Sometimes we must admit when we are wrong. I find myself in this position today—humbled. There was one core truth I believed, but it has changed recently.
I believed you could stay in the workforce long enough to create a truly passive income retirement. For example, you could work until you earned $5,000/month in dividends.
With today’s workforce, I no longer think this is feasible. Now, the mission is to escape the workforce quickly with a combination of active and passive income.
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Welcome back to the Retirement Planning for the Average Person series, where we plan our escape from the tyranny of the workforce.
- Retirement Planning for the Average Person 1 (pdf) July 5, 2021
- Retirement Planning for the Average Person 2 (pdf) September 5, 2021
- Retirement Planning for the Average Person 3 (pdf) March 20, 2022
- Retirement Planning for the Average Person 4 (pdf) June 22, 2022
Doing the math. Leaving the workforce is a math puzzle, so I hope you love solving math equations. The most important number is how much your lifestyle costs every month.
Let’s say your lifestyle costs $7,000/month. Your first step is determining your retirement number using the 4% rule and your 401K. Your magic number would be $2.1 million!
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Does reaching $2.1 million seem reasonable to you? If so, continue working until you are age 60 and can withdraw money from your 401K. Oh, and don’t forget, Uncle Sam will tax your withdrawals; you’ll probably need closer to $3 million.
Changing your equation. There are more reasonable ways to escape the workforce; the best way is to lower your cost of living.
If you can lower your number from $7,000/month to $5,000, you will stand to free yourself much sooner.
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How do you lower your number? You have to think outside the box. I consider myself a hardcore freedom junkie.
If you are a higher earner in San Francisco, does your family need to live there with you? Say you’re earning $300,000 per year in SF.
Can you send your family back to your parent’s house for 3-4 years? You could save enough money and purchase a home in that timeframe.
So within five hardcore years, you can buy your freedom for the rest of your life. Most people cannot fathom these scenarios; however, I lived them.
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My freedom story. I have been in the military for 24 years and married for 17. Of those 17 years, I have been away from eight.
It sucked being away from my wife and kids for so long, but there is a silver lining. I am walking away from the workforce at age 42 (and my wife 39).
We aggressively lowered our monthly cost of living to $5,500. My military retirement will be roughly $8,000.
We also added more income streams: rental rooms ($2,000), rental properties ($650), and dividends ($1,500).
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Passive and active income streams. My first 20 years in the military were pretty great. But something changed during and after the pandemic—work began to drain me.
It’s not a military or civilian thing; it’s a life thing. Leading this new generation of workers was already challenging, but it became more difficult.
Compounding leadership challenges, the older adults started to act weird. It was like they wanted to catch up on the two years we missed from the pandemic.
It’s just a terrible dynamic between half the population “quiet quitting,” middle management not being mentors, and senior executives pushing everyone to work 80 hours a week.
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You need to get as far away from this circus as possible. You can use a combination of passive and active income to replace your $7,000/month in living expenses.
Piece together an income plan. The first and most essential step is lowering your housing cost. Let’s say your house note is $3,000/month—you have a few options.
You can move to Mississippi and get your mortgage down to $1,200/month. You can get a roommate to pay $1,500/month of your $3,000. You can convert some of your space into an Airbnb rental.
It’s not going to be pretty, and you’re not going to want to do it. However, lowering your housing costs is the single most crucial part of the plan. Once you get your housing under control, you’ll be able to see your future much clearer.
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The rest of your income plan comes from the T.I.C.E.S. society: Tycoon, Investor, Creator, Entrepreneur, and Scholar.
You will need to use a combination of creating content, rental income, investing for dividends, automated businesses, and teaching to free yourself. Let’s do the math.
- Parents move in with you as roommates ($1,500)
- Rent parent’s property ($2,000)
- YouTube channel about living with parents ($2,000)
- Income Investing portfolio ($1,000)
- Small business helping the elderly with technology ($500)
- Total ($7,000)
Growing your income. You’ll be surprised that your income will continue to grow without a job. Rents will increase, your YouTube channel will continue to gain momentum, and you can hire more clients for your technology business.
We must forego the “paycheck” and “employee” mindsets. Those mindsets were a product of the industrial revolution, when companies and governments cared for their employees until death.
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Today, we are on our own. The 401K is a massive failure; forget it even happened. You would need millions upon millions of dollars to live your current lifestyle.
Plus, all of your resources would be in the hands of Wall Street. How is that working out for you today?
Becoming a Renaissance person. No, the better plan is to cobble together a diverse income plan. Yes, you will need to understand business, investing, relationships, and real estate, but that’s the way forward.
The days of learning to do software coding and staying on the job for 30 years are over. Now you can learn to code, teach coding as a consultant, and start a YouTube channel covering coding. Plus, you can code software for the App Store.
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You will become a Renaissance person who doesn’t need to answer to anyone. Implementing this plan may take 3-5 years, but it will make your time in the workforce speed along.
Going to work will sap all of your energy. You’ll come home and flop down onto your couch to watch Netflix and Hulu. But one important thing to remember: whatever values you demonstrate, your kids will emulate.
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Conclusion. If you are a worker-bee, your kids will follow in your footsteps. They will plan on working a 9-5 job for 40 to 50 years like you. Is that what you want?
Do you want your children to be creative, excited, and free? I started writing books, and within a year, one of my sons started a YouTube channel, and the other son draws and posts on TikTok.
It’s your choice. I choose freedom and creativity over being an in-debt-ured servant. Start planning your income retirement today. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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