Retirement Isn't Hard, It’s Just Misunderstood

Every retirement presentation you've ever sat through has the same villain: running out of money. See, 40 slides about that nightmare, one slide at the end with a beach on it, and somewhere in there, a financial plan with some numbers down. See, fear sells the product, and it also makes people shrink, plan for a smaller life, spend 40 years scared instead of building one. So we're doing the opposite today. Retirement isn't hard, it's just Misunderstood. And there are 4 specific places where it gets misunderstood. And start with the most basic one. It isn't an age. And once you see what it really is, the whole thing gets a whole lot smaller. That's one of 4. And another one, eh, it cost one of my clients 15 years he's never gonna get back. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live a life of choice. And I'm your host, Mel Abraham. Stay with me to the end and you'll have a score you can run on yourself this week. So let's do this. There's a guy I worked with who owned an empire on paper and still couldn't afford his life. Now, I'll get to what happened to him because first we have to fix what you think retirement even is. All right. See, we often think retirement is an age. Let's start with the good news because There's a birthday out there that you've been waiting on, and you don't need to. Somewhere along the line, we all agreed that age 65, you get handed a cake, a card, a gold watch, and your life back. And until then, you just show up. See, that number, it came from a government program that was designed in the 1930s, back when most people didn't even live long enough to collect on it. 65 isn't a financial milestone, it's a birthday. With better marketing. So if retirement isn't an age, what is it? It's the transition from a life driven by demands of bills, expenses, to a life driven by choice. The bills don't vanish. They just show up every month, same as they always did. What changes is who's in charge of your calendar. Right now, for most people, the bills decide. They decide what time you get up. They decide whether you can say yes to a trip, the sabbatical, or The job that you'd love that maybe pays a little less. When something other than your effort covers the bills, the bills stop voting on your life. That's it. No cake required. That's the way this plays out. And this is where we kind of get lost. We think it's an age. We think it's a stage. And I need to tell you why I know this, because I need to tell it in the right order, because most people get the order backwards. I didn't build my money machine because I got sick. I built it because I wanted my life back. I wanted to separate my earnings from the effort it took to earn them because I knew that if I didn't do that, I would be imprisoned by the earnings machine for the rest of my life. I wanted to be the one that decided. That was the whole point. Years before anything went wrong, years before I sat there and had a doctor look at me and say, you've got cancer. Here's what I want you to understand about that moment. I couldn't work. Not I cut back my hours. I could not work. And the mortgage didn't care. The insurance premiums didn't care. Nothing about my body stopped a single bill from showing up. But the machine, it kept running. It paid for my life. It paid for my wife's life while I went and fought for it. I wasn't 65. I was 58. And I was sick, I was scared, but I was financially free at the same time. Now, I'm not telling you that so you go build a machine because you're afraid of getting sick. In my case, it happened to be cancer. And it was certainly not planned. No one in my family ever had cancer. I wasn't a smoker or drinker. It wasn't even on the table. If they had said something like heart disease or diabetes or something like that, I would have understood 'cause that was in the genetics. But in your case, it might be something else because life always sends us something. Maybe it's a layoff at 54 years old or a parent that happens to need you or a business that dries up in a quarter, a body that quits before your calendar says it should. You don't get to pick which one shows up. You only get to pick whether it has the power over you when it does. That's what this is really about. Agency. Being the one with the options when the thing you didn't plan for knocks on the door and walks through the door. So retirement, it isn't a birthday. It's the day your bills stop running your life. Which brings us to the second thing everybody gets wrong. And this one is actually really expensive in my mind. And that is you think it's a pile of assets. $6 million in real estate, $2,000 a month in his pocket, a life that costs $10,000 a month to run. Those are real numbers from a real client. And I want you to sit In the gap for a second. $8,000 short every month, $96,000 a year he had to go out and earn on top of owning an empire. See, the way he got there was by doing what everybody told him to do. He bought property. It went up, he refinanced it, pulled the equity, bought another one. It went up, refinance, buy, refinance, buy. 15 years of that and a dozen doors. Every year the net worth