Redefining Retirement: How to Build Your Retirement Cash Flow

Written by mwealthgroup
Published on March 25, 2024

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Do you believe that you need $1 million dollars for retirement?

A common retirement belief is: “If I reach a certain age (like 65) and have a huge sum of money (like $1 or $2 million dollars), then I can stop working.”

However, this is an outdated view of retirement and completely untrue for most people. 

Retirement isn't about an arbitrary age or lump sum amount—it's about having enough monthly cash flow, money coming in, to cover your living expenses and maintain your desired lifestyle.

Traditional Retirement Math

Traditionally, retirement planning focused on the "25x rule," which states you need to save 25 times your annual expenses to retire. 

So if you spend $40,000 per year (which is very hard to do nowadays), you'd need $1 million saved up ($40,000 x 25). 

From there, you'd withdraw around 4% per year ($40,000, which is 4% of $1 million) to fund your retirement, assuming you retire at 65, have no health issues, and live until 90 on the dot.

The New Retirement Reality

Rather than obsessing over hitting $1 million+ by age 65, the key to successful retirement planning is building reliable monthly cash flow streams that exceed your expected living expenses. 

Retirement doesn't begin at an arbitrary age - it starts whenever your passive income can cover your lifestyle costs.

For example, if your household's monthly living expenses are $6,000, retirement begins as soon as you've built up enough cash-flowing assets (like rental properties, small businesses, annuities, etc.) to generate at least $6,000 in truly passive monthly income. 

Keep in mind that most households spend an average of $6,081/month and $72,967 over the entire year.

If you can achieve that income stream by age 45 or 50, you've essentially already "retired" even if you keep working.

How to Generate Cash Flow in Retirement

generating monthly cash flow for retirement

Having a steady stream of monthly cash flow is essential for enjoying a comfortable retirement on your own terms. 

Without active employment income, you'll need to build passive income sources that can provide reliable cash flow month after month. There are several strategies to consider:

1. Buy Income-Generating Assets

One of the most straightforward approaches is to invest in assets that inherently produce passive income. 

This could include rental properties that generate monthly rent checks, dividend-paying stocks, interest-bearing bonds, or businesses you own but don't directly operate like franchises or e-commerce stores. 

The key is acquiring sufficient income-producing assets to meet your target monthly cash flow needs.

2. Start a Business You Can Exit

Building a successful business from the ground up with the intention of eventually stepping back from day-to-day operations can be a lucrative long-term play. 

As you scale the business and hire a reliable management team, you can transition to an owner's role and simply collect distributions from the profits while the business runs itself. 

Potential examples include consumer product businesses, home service businesses, marketing agencies, and more.

3. Leverage Cash Value Life Insurance Policies

Certain types of permanent life insurance policies, like whole life or universal life insurance, accumulate cash value over time that you can access for retirement income. 

By funding these policies during your working years, you can eventually borrow against or withdraw from the cash value tax-free to invest in income streams like real estate or businesses.

4. Buy an Existing Cash Flow Stream

Rather than building something from scratch, you can acquire an already-established income stream, such as an existing small business, franchise territories, vending machine routes, websites generating ad revenue, and more. 

While typically more capital-intensive upfront, these turnkey cash flow streams require less startup effort.

The key is creating enough diversified passive income streams to meet your target monthly cash flow needs. Get creative and combine some of these approaches. Make it your own!

Forget About Lump Sums & Focus on Monthly Cash Flow

couple discusses how to generate monthly cash flow

Forget about the 25x rule and arbitrary retirement ages.

A much more calculated approach is to:

  • Calculate the monthly living expense rate for your retirement lifestyle (a.k.a. your required monthly cash flow)
  • Build cash-flowing assets and passive income streams to meet and exceed that number

Once your passive income reliably exceeds your living expense rate each month, you have the financial freedom to make work optional. 

That's true retirement - having the option to work or not based on your passions and interests rather than needs. Building ample monthly cash flow makes this possible at any age.

Retirement planning is simpler than most think. Don't obsess over hitting a questionable lump sum number or arbitrary age target. 

Just focus on generating the monthly passive cash flow required for your desired retirement lifestyle. Do that, and you'll be able to "retire" on your terms and your timetable, not one dictated by some random Joe Shmoe on the internet.

Interested in Free Retirement Advice?
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Get started on the path to generating cash flow in retirement today!

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M Wealth Group
M Wealth Group
Together, Martin and Chelsea use their professional expertise and life experiences to provide personalized financial strategies to help clients achieve their goals.
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