John E. Richardson, Jr.
CPA - CFP
Certified Financial Planner
Senior Financial Advisor
for Strongtower Financial

Have you ever wondered why some people achieve financial independence and others seem to struggle their whole life making ends meet? Why are some people able to retire with confidence while others wonder if they will run out of money in retirement? Many people falsely assume that all they need to do is just make more money to solve all their financial problems. Unfortunately, that alone does not work. In my experience as a financial advisor, the amount of income you earn is not the determining factor in establishing financial security. Certainly, a good income is an advantage. However, it is not necessarily the most important factor. I have known many people who make a fabulous income but manage to spend every penny they earn and then some! The key to financial independence is two-fold:

1. Learn to live on less than you earn.
2. Save and invest the difference over the course of your lifetime.

This simple habit enables anyone to tap into the most powerful financial concept on earth, compound interest. For example: a young man begins work at age 21 and puts $5,000 per year into his 401(k) or IRA and does so every year until he retires at age 65. Assuming a conservative 8.5% rate of return, he will have over $2,247,000 when he retires.

These concepts are not new to many people. Most successful retirees have benefited from faithfully applying this habit throughout their working career. However, many retirees do not fully understand that this same habit must continue throughout their lifetime. Here is why.

If you spend 100% of the income your investments generate every year during retirement, inflation will eventually erode the purchasing power of that income. Although you may have the same dollars to spend, those dollars buy less with every passing year. The process of determining how much you can spend each year without eventually running out of money is complex. This process should be tailored to each individual. If you do not have a formal retirement income plan, I strongly recommend you seek the counsel of a CFP® who specializes in retirement planning to make certain you are on track. Remember, the same habit of living below your means that provided you with a retirement nest egg is the same habit that will allow you to maintain a lifetime of financial independence!