The Nest Egg Lie: Why Most Retirement Plans Fail (And What to Do Instead) | Ep. 20

 Many investors spend their entire lives building wealth, but very few of them stop to ask a simple question.  When does it actually start paying me?  Because if your strategy only works at the finish line, then you might spend decades waiting to enjoy.  And this is one of the most overlooked problems in investing.  What I like to call the cash flow riddle.  If you don’t solve the cash flow riddle, you may spend the second half of your life riddled with anxiety.  Welcome back to the Sage Investor. I’m Brian Speer.  My mission is to help you generate cash flow and build legacy wealth in a tax-efficient manner,  because that’s what I’m trying to do for my family, and I’m sharing all the secrets that I learn along the way.  And today’s episode matters because a lot of people think they have a retirement plan.  They think they have a retirement plan.  When in actuality they really have simply a withdrawal strategy that’s built on hope.  What we’re going to unpack today is this.  Why the traditional nest egg model, which is built on stocks, bonds, and eventual liquidation,  creates more fragility than people realize.  And why the better path might be building income-producing assets that start supporting your life long before the finish line. 

Let me give you a simple example here.  Two different investors start at the same exact time.  One of them falls the traditional investment advice.  They buy stocks, bonds, reinvest everything, they delay income.  They build the biggest nest egg possible, the biggest pile that they possibly can.  And the other one takes a different route.  They allocate into real estate.  They focus on acquiring income-producing investments, and they begin generating cash flow much, much, much earlier.  On paper, the first sometimes looks a little bit more wealthy.  But in real life, the second investor often has way more freedom, much, much, much earlier.  And that gap between what something is worth and what it actually does for your life, that’s what this entire conversation is all about.  The mistake most investors don’t even realize they’re making is that they have misplaced focus.  They’re following a system that’s trying to maximize net worth on paper that’s all they’re focusing on.  Not freedom, freedom in real life.  Traditional investment advice says accumulate, delay gratification, sell later, hope the math works out.  But here’s the problem, net worth tells you what you have.  But cash flow, cash flow determines how you can actually live.  If your investments do not produce cash flow, if they do not produce income, then your lifestyle is still dependent on something else.  It’s either your labor, your time, where you’re sitting in a rat on a wheel, right?  Your actual butt in the chair actually doing things actively, or your ability to time the morphing perfectly,  hopefully the stocks are high when you ultimately have to sell, or your ability to slowly sell off your life’s work.  If your investments don’t produce income, then your lifestyle is still dependent on something else.  It’s on your time, your physical labor, or your ability to simply slowly sell off your life’s work.  That is the nest egg business model.  It’s work really, really hard, go get a degree, go get a college degree, go get an advanced degree, work 10, 20, 30, 40 years, 50 years.  Fingers to the bone, tons of hours, late nights, hard work, build a big nest egg, and then start living off that money.  And the truth is you hope you die before you run out of money.  That is a very, very difficult business model for my perspective.  That is the hidden truth behind the nest egg.  It is not a freedom strategy.  It is a liquidation strategy.  If your income stopped today, how long would your investments continue to carry you?  Not on paper, but in real life.  So when you step back, there’s really two different paths that you have.  You have the nest egg strategy, and you have the golden goose strategy.  The nest egg strategy is you build as much as you possibly can.  You own stocks, bonds, paper assets, you delay income.  You eventually begin drawing down the whole thing later, typically following the 4% rule.  And that’s the model that most people are taught that’s traditional investment advice, financial advisors.  But underneath it, you’re dependent on selling the assets to survive.  Now let’s take a look at the golden goose strategy.  Instead of just building wealth, you’re buying income-producing assets.  And you’re building a portfolio of income-producing assets.  Real estate, cash flowing investments.  Assets that can generate income regardless of whether you decide to sell them this year, next year, or ever.  You’re not just building a pile. You’re building a machine.  One of them asks, how big does this pile need to get?  