Celebrating (financial) independence

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The Fourth of July holiday marks the historic date in 1776 when the Continental Congress approved the Declaration of Independence. The written declaration stated that the American colonies wanted sovereignty and self-determination.

Those are important goals, and can be applied to financial situations as well as political ones. Achieving financial independence is something to celebrate as well. It means achieving financial freedom and autonomy. A person or household realizes a state of financial independence when they can meet their financial needs, address any unexpected expenses and attain their longer-term financial goals.

It usually means having sufficient savings, investments, protection, and income to cover living expenses, debts, and dreams. Financial independence allows you to make financial decisions based on your wants and values, not fear and obligation (sparklers and fireworks optional).

It’s important because reaching this goal leads to financial security and peace of mind.

Not a lot of people, however, consider themselves financially independent. According to LIMRA’s Financial Wellness Index, close to half of adults say they are at least relatively “well” (financially speaking), but just a quarter report the highest level of wellness (with little or no financial stress). About a third of adults rate themselves as “unwell” and another third are in the middle-range ― rating themselves neither very well nor very distressed.

Financial independence requires work and planning (and sometimes a bit of luck), but it’s a worthwhile investment of time, effort, and money.

Independence is a great goal, but how do you get there? Here are some suggestions to start:

• Make a plan. Having a plan (ideally a formal written plan) that includes both a short-term view (budget) and long-term plan (for goals like retirement, etc.) is an important step. Our research shows those who have a formal written retirement plan ― a plan to manage income, expenses, and assets throughout retirement ― are more confident they will be able to live the retirement lifestyle they want. Investors who work with advisors and have formal plans are three times as likely to feel confident as those who neither work with advisors nor have formal written plans  
• Save and invest; repeat. Again, short- and long-term planning. Create an emergency fund. Use tax-advantaged accounts or employer-sponsored benefits that meet your needs — such as retirement plans or college savings plans. According to the U.S. Bureau of Labor Statistics’ National Compensation Survey, among all U.S. workers, both private- and public-sector (state and local government workers), 72% had access to any type of retirement plan at work; but only 56% participate in such plans.
• Secure your income and protect those you love. Consider passive income streams and protect/insure your assets. Think about ways to generate guaranteed income in retirement. Life insurance can insure your assets and protect your family. Our research shows that people who own life insurance feel more financially secure. According to the 2023 Insurance Barometer Study, conducted by LIMRA and Life Happens, 60% of adults with financial dependents say they would be financially secure if a primary wage earner were to pass away. This is even higher for those who own life insurance ― only 49% of non-owners feel secure versus 69% of life insurance owners.

Not always easy goals to achieve

LIMRA research finds that consumers are currently concerned about financial security and preparedness. How many people are really financially independent? Is it even a realistic goal? Many people are struggling with expenses. According to our latest Consumer Sentiment Survey, consumers feel particularly vulnerable when it comes to having emergency funds and adequate retirement savings. Half of adults are taking steps to prepare for a recession: A third are saving more, a third are cutting back on spending, and one in five are investing in more stable assets.

Financial independence is largely personal and subjective. It can also vary greatly among people, as they may not have the same level of independence at different points in their lives. Achieving financial independence is a great goal, but the reality is that income levels, expenses, debts, savings and investments vary. 

If even only a small proportion of people achieve full financial independence, it’s still a worthy goal. Any actions that start progress toward independence are worth celebrating. 

Alison Salka

 

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Alison Salka, Ph.D., is senior vice president, member benefits, at LIMRA, a leading life insurance industry research group.