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When I first started in the Financial Industry, I remember setting some goals for myself. One of my most important goals was to be financially free by the time I reached 55. While my goal was to be financially free, I didn’t think I would retire.
Unfortunately, after working for 20 years in the industry and working with thousands of clients, I realized that the old-school way of looking at retirement just did not work for people who had a goal to be financially free early. I also had to start thinking differently if I could help myself and my clients. After years, I created the Freedom Day and the Freedom Day Method (™) concept.
In our current financial climate, the traditional approach to retirement planning — saving 10% of your income, investing in financial assets like stocks, bonds, and mutual funds, and then drawing down 4% per year during retirement — may not suffice for those aspiring to retire early. This strategy, though time-tested, may not allow many individuals to maintain a lifestyle similar to what they're accustomed to while working. For those seeking financial independence and the ability to retire on their terms, a shift in perspective is required. This article will explore why the traditional financial planning method may fall short for early retirees and propose an alternative — developing multiple sources of cash flow through passive income, which we refer to as Freedom Engines, to secure your Freedom Day.
The traditional approach to retirement planning, which we'll call the 10-4 Rule (saving 10% and withdrawing 4%), has several key shortcomings when applied to the goal of early retirement:
Suppose the traditional retirement planning approach aligns differently from your early retirement goals. In that case, it's time to consider an alternative — building Freedom Engines. These are multiple sources of passive income that work independently of your time, providing a steady cash flow.
Freedom Engines aim to generate enough passive income to cover your Minimum Required Income (MRI) — the base amount you need to cover your living expenses. Once your Freedom Engines can generate 125% of your MRI, you've reached your Freedom Day — the day you become financially independent and can retire if you choose to.
Freedom Engines can come in many forms, such as real estate rentals, dividend-paying stocks, peer-to-peer lending, or even a side business. The key is building a diverse portfolio of income-generating assets that weather different economic conditions.
Passive income has several advantages over the traditional retirement planning approach:
Steps to Build Your Freedom Engines
Here are some steps to help you build your Freedom Engines:
By shifting from a traditional savings-focused mindset to one that values diverse income streams, you can create a robust financial plan that enables early retirement. Freedom Engines provide a roadmap to financial independence that isn't tied to the volatility of the market or a fixed withdrawal rate.
Instead of waiting for the right age to retire, your Freedom Day is dictated by when your passive income surpasses your living expenses. This financial approach creates the possibility for early retirement. It contributes to a more secure and fulfilling financial future, giving you the freedom to live on your terms.
Building Freedom Engines takes time, patience, and strategic planning. But the reward is worth the effort: the ability to achieve financial independence and retire early, secure in the knowledge that your lifestyle is sustainable and your financial future is secure.
If your goal is to retire early and maintain your lifestyle, it may be time to rethink traditional financial planning. By focusing on multiple passive income streams, you can achieve your Freedom Day. Remember, the journey to financial independence is not a sprint but a marathon. With strategic planning, patience, and perseverance, you can build a financial future that aligns with your retirement goals and lifestyle aspirations.
Retiring early requires a different strategy than traditional retirement planning. While saving and investing are crucial, they may not provide the lifestyle or security that early retirees seek. By building Freedom Engines, you can create a steady stream of passive income that allows you to retire on your own terms and timeline.
Investment advisory services offered through Freedom Day Wealth Management, LLC, a Registered Investment Advisor. Freedom Day Wealth has advisors licensed to sell Life Insurance in TX, OK, CO, CA, ID, IA.. Principal Office: 1320 Arrow Point Dr, Ste 501, Cedar Park, TX 78613. E-mail: info@freedomdaywealth.com.