The world as we know it ended in 2022.
Yet, as we discussed yesterday, our entire approach to retirement planning is based on the world that ended. This new world we’ve entered into comes with new rules of money… and these new rules require a new approach.
I submit to you that we should scrap the nest egg model completely. Because it forces us to choose between assets and income. That’s the core premise within my book Beyond the Nest Egg.
Instead, we should start thinking in terms of “financial security” and then “financial independence”.
Financial security comes first. This is how we make our savings bulletproof.
To achieve financial security, we must assess our current needs and lifestyle relative to our career, income, and family situation.
Based on these things, how much money do we need to save to provide ourselves with reasonable continuity should we lose our job, our income, or suffer a major emergency?
This number is going to be different for each of us.
If we’re young and just getting started, maybe $25,000 is enough. If we’re middle age with a family, maybe we need to accumulate $50,000 or $100,000. And if we’re in or approaching retirement age, we may want our financial security number to be even higher.
But here’s the thing – we don’t simply stuff this money into a savings account or some kind of fund. We build a strategic asset portfolio across a range of asset classes. Each asset serves a different purpose for us.
We need to structure our asset portfolio such that it will be impervious to inflation, market crashes, and economic slowdowns. That’s not hard to do with the right mix of assets.
But at the same time, we can convert these assets back into cash easily if we need to. That’s the key. If we have an emergency, we always have sufficient purchasing power available to handle it.
That’s financial security. Once we have it we can start working on financial independence. This requires us to start building passive income streams.
The idea is to gradually build additional income until our passive income meets and then exceeds our expenses. Once that happens, we are financially independent.
And guess what? Our extra income allows us to also grow our financial security asset portfolio. That’s how we put assets and income on the same team.
So the traditional approach to retirement says that we build up assets and then sell them when we retire to fund our lifestyle. And we hope we don’t outlive our money.
The approach I suggest is radically different. And far more robust.
Let’s build assets and income during our prime working years. That way when we want or need to stop working, our income can fund our lifestyle… and we never need to sell our assets.
Then if we do proper estate planning, we can transfer everything we’ve built to future generations in a tax-efficient manner… and maybe humanity can finally get off the hamster wheel.
The beauty of this approach is that it makes our age irrelevant.
If we start with this approach when we’re young, we can “retire” whenever we’ve achieved financial independence. It doesn’t matter if we’re 45 or 65.
And even if we shift to this approach after we’re older, we can still reposition our nest egg such that it’s far more robust. Then we can still build extra income if we choose to.
In other words. There are no restrictions with this model.
That’s the vision. It just requires us to follow the new rules of money for the 2020s and beyond.
-Joe Withrow
P.S. If you would like a deeper dive on how we go about building our asset portfolio and our passive income streams, check out my book Beyond the Nest Egg. You can get it on Amazon right here.