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The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Columbine Wealth Planning, LLC (referred to as "CWP") disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement and suitability for a particular purpose. CWP does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice,  as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall CWP be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if CWP or a CWP authorized representative has been advised of the possibility of such damages. In no event shall Columbine Wealth Planning, LLC have any liability to you for damages, losses and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Columbine Wealth Planning, LLC (referred to as "CWP") disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement and suitability for a particular purpose. CWP does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice,  as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall CWP be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if CWP or a CWP authorized representative has been advised of the possibility of such damages. In no event shall Columbine Wealth Planning, LLC have any liability to you for damages, losses and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

  • Jeff

Retirement or Financial Independence?

CWP Monday Morning Digest June 25th, 2018 | Volume 25


Understanding Wealth

One of the most common phrases I hear when chatting with people about my firm and what I do for a living is some variation of the following...

"Sorry Jeff.  I don't have any wealth for you to manage!"

I get it.  The traditional power behind the term wealth suggests that it is reserved for only the elite and those with money coming out of their ears - the true 1%.

The great Nick Maggiulli from Of Dollars and Data had an epic tweetstorm this week and detailed some very uncomfortable truths about wealth.  I unrolled the thread and you can read it condensed down to one page here.

We in the wealth management and financial advice industry spend a lot of our time pounding the table for people to SAVE MORE MONEY, and often times we extrapolate the best way to do that is to spend less money.

You'll see articles all the time discussing silly things like The Latte Factor and how we can become rich by investing our $4 we spend on a latte in the stock market instead and letting it compound for 40 years.  

There are a ton of variations of these types of ideas and many a blog has sprouted up on the virtues of spending less money in favor of a frugal life style.  It's quaint, but it's not reality -- it causes enormous stress and strain to constantly cut your spending. The math works and I understand what they're getting at, but I think these things go overboard and often overlook the fact that some of us want to enjoy life a little bit while we're living it.

Nick points out that one of the most powerful things you can do for your own personal financial situation is to increase your income as opposed to decrease your spending.

"To start, raising your income is far more important than cutting your spending when growing your wealth. Spending definitely matters, but without sufficient income it is far too difficult to succeed. Just look at the lowest 20% of income earners. They spend MORE than what they earn for BASIC NECESSITIES. While there are low-income individuals that become millionaires through very low spending, they are the exception, not the rule." ~Nick Maggiulli



In summary, housing and transportation are eating up more than 100% of the after-tax income for the folks that are the lowest wage earners in our country.  They don't have money left for food or healthcare. 

Compare that graph to one that shows the top 20% of wage earners and you get a nice visual about what it takes to have a little money left over in your budget to actually save some of it.


So let's assume you're one of the lucky ones that have enough money left over every month to take advantage of your company's 401k plan (hopefully to the point where you can at least get the company match).  Surely all you have to do at that point is sit back and watch your money grow until you retire, right?

Unfortunately, luck plays a huge role in our investing success, as well.

"Once you have a high income you can start to save and invest, but your investment results will be heavily influenced by luck. Consider this: from 1980-2005 the S&P 500 compounded at ~9.2% a year (post inflation + div). Even if you underperformed by 2% a year, YOU KILLED IT. That’s right. Even those that are objectively bad at investing (underperforming by 2% annually) would have seen their money grow 5.5x over those 25 years. But, start one decade earlier (1970) and the market only compounded at 5% annually for the next 25 years. This means that OUTPERFORMING the market by 2% a year from 1970-1995 made you LESS MONEY than UNDERPERFORMING the market by 2% a year from 1980-2005. The gods always have the last laugh." ~Nick Maggiulli

Let that sink in for a minute. When you start investing has a huge impact on the performance of your investments, and we aren't lucky enough to know in advance what the next 25 years will look like.

What Can You Control?

So, what's the point here, Jeff?

The point is that in life, as always, there are things we can control and things we can't.

We CAN control how much we spend.  We CAN control investing in ourselves and our education to try and get that promotion or a better job to increase our incomes.  We CAN decide to take control of our finances today and get some help.

We CAN'T control the market.  No matter how much we think we might need or deserve a 10% return on our investments for the next 25 years, the market doesn't care.  We CAN'T control the tax code or the economy.

But we CAN decide to start saving now and we CAN control how much we want to save. Our savings rate is much more indicative of financial success then our investment returns.

The word "retirement" causes a lot of different reactions for people. Some recoil at the thought of the traditional idea of retirement. I prefer to discuss financial independence. There will come a day in the future where having enough money set aside for financial independence will mean a lot to you and your family.

So consider these numbers. Your savings today will some day become your source of income. The 4% Rule is not the panacea for retirement income planning, but it's effective for some back-of-the-napkin math.

If you have $1,000,000 saved when you turn 65, using the 4% rule for what is considered a "safe" withdrawal rate means you can pull $40,000 a year off of those savings to live on.  Add in some Social Security, and your looking at $60,000 to $70,000 per year of income for your financial independence.

If you have $500,000 saved at 65, your number is reduced to $20,000 per year plus your social security.

Even if you think retirement for you is a "pine box", having some financial independence is a great feeling and one that we should all be striving for.  If you have 15, 20, or 30 years left to work and you haven't started saving for your own financial independence, maybe today is the day.

So go be great this week, consider what financial independence looks like for you, and be kind to someone who needs it most.


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Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.