The False Distinction Between Financial Independence and Early Retirement

Let’s start things off today with a question:

Do you think there is a meaningful difference between the terms financial independence and early retirement?

Tell us what you think in the comments. We’re going to make the case for one answer in this post, but as always, we love to hear opinions that are different from ours. And we’ve got a more important question coming later in the post…

Over the weekend, I read a post by a blogger talking about how he had been saving up for early retirement, but then he realized, “Wait a minute! I don’t want to just sit on my butt for fifty years doing nothing! I should scrap this early retirement plan and start aiming for financial independence instead!” Obviously I’m paraphrasing, with probably a little more sarcasm than necessary. But this is just the latest instance of someone making a big distinction where we believe no difference exists. And — more importantly — we think the making of the distinction is bad for our community. But more on that later.

We put together a highly scientific (note: not at all scientific) chart to break down the very important differences between these two dueling concepts:

Basically, the difference comes down to one question, the second in this chart: Will you probably quit your job after you hit your milestone? For people who call their plan early retirement, the answer is probably “Yes!” And for those calling their plan financial independence, the answer is “Maybe.” But even then, the term you choose to use has no bearing on future work, only on the job you currently have.

In every other meaningful way, the two concepts are completely interchangeable.

You have the freedom to work on your own terms in both cases, working if you want to, and not working if you don’t feel like it. You may describe yourself as “retired” or “financially independent” or “second acting” or “pursuing your passions” or any other term you wish in either case. The poster child of early retirement, Mr. Money Mustache, still works plenty, though it’s on his own projects, which sounds like how most people would describe financial independence.

So now to that more important question:

Does the Distinction Matter?

Our answer: Yes, yes it does, and not in a good way. And we have three reasons why it matters, though there are certainly more.

Reason 1: We as the personal finance community have bigger encouragement to offer and bigger myths to dispel than arguing the semantics of financial independence versus early retirement. Thank goodness most of us just shorthand it all “FIRE,” which encompasses both concepts, though we also don’t love adding acronyms and jargon to the discussion when we should be demystifying the process. But big picture, we should be dispelling important myths, like why you shouldn’t be trying to save for a house or for retirement while you still have high-interest credit card debt (exception: get that employer 401(k) match!), instead of having to explain whether our vision for what happens after we hit a magic savings number more closely aligns to Thing A or Thing B, when both Things are actually the same.

Reason 2: The distinction is divisive. It encourages taking sides, when really we’re all on the same incredible team. There were separate categories at the Plutus Awards last year for FI blogs and retirement blogs. And while it would make sense to separate them if the retirement blogs were focused on “traditional age retirement,” while the FI blogs were focused on early retirement, four out of the five finalists in the retirement category (us included) were early retirement/FI blogs. In that instance, big deal — more awards! But why even foster a mentality of difference at all, when we’re talking about the same thing? This community is so amazing at supporting people, but dividing the FIRE crowd into two camps based purely on semantics puts an unnecessary barrier in place.

Reason 3: It suggests entirely the wrong thing about early retirement, which risks alienating some people. The very fact of the distinction has this weird way of suggesting that people aiming for FI like to work, while those aiming for early retirement just want to quit their jobs and sit around. It’s a bias that already exists out in the world, as anyone who has retired early or is planning to retire early knows. The question, “What will you do with your time??” is a pervasive one, when announcing early retirement plans to others. It takes some explaining to help people see that, no, we’re not just going to sit in rocking chairs, bored out of our minds, for the next half century. For those of us who are already well on our way to early retirement, this is so not a big deal. We aren’t going to be dissuaded just because some misconceptions exist. But what about people who are just starting to explore the concept? Who wonder if early retirement might be something they could achieve? If they pick up on that vibe, even in the most subtle ways, it could make them say, “Oh well. I don’t want to do nothing with my life, so I guess I’ll just go back to planning for regular retirement at age 65.” And given that most of us say our goal here is to inspire others to do what we’re doing, that would be a real shame. Let’s put all of our energy into that inspiration instead.

Answering the Most Important Question

To us, the most important question is not whether you’re aiming for FI or early retirement, or even whether you see FI as a prerequisite to early retirement (as it is in our case — we’re already FI, technically, but have a little ways to go before retiring). The most important question is:

What do you want to do with your life?

A lot of the unnecessary distinctions seem to stem from people’s answers to this question. For those who are happy to keep doing what they’re doing, or who want to do something similar in the same sector, it’s easy to think about FI as the ideal goal. Same goes for people who don’t quite know how to answer the question yet — our 10 questions are a good starting place if that’s true for you. But for those who would say that what they want to do with their life is nothing like what they’re doing now — like in our case — early retirement feels like the right way to describe it, even if “retirement” doesn’t begin to connote the what we’ll actually be doing with our time.

So let’s focus on answering that question instead, and mapping out opt-in lives instead of default lives. Figuring out if what we need is a little safety net to protect us in a little leap, or a parachute for a major one. To us, that’s the only distinction that matters.

What Do You Think?

Please weigh in here — do you think there’s an important difference between the two halves of “FIRE”? Do you think it matters that some people imbue that distinction with meaning? And do you agree that the most important question of all is what you want to do with your life? Bonus points if you have a better idea for a term that we should all be using that encompasses everyone equally! :-)