statement said he was winning. The number got bigger and he was winning by the only scoreboard he was looking at, the net worth, because every one of those buildings sat in the asset column and right next to them sat the debt he took on to get them. He never thought about the cash flow because he had a story about his future. Someday these are all paid off and then it all comes to me. And that's true right until the month you need to eat and it's not paid off yet. He owned 12 properties and he had a monthly cash flow of a decent part-time job at a coffee shop, except the coffee shop doesn't call you at midnight about a heater. So when I laid it out for him, he didn't have an aha moment. He got angry, he did. And I get it, 15 years of doing the hard thing and some guy with a spreadsheet literally tells you your scoreboard you've been playing with wasn't measuring the right game. The anger though wasn't really at me. It was at the fact that he had been looking at his entire financial life through the eyes of assets, when the thing that pays for your life is cash flow. Retirement is a cash flow game, not an accumulation game. Now, do the assets matter? Of course they matter. Assets are what generate the cash flow. But you can pile up a mountain of assets that don't produce a dollar or produce little dollars. A mountain that doesn't produce something can't buy you groceries. And this is exactly why I don't count my primary residence as part of my money machine. Your home is an asset. It's an asset on the net worth statement. It belongs there, but it's a use asset. It's a lifestyle asset. I'm not telling you to go sell your house, but your house doesn't pay you. It charges you taxes, insurance, maintenance, the roof that is 20 years old. So when I work with someone, we calculate 2 numbers. That total net worth, which includes everything, And the investable net worth, which is only the assets capable of generating cash flow to fund the lifestyle. The investable net worth is the size of the money machine, but more importantly is how much cash flow that investable net worth throws off. He was building it, but because of the debt and the expense structure, it wasn't producing enough cash flow to sustain him. See, here's what he did about it though. And I'll be straight with you about this part. He sold one of the properties, the one with the most equity in it, and he took that money and he repositioned it into a diversified income portfolio, something that pays him every single month. Then he did the bigger thing. He stopped the acquisition rampage. Any extra cash that he generated from that point forward went into liquid cash-flowing assets instead of another down payment on another building with another mortgage stapled. He did that one move to— and he closed, you know, an $8,000 gap. Um, but did it? No, not even close. He had to sell a piece of something he spent 15 years building just to buy back a fraction of one month. That's what the correction costs when you run the wrong scoreboard for 15 years. I love real estate, but when we are talking about real estate Or retirement, we need to be talking in terms of cash flow. You got to take your investments that would throw off cash flow and turn them on when you need to. That's what I did during the cancer. And you got to look at it and say, how much of those that cash flow covers my life costs? What are my life costs? And that percentage is your retirement progress when you sit back and say. These cash flow only covers 20% of my retirement, my life costs, then I'm only 20% close to retirement. If your portfolio can produce, you know, $1,200 a month and your life costs $8,000, you're at 15%. And that's not judgment. That's just the starting line that you can finally see. Now, I'm going to give a warning here because people hear this and they get ideas. You do not turn the machine on while you're still trying to build it. I look at it and say, I want to keep the machine building as long as possible. Spending the cash flow that the machine generates decreases the growth because it's not growing at the same rate. If you invest in a portfolio or you invest in a piece of real estate, you're going to have growth in the asset value. You're also going to have cash flow from rents or possibly dividends. It's the reinvesting of that that will allow the machine to grow at a faster pace. And allow you to get there sooner. That's what allowed my machine to build is I let it compound. I just kind of kept reinvesting, reinvesting, 'cause I didn't need it 'cause I had the other income. So you let it compound. The percentage is there so you can watch yourself get closer, not so you can start taking withdrawals on a machine that isn't finished. So I look at it and say, well, I'm 20% to my cash flow number. I'm 30%, I'm 50%, I'm 60%, I'm 110%. Now you know it. So we know it's cash flow and we know how to score it now. But that still leaves the question everybody asks me first. And it's the one where the whole industry gets, I think, backwards. Okay? If you wanna figure this out, figure out your life, what it actually costs, let's start with this first. The number that goes at the bottom