This last week, I had a coaching member ask me how we apply our model to know how much they will have in retirement. Although I hadn’t heard this question for awhile, several others had the same question this week.
They would all ask, “Chris, we know that what you teach works better, but (notice it followed by a “but”) we aren’t sure what it will eventually equate to be. What do you think?”
My honest reply was, “I really don’t know. My crystal ball is broken. I could tell you what it could likely be, but I might be limiting your expectations or you may not be alive to see the bigger results. This is why we focus on generating more cash flow TODAY rather than 15-30 years from now.” Let me explain more what I mean.
Traditional Planning Model
This brings back painful memories, but it is useful to understand =) If I were a traditional planner again, and you sat down with me, I would pull out my fancy little financial calculator to “predict” your life.
Let’s say you are 50 years old, have $80,000 to work with for your retirement, and you are currently putting away $600/month. I would “assume” that you would earn 8% average in a mutual fund. I remind you that past returns does not guarantee future results. (See our video on how traditional planning can manipulate figures.)
If you were to retire in 15 years and everything worked out perfectly, you would have $457,640. To some, this would sound like a good deal of money. However, traditional planning will tell you to live off the interest (Listen to our podcast as to why they say this).
Therefore, to be “conservative” in our figures, I would suggest that you “plan” on living off of 5% of the balance each year. In this example, this would be $22,882/yr.
How many of you could live off of that? You could live off of more, but now you risk running out of money before you pass away.
But wait! A really good planner will account for inflation at 4%. Naturally, in 15 years, it is very likely that you will have to have more to live on. Your purchasing power is now only worth $254,111! That would be like living on $12,700/yr. today!
Note: the REAL inflation rate is much more. Listen how!
This was the dilema I was caught in that caused me to question if this really worked. To have at least a $50,000/yr lifestyle, you would have to put away at least $5000/month in this example! Pocket change, right? Sense the sarcasm? You could work an extra 10 years to age 75, and then “only” have to put away $2500/month…as long as inflation stays down and you actually get 8% average (which many haven’t).
Recommendations from a truthful financial plan? Live on less income, get a 2nd job, and put away more!
Our Model
Our answer? Live your appropriate lifestyle and create more cash flow TODAY thru better use of your money! Although it’s not mainstream, it’s simpler and more attainable.
For example, last week I showed one of my coaching members how to free up at least another $15,000 or more this year by using their money more effectively without having to spend more money! On top of that, as we show people how to leverage their human capital by coordinating it with their money, they realize that having a $50,000/yr. lifestyle is not as hard as they thought. This is the same thing I did to do it with virtually no financial capital and only investing a few hours of each week.
It doesn’t take a lot of money to make money, only simple creativity!!!
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