Most people are told they need to plan for retirement, but wonder what size their accounts need to be at what age. Then they spend years alternating between excitement and terror, hoping to get there. We found something far more inspiring to plan for than retirement – your Freedom Day. You can reach it at any age and finally own the peace of mind from knowing exactly how much is enough.
For three decades we have built Freedom Day Plans, now time-tested by every market condition. This simpler and longer lasting solution is not based on the size of your assets, but rather on the streams of your income.
Our definition of Freedom Day is when multiple steams of income that a family receives in their mailbox, now exceed all annual expenses (needs & wants) going out. We balance those streams between risk-free income and rising income.
We affectionately call this annual cash flow – mailbox money – because it is delivered regularly, no matter what the markets are doing, to hold it in your hand to know it is real.
A Freedom Day Plan is very different than other financial plans we have examined over the past three decades. For starters, we build ours in-house from scratch each time. No good plan for anything was ever outsourced or trusted to a computer simulation in our experience. Almost every other financial plan that we’ve seen relies on some sort of estimated “safe withdraw rate” to show a combination of projected returns and principal being withdrawn over time. Many of those predictions may work just fine when stock and bond markets cooperate. But make no mistake, projecting a combination of profits and principal to pull out of an account is NOT income.
For starters, ask yourself what happens if the stock market goes nowhere for a long time? It happens often. Most recently, from the day I got married the stock market was at the exact same level 13 years later. Here’s the bigger problem, never before has that happened at the same time interest rates were low. From today’s starting point, there may be no such thing as a “safe” withdrawal rate of 4% or 5%.
Next time you hear somebody suggesting that is safe…holler “W.H.O.A.”Withdrawing Hopes Of Appreciation is not a plan, it’s a prediction.
We prefer to turn those flawed assumptions upside down. Rather than rely on the market to always appreciate in value to can pull from, instead we’d much rather ask what free cash flow is generated from my accounts. Then we can take responsibility to work and save long enough until we build multiple streams of income that exceed expenses. If there is any extra appreciation along the way, that’s extra to enjoy, but not count on.
The additional bonus from focusing on multiple streams of income rather than hoping for more appreciation, is that any scary market volatility and all the opinions on what to do next, can finally be ignored as the distractions.