of the equation, I built something called the Lifestyle Cost Calculator that walks you through it. It's free. You can grab it at melabraham.com/lifestyle, and I'll put the link down below. But the bottom line is this, is that you can grab it and get an idea. Now, let's go to the next one. And the next misunderstanding is this: you think it's a number. You think it's a number. Here's the question I get more than any other: Mel, what's my number? And my answer frustrates people because the number is the last thing we figure out, not the first. Your number is downstream of your life. Get the life right. The number tells you itself. Think about that. It's usually how, how this works is if I go to a calculator and you type in your current income and it spits out a number based on some percentage of what you make today, I get it. Stop and look at what just happened there. The calculator built your entire future on the assumption That today's paycheck is the right measuring stick for tomorrow's life, which means if you're underpaid right now, congratulations, the calculator has decided you should be underpaid in retirement too. It's very efficient though. See, I build financial plans from the lifestyle in, never the income out. So you need to look at it and say, because we're trying to build to life. Now, do we get there every time? No, not necessarily. Depends what the gap is. So How do you get to the life? I take people through what I call the life domains, and there are 6 of them: family, relationships, career, business, health and wellness, financial security, lifestyle, contribution, and legacy. For each one, we answer 3 questions. What's the ideal here? What does this domain mean to me? And what words come to mind when I think of it? Before any of that though, there's a step that most people skip. And that is you have to know what you value, because if you don't know what matters to you, your vision ends up becoming a collection of things you saw other people post about. The vacation home that you'd visit twice, the boat that you end up resenting, somebody else's dream with your name on it. That's why I say values first, then vision, then and only then a price tag. And when you price a real vision, one of two things happens, and both of them are really good news. See, some people find out that the life they want costs dramatically less than the number they've been terrified of. They've been grinding towards a mountain they never needed to climb. Now there's others who find out it costs more, which means the number they were chasing was never gonna buy the life that they were picturing. And it's better to learn that at 48 than at 68. Now somebody's already typing the objection. I see it. How am I supposed to know what my life will cost in 25 years? Fair. And you don't, not precisely, but the further out you are, the more you're building just a projection. And the closer you get, the sharper it gets. My son at 35 has less precision than I do. I'm closer to it. I can see it. Prices change, costs change, values change, visions change, and you adjust as you go. A direction you can adjust beats a number you guessed at. And that's what we want, is to at least get you on the right trajectory in the right direction. And this brings me to the thing that genuinely makes me angry about this industry. Almost all of it is sold on fear. Fear of running out, fear of being a burden, fear of eating cat food at 80. Is it responsible to make sure that this is all handled? Well, absolutely. I'm, I'm a CPA. I run the numbers. I stress test the plans. I get it. But using fear as the motivation is irresponsible, and it's everywhere. Fear does something specific to people. It makes them shrink. It makes them plan for less life and accept a smaller vision to spend 40 years scared instead of building. Aspiration, that does the, uh, the opposite. Show somebody what's possible. Then hand them the path. Watch what they're willing to do. And that's the job, not to argue with somebody out of a life that they want, but to build a path towards it and get as close as reality will allow you. They have to put the effort in. You have to put the effort in. They can't close the gap for you, but at least now let's get the real gap. And one more piece of standard advice I, I push back on while I'm here, and that is this. The industry loves to assume that you'll spend the same amount every single year in retirement, and you won't. Nobody does. You spend more early when you're finally doing all the things that you postponed, and then it dips maybe in the middle. Maybe it climbs again later when health costs arrive. A flat withdrawal rate is a plan built for a life nobody actually lives. See, what I want you to have are guardrails. Markets do well and you can draw down a little more. Markets pull back and you take a little less to protect the machine. But the— it there, it's a much more dynamic element which requires you to be involved in, in the game. So we start with the life, then the number follows, which leaves one last misunderstanding. And this is the one that makes people quit before They ever start. And that's you're doing linear math on an