By Shane Cummings, CFP®AIF®, Wealth Advisor & Director of Technology/Cybersecurity

What Does it Mean to Be Financially Independent?

There is growing interest in the “Financial Independence, Retire Early” (or FIRE) movement, especially since the COVID pandemic caused people to begin reassessing their priorities. FIRE is an easy acronym to remember, but what does it actually mean? My experience as an advisor has taught me that the definition of retirement can vary radically differently from person to person. Ideas about how to do this early—how to generate the appropriate income—can vary significantly as well.

One of the most important elements in achieving financial freedom? Gaining a firm grasp on your expenditures—and building the discipline to match these with your aggregate sources of income so you can either spend only what you earn or manage distributions in a sustainable pattern

RE: RE – How Early Can You Retire?

I view the ‘RE’ in FIRE—retire early—as a bit misleading. Anyone who expects to be able to become financially independent and retire or leave work in their 30s or 40s should have realistic expectations for what this means for their financial lives. It does not mean being on an endless vacation. Generating the required amount of income to support yourself over a long lifetime requires diligence and attention. Assuming that the rules that currently apply for generating income from dividends or passive assets will remain the same several decades from now is not prudent planning.

Interest and Dividends: Stress Test and Think Long Term

Investors today are feeling pretty satisfied with the yield on their cash savings accounts, for example. Competitive accounts will pay around a 5% APY rate. However, don’t be fooled into thinking this is going to last forever. 5% yields on cash are one positive offset of the higher borrowing rates we’re dealing with in the wake of the pandemic. The Federal Reserve has made clear its ultimate intention to reduce interest rates, which will also result in lower yields on cash and other investments.

When thinking about financial independence, it’s very important to evaluate the income your assets and investment portfolio will be able to generate long term. Being conservative, it’s probably best to under estimate as a way of stress testing. Investors might also be tempted to look into high-yielding stocks. However, these come with a catch as well, which is that stocks paying much higher dividends tend to deviate stronger from market returns over time. In other words, they may pay more income, but they could trail the market or experience substantially more price volatility than a typical capitalization-     weighted stock portfolio.

The Pros and Cons of Rental Properties for Financial Independence

Passive income can provide another source of income to help create financial independence.  You may have noticed investors purchasing properties as rentals and listing them on sites such as Airbnb or VRBO. Again, expectations here are important. A rental property is not going to just produce cash flow without any effort for the financially independent investor to live on.

Many of our HH clients who invest in property can attest that managing properties, while perhaps not a full-time job, definitely requires some effort. You should expect to receive occasional calls from tenants or renters if there is a problem with the property (hot water is out! Garage door won’t open!) where a timely response is needed. Alternatively, outsourcing the care of the property to a manager is an option, but this will cut into the income it generates.

Rental properties also come with some unique tax and reporting requirements. As the owner of an investment property, you will typically depreciate the property over time, which provides some near-term deductions. But looking at it from a long-term perspective: When you dispose of that property you will pay a larger capital gain if you don’t exchange it for a similar investment property.

Staying Debt-Free is Vital to Achieve Financial Freedom

Just as producing income to live off of is important, paying down debt early is a key factor with FIRE: True financial independence means holding no debt on your primary residence, cars, or other major assets. Some strict adherents of the FIRE movement make it a point to hold onto certain assets as long as possible before replacing them, such as maintaining and driving their cars as long as possible until they’re no longer serviceable.

No Easy Button to Financial Independence & Early Retirement—But the Right Mindset and Expert Advice Are Critical

In short, there is no ‘easy button’ for retiring early and achieving financial independence, unless you were lucky enough to be born with a trust fund or inherit significant wealth. To build and achieve wealth is hard, and maintaining it can be difficult as well. For some, financial independence means being able to work a little less hard and take a job that they feel passionate about, rather than needing to maximize their income. In this case, building a diversified portfolio, which may include some passive income, helps supplement their lifestyle. They get the option to pursue more appealing jobs or take time off to travel earlier in life.

Some followers of financial independence retire too early and then get stung by the need to follow an extremely frugal lifestyle. Ultimately, some of those folks end up going back to work out of boredom or because their ‘target’ for financial independence did not quite match their resources: The numbers didn’t work. Achieving financial independence or retiring early requires a thorough analysis of each saver’s assets and liabilities (future spending) and ongoing efforts to make sure they continue to balance correctly.

Financial independence is still an admirable goal and makes sense for investors with the right mindset and will to achieve it. Advisors at Halbert Hargrove assist families with understanding their future income sources and liabilities regularly – reach out to our team if this is a goal you’re planning to work toward.



Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.