirement to take a break from the daily grind. And if you’re looking to leave the workplace for good, FIRE is calling you name!

Your Savings Rate’s Impact on Financial Independence and Retirement

It’s general advice to always be saving for retirement, but the amount you save varies considerably. Your savings rate is how much you choose to invest or put aside each month divided by the amount of monthly net income you have (i.e. if you make $4,000 a month, and save $1,000, your savings rate would be 25%). If you live a more lavish lifestyle, choose to invest very little or nothing at all (i.e a 10% or less savings rate), and don’t want to change your saving habits, consider traditional retirement. If you retire later in life, you won’t be living for as many years off of your investment portfolio (but with the caveats that your investments have less time to compound and prices will continue to go up). If, however, you are comfortable maintaining a very high savings rate (i.e. 50%), you’re on a path which could lead you to reach FIRE. 

Your Stress Levels’ Impact on Financial Independence and Retirement

As mentioned when discussing how your career impacts the type of financial independence and retirement you choose to pursue, the level of stress in your life and how you handle that stress plays a key part in retirement decisions. If you can manage side hustling (giving up free time or working late) and foregoing certain living standards (living in a potentially uncomfortable apartment, sharing a room, or living on the road) to increase your income and decrease your spending, you are perhaps more equipped to achieve FIRE than others. If you appreciate the freedom that comes from checking out after work, enjoying your weekends the way you want, and always being able to say yes to requests to go out with friends or family, you might find waiting for traditional retirement more suitable. If you’re the type of person who loves their job but needs a break for a month, or maybe six, think about financially planning for a semi-retirement to take some time away and recharge.

 Your Current Life Plans’ Impact on Financial Independence and Retirement

Think about your current time commitments, family obligations, and professional responsibilities. In your current situation, do you anticipate being able to spend extra time to generate extra income? Are you able to reduce some of your living expenses? If you are caring for a new baby or volunteer 20 hours a week on top of full-time employment, you might find yourself answering no to that question. If you are willing to either change or make new time commitments to achieve financial independence sooner, consider implementing a plan to help you work towards early retirement or semi-retirement. On the other hand, if you are extremely busy and satisfied with all of your obligations with no intention to change, you could plan for a traditional retirement. Understanding your current time limitations, and the flexibility of those limitations, will help you understand which type of retirement and financial independence to work towards.

Your Future Life Plans’ Impact on Financial Independence and Retirement

You might be single with a high-paying job and low expenses now, but perhaps you have plans to marry and start a family. Or maybe your current role at work does provide you with a comfortable salary, but you aren’t fulfilled and want to take a lower paying job with more satisfaction or a better work-life balance. Considering all the ways you anticipate your life changing in both the short-term and long-term future is crucial to making the right retirement decisions. If, for example, having a family is your goal, your expenses will increase. Do you have plans to compensate for those escalating expenses by future raises or picking up a second job or side hustle? If so, you can continue to plan for the same type of retirement and financial independence as you are currently striving for. Alternatively, if you don’t anticipate making more money in addition to to accruing more expenses, think about extending your timeline to retirement or even taking a mini-retirement before the baby arrives.

Your Investment Portfolio and Preferences’ Impact on Financial Independence and Retirement

How soon you want to retire, as well as whether you want a semi-retirement or a full-fledged retirement, significantly affects your investment decisions. Think about your savings rate, your comfort level with risk, and your investment type preferences. General rules of thumb can help you understand what type of retirement aligns best with your investment process and philosophy.

For example, it is generally suggested that the sooner you wish to retire (outside of the customary retirement age) and the younger you are, the more aggressive your stock-bond ratio should be (i.e 90% stocks to 10% bonds). Are you confident in an aggressive investment approach? As another possible scenario, if you plan to live off of investment income during semi-retirement, investing in tax-deferred accounts (i.e. a traditional 401(k)) would allow you to pay taxes on those investments (if you were living off of them) at a lower tax bracket if your income is lower when only working part-time. Are you currently investing in tax-differed or taxable accounts? Are your investments liquid (meaning can you easily pull cash out of them when needed to retire sooner)? Creating and maintaining an investment portfolio is multi-factorial process, and many of these factors are what you should use to understand which type of retirement and financial independence is best for you.


There is no right or wrong way to approach achieving financial independence and retirement, but factors such as your age, career, savings rate, stress level, current and future life situations, and your investment portfolio can help you decide which type of retirement and financial independence aligns well with your lifestyle.

Climb on, FinBase.


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Bethany works in technology when the sun is shining, but when the stars come out, she writes about personal finance, financial independence, and holistic living. She enjoys cooking, playing tennis, skiing, and floral design.
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