exponential problem. This is the one that's going to give you yours back. So stay with me here. A client came to me after a major financial hit, the kind that resets your whole picture and makes you feel like you're standing at, at the starting line again at an age where you were supposed to be coasting. He was convinced that he had to rebuild every single dollar he'd lost. So he was running his business at the absolute red line, which meant he was pushing his life at the absolute red line. And, and that's tough. Maybe if you're at 30-something, but if you're at 50-something, that's tough. And when I sat him down, I looked at it, I said, first things first, you're not starting at zero. You were left with something, and that something has been growing this entire time while you're busy. Grinding, you are too busy to even look at it. I said, you've been measuring your distance from the wrong starting line, which meant every calculation that you did, um, it was wrong about your future. He'd been running a marathon at a dead sprint because nobody told him he was already at mile 9. So in his head, this was going to be a 20 to 25 year maximum effort journey. And then when we ran it properly and I stress tested it for him and used some historical averages rather than hero returns, the answer was about 10. Same man, same assets, same life, 15 years of his life back found inside a math error. And I want to be honest about what that projection is. It's a projection. It's not a guarantee. And anybody promising you a guarantee is selling you something. But it's built on long-term historical averages and not fantasy. It paints a completely different picture than the one he walked into, because what he's starting with is doing work while he's doing work on his own, and they're working together as a team to build it, which truncates and shortens the timeframe. And when you stress test it by running multiple scenarios, when things go bad, things go good, you get a chance to see the probability of success. So why do so many smart people get this so wrong? Because they simply do division. They look at the gap and let's say it's $1 million and you've got 10 years to get there and your brain immediately does math and it lands at $100,000 a year and declares the whole thing impossible. That math assumes that you're the only one doing the work, but every dollar that has come out of your effort that you put to work for you becomes part of the money machine that's doing some of the work side by side. That's the entire point of a money machine. Is that it works when you don't. The money you put in earns. Those earnings get reinvested and earn. Those earnings earn, and the thing starts to pull its own weight, and then more than its own weight. Wealth doesn't build in a straight line. It builds slowly. Then all at once it hits a tipping point, and that part shows up right around the time most people have already given up or getting ready to give up. They gotta get to that tipping point. That's why when I hear I'm too far behind, it's almost never true. It's just the answer that you get when you use the wrong formula. Wealth creation is never a straight line. It's not a linear problem. It's an exponential problem. So let me bring this all the way back around. And I think about that client with the 12 buildings a lot, not because of the money, but because of the 15 years. 15 years he thought he was building freedom and 15 years of being told by his own scoreboard That he was winning. And on a Monday morning that looked exactly the same as it did before he started, he didn't lack discipline. He didn't lack the work ethic. The man had more of, of both than almost anyone I've worked with. He just misunderstood the game. And that's the part that gets me, because that's not a money problem you fix with a better budget or a bigger paycheck. Earning more doesn't make you free. A money machine does. So this is what I want for you. I want you to stop waiting for your birthday. I want you to stop measuring your life with a scoreboard that doesn't count cash flow. I want you to sit down and describe the life that you actually want in real visceral detail, and then let the number come to you instead of you chasing somebody else's. And when the math in your head tells you it's impossible, I want you to remember that your brain is doing division on a problem that compounds. Because one day something's gonna show up that you didn't plan for. It did for me. And on that day, the only question that's going to matter is whether your bills get a vote in what you do next. Retirement, it's not a number, it's a choice. Go build the thing that gives you the choice. All right, great. If this shifted something for you, do me a favor, hit the like button so it reaches somebody else. who needs it. And if you haven't done so already, subscribe if you want more of this every single week. And if you know someone while you're here, share it out, let them know. Let's do this together, all right? Till I get a chance to see you on your journey or on your path to financial freedom, always, always strive to live a life that outlives you. See you in the next one. Cheers. Cheers.