#1: What Does Retirement Mean to Me? Achieving Financial Independence
Retirement is often seen as the time in life when you no longer have to work unless you want to. Imagine a future where you work for fun or pursue your passions, without worrying about finances. This is what financial independence is all about: having enough money to:
- Cover your essential needs and basic wants
- Account for taxes and inflation
- Provide for you and your loved ones for the rest of your lives
The amount of money required to achieve this financial freedom is called “Critical Capital”. Critical Capital is the sum of money that will cover your retirement expenses, adjusted for inflation and taxes, for as long as you need it. It may include various assets, such as funds in your 401(k), Roth IRAs, taxable accounts, and more. Achieving retirement means reaching a point where you have enough Critical Capital to live the life you want—no longer dependent on earning income to survive. That’s the exciting part of financial independence!
#2: The Role of Mortgage Planning in Achieving Financial Independence
Your mortgage is likely your largest debt, and your home is probably your largest asset. How you manage your mortgage and home equity has a significant impact on your:
- Cash flow
- Tax deductions (or lack thereof)
- Net worth and wealth growth
- Liquidity (easy access to your money)
- Estate and legacy planning
As part of your financial planning, you need to evaluate whether your mortgage and real estate strategy are helping or hindering your goal of accumulating enough Critical Capital. Consider these questions:
- Does a smaller mortgage allow you to invest more of your cash flow into building your Critical Capital fund?
- Is a larger mortgage an effective strategy to free up cash to invest early into your Critical Capital?
- Should you consider a reverse mortgage in the future as part of your overall retirement plan?
Mortgage planning involves addressing these questions and more, ensuring that your mortgage, housing, and cash flow strategies align with your goal of financial independence.
#3: How to Build Enough Critical Capital for Retirement
Critical Capital is the amount of money needed to achieve financial independence. To reach this goal, follow these three essential steps:
- Calculate Your Required Critical Capital — How much money do you need for a comfortable retirement?
- Estimate the Future Value of Your Current Investments — What will your existing savings be worth in the future, including investments and assets?
- Determine the Gap in Savings — How can you adjust your cash flow or real estate equity strategy to close any gaps and ensure you accumulate enough Critical Capital?
As a mortgage professional, I collaborate with your CPA, CFP®, and other financial advisors to help determine the right cash flow targets for your retirement and how to generate the necessary income. If you don’t have a financial planner, I can refer you to a trusted expert. Contact me today to schedule a consultation and discuss your financial strategy in detail.