And the other one asks, when does this system begin to support my lifestyle?  But here’s where it gets even more interesting.  Even inside of alternative investments, right?  You move away from traditional and you move over to the alternative investment space.  A lot of people still miss this idea because they drift into short-term thinking.  They move into the fixed-and-flip mindset.  Buy, improve, sell, chase appreciation, right?  Stack as many chips as you possibly can.  Move on to the next deal, chasing deal after deal after deal.  Can that build net worth? Of course.  But it still does not permanently solve your problem.  Because you’re still dependent on the next deal.  You’re dependent on the next sale, the next exit, the next windfall.  And that is not true golden goose.  That is just a more active version of the nest egg strategy.  You’re still trying to build a bigger pile.  You’re still relying on transactions.  You’re still dependent on converting assets into cash  rather than owning assets that keep producing cash over time.  The only way to truly solve the cash flow riddle is to buy income-producing assets  and hold onto them forever. Let them produce.  Let them compound. Let them breathe.  Because the goal is not to constantly harvest chunks of principle.  The goal is to own assets that feed your lifestyle  without being destroyed in the process.  The idea and the concept of building a nest egg  does not feel like a problem very early on in your life.  Early on in your life, everything looks good.  You’re in your 20s, you’re in your 30s.  The balances are going up.  You’re investing in stocks and bonds.  The markets are cooperating. Even if they’re going down,  over a long time, they’re probably going to work out pretty well.  You’re working, you’re saving, you’re accumulating.  And because the statement balance is rising,  you assume that the plan is sound.  Then you get into a kind of middle-aged, middle-life.  Life gets a little bit more complicated.  Family shows up, got more responsibility, parents are aging,  got children, got health, got time,  is starting to become much more of a realistic issue for you.  You start valuing freedom more than you value accumulation.  You start to realize time is way more important than money.  And you want more control over your calendar.  You want more margin in your life.  You want more ability to say no.  More ability to spend the days, the way that you actually want to.  But your strategy of the nest egg is built for some day,  some day far, far away.  So even if your network is growing,  your life still may feel strangely dependent.  And yes, you’re wealthier on paper.  But you’re not necessarily more free in practice,  moving on to later in life.  How does that feel?  Eventually, that emotional cost begins to set in.  Now the question is no longer,  how much do I have?  What is my net worth?  What is my nest egg?  Now the question is, is that money actually going to last?  And that changes everything.  Because once you begin drawing down a nest egg,  every single market drop feels personal.  Every single withdrawal creates tension.  Every extra year of life,  which should feel like a blessing,  starts to feel like a liability.  You may become anxious, frustrated, scared,  scared to spend your money,  scared to live too long,  scared to become a burden to your family,  scared that there might not be enough left  for the people that you love the most.  And those fears, they don’t just affect your finances.  They affect your peace,  they affect your health,  they affect the way that you age.  And that’s the part that most retirement conversations  completely miss.  They talk about drawdown rates,  the 4% rule.  They talk about averages,  the stock market on averages,  done XYZ over the past century.  They talk about all these assumptions.  But they do not talk about what it feels like  to live inside of that uncertainty,  anxiety for 10 years, 15 years, 20 years, 30 years.  If the plan that you’re implementing  requires you to spend down your life’s work,  hoping that the math holds,  that’s real pressure,  that’s a lot of pressure.  Are you building something that actually pays you  or something that you’re eventually  going to have to unwind in order to access it?  As you get older,  will your plan make you feel safer  or make you feel more trapped?  How do you actually solve this cash flow riddle?  How do you actually generate cash flow  that allows you to live life on your own terms?  This is the way that I think about it.  First, you need to know what your freedom number is.  This is the point where your passive income  from your investments exceeds your core monthly expenses.  Your mortgage, your rent, your food,  your utilities, your insurance,  all your basic obligations.  That is the first real milestone.  Because once your passive income covers the basic cost  of your life, then everything changