This informative article was contributed to Leisure Freak by the site Dividend Power.

There’s a lot of talk on investing and personal finance sites about what’s considered the definition of early retirement.

People get somewhat opinionated over whether someone should be considered retired if they still generate income through a side hustle or non-passive means.

Since a lot of my articles refer to financial independence and early retirement, I figured it would be good for me to further discuss the definition of early retirement.

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Financial Independence

I consider financial independence to be a fairly straightforward concept. It’s the ability to live off passive income for a set period of time. It means you don’t need a job to maintain your lifestyle, or a side-hustle or any other means of generating labor-intensive income.

That financial independence could be based on a pile of cash that generates interest income, income from investments such as dividend growth stocks, or even social security or a pension. It could also be a combination of all of these. The extent to which your financial independence status lasts will be primarily based on the size of your savings and investments, the amount of risk you take (or don’t), and your lifestyle, which determines your spending.

Plan wisely, and you can hang on to that status almost indefinitely. Play it loose, and you could find yourself losing your financial independence and ability to stay retired early.

You can have a financially independent person with investable assets of $100K or one that requires $10 Million. It all depends on your circumstances and lifestyles.

If you’re still working a day job, or side hustling or running a business, you can still be considered financially independent. But only if the income from those activities is inconsequential to maintaining your lifestyle.

If you achieve financial independence, you can retire early. But this is only true if you do not need to work to maintain your lifestyle. However, you can be financially independent without retiring early.

Definition of Traditional Retirement

Traditional retirement is also a concept that’s understood by most. It usually means the end of one’s dependence on a conventional source of income from a W-2 or a 1099.

That source of income could have been a career, job, business, or even actively managing investments. It’s meant to be a transition. From spending most of your time on activities dictated by your income-producing commitments. To a period where you have the freedom to choose how your time is spent.

A precursor for retirement usually is financial independence, although it is clear many people are ill-prepared for that period of their life. Sometimes your exact retirement age is not planned due circumstances beyond your control. If we look at net worth targets by age, studies show that the median net worth of many in the 55 – 64 age bracket is only about $200K in 2019 dollars. This may not be enough depending on your lifestyle and spending.

In my opinion, you probably can’t be considered retired if you’re still actively generating income unless that income is not necessary to maintain your desired lifestyle. This means side hustles, part-time work, and similar income-producing activities are fair game in retirement provided that income is not necessary to maintain your lifestyle.

You can be retired and still generate income, as long as you’re financially independent.

What’s Considered Early Retirement

What distinguishes traditional retirement from early retirement is simply timing. I find this one relatively easy to define.

What we need is a proper and current baseline of when the majority of people retire. Thankfully the LIMRA Secure Retirement Institute has done all the hard work on what age most people retire in the US. This data will naturally continue to evolve over time as people live longer.

For now, LIMRA found that roughly 51% of Americans retire between the ages of 61 and 65, with 82% retiring after the age of 60.

Only 18% of individuals retire before the age of 60.

And only 5% of individuals retire before the age of 55.

What’s fascinating is that only 1% of individuals retire before the age of 50. That’s the type of 1%er many people want to be! On the other end of the spectrum only 7% retire after the age of 80 and only 2% at the age of 85+.

Based on this data, I would classify anyone retiring before the age of 60 as an early retiree. Those retiring before the age of 55 would be considered extremely early retirees and an outlier.

Those early retired folks are getting a considerable discount on their freedom, but they likely worked hard for it.

Like traditional retirement, you can be early retired and still generate income, as long as you’re financially independent. But again, you can be financially independent without being retired early.

Closing Thoughts on the Definition of Early Retirement

It’s no wonder there’s a bit of stigma associated with early retirees. Especially those under the age of 55. The chances that someone will ever meet or come across one of those individuals is rare.

This leads to quite a bit of ignorance around how most people have achieved such a significant accomplishment. And to a certain extent, maybe even some hostility. All you have to do is read through some of the comments on mainstream personal finance news outlets that highlight early retirees in a given article. Those comments are a window into how stigmatized this subject still is. Often people fail to realize though it is through hard work, paying off debt, saving at a high rate, and making smart decisions on investing in stocks or real estate.

Since I read and write about many people who have achieved FIRE, I’ve grown accustomed to learning about all sorts of people achieving financial independence and early retirement. As a result, the concept has become relatively normalized in my mind.

I’ve also realized that what many people are really chasing is financial independence at an early enough stage of their life to then do the things they want to in life. You can still choose to work but you can also choose not to. Early retirement will be a natural outcome once you hit that milestone of financial independence. Of course, many people want to claim their freedom as early as possible. Based on the data shared here, it seems like having the option to retire before the age of 50 would put most people in rarefied company.

Early retirement certainly comes in many flavors. Much thanks to Dividend Power for contributing this post. 

Author Bio: Dividend Power is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 4% out of over 8,091 financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.