Short answer: You may be. But have a crack at it anyway.
It’s a challenge to capture the attention of twenty-somethings when it comes to financial independence (FI). Retirement seems a loooooong way off at that age.
It doesn’t matter how much I bang on about becoming FI and thus time rich in your thirties if you start now. There are some young people who aren’t interested.
It’s much easier to connect with forty-plus year olds on the topic of FI. Especially women. I started my business, Money School, to teach parents how to teach their kids about money. But my most common client became forty-something women with no kids.
Even better, they came to me – a delightful problem to have in a new business.
I hypothesise a few reasons for this post-40 female interest in FI:
- We have an ‘oh shit’ moment. We realise we can’t work forever. Our minds turn to the news we’ve seen about over-55-year-old women being the fastest growing homeless demographic. We become determined not to let that happen to us.
- We’re starting to earn more. Your career earnings peak in your 40’s and 50’s. With that extra income you’ve got some spare cash to consider investing.
- We’ve got some mental space. The frantic days of young family juggling are disappearing. Yes, we now have teenagers or even ‘kidults’ at home to worry about, but the incessant cries of ‘Mummy!’ slow down. We have the chance to turn our attention to things we’ve been putting off – like money.
And so, in the list of questions our readers send in, ‘Am I too old to become financially independent?’ makes the Top 3 year after year.
My answer depends on your age.
But before we get to that, please note:
If you’re not earning an income, you can’t get to FI without taking significant risks, usually using debt. Sorry to be blunt, but that’s the deal. You need an income to get to FI no matter how old – or young – you are.
1. Under 50? No. You are not too old.
At Money School, we spend a lot of time talking to people about their journeys to FI and researching those who’ve done it. Some people get there as quickly as five years. Others take a couple of decades.
We’ve seen 12 to 17 years is most common for people on an average income with conservative-but-not-stingy spending habits. As the founders of Money School, Fran and I fall in this range, taking 14 and 12 years respectively to each reach our FI goals.
Fran is the example I point to whenever someone under 50 says ‘I’m too old!’. Fran started investing at 49 years old and got to FI at 63 years old without a huge pay packet. If she can do it, you can too.
Side note: Fran’s story is great inspiration. If you’d like to read how she got to FI, there are two articles: Money Matters, and Becoming a self-funded retiree.
2. Over 50? Maybe. You might not get there, but try anyway.
FI is a wonderful aspirational goal. But if you don’t have lots of cash to invest and you’re looking at your last decade or so of working, it will likely be a challenge.
Which is not to say you can’t. Plenty of people have got to FI in under a decade.
They typically either:
- become super-frugal, saving 50%+ of their after-tax income, or
- take more investing risk, for example leveraging up to many properties quickly.
Sometimes they do both, like Mike Rosehart who got to FI in five years.
Whether you get to full FI or not, the path is the same as any sensible money management and wealth accumulation strategy:
- Buy assets.
- Avoid bad debt.
#1 and #3 are so low risk they’re almost no-brainers.
If you save too much – as in you find yourself struggling to afford food in the last week of your pay cycle – take the money out of the bank and buy food. That’s it.
Once the money is spent, it’s gone. If you’ve saved it, you’ll have it there if you need it.
If you avoid bad debt, you’re not paying interest on things that don’t get you to FI. It means you either save to cover the cost of your purchases with cash, or you’re paying no interest, for example if you’re using an offset account or have arranged for your credit card to be paid off in full each month automatically.
The worst that happens is some FOMO and/or delayed gratification.
#2 – buy assets – is where it’s easier to come unstuck.
You might buy assets that don’t perform well. It’s hard to know if this will happen without a crystal ball, and as far as I know crystal balls don’t exist for economics. The best you can do? Look for a sensible investing strategy.
Or, you might pick great assets but have crap timing. Anyone looking to retire next month on shares they’ve accumulated might be in for a rude shock given the severity of the market correction in March 2020. But if you follow a sensible investment strategy buying assets that balance your risk, you’ve done what you can there.
If the worst happens and your assets tank, then you’re back to pensions and whatever’s in your superannuation.
Which is where you’d be if you did nothing anyway.
So, it’s worth trying, right?
Better to have a chance at getting to FI than absolutely no chance of getting there. Even if you don’t make the full FI goal, your finances will be healthier. And who wouldn’t want that?
3. Retired? Yes, you are too old – unless you’re able to go back to work.
Australia’s pension is on the poverty line. It’s subsistence living, not comfort. Trying to save anything would be a challenge. Unless you’re willing and able to go back to work, it seems crazy to put that kind of stress on yourself.
If you’re living on the income from assets and superannuation, or you’re living in a mortgage-free home worth millions and you’re ready to downsize, that’s a different matter.
There may be some way to better structure your finances to give you a more consistent or effective income during retirement. But that will, in general, be a once-off affair. You’ll get it sorted then carry on your merry way.
So there you have it. Most people reading this article will not be too old to have a crack at becoming financially independent.
I hope you take that as a challenge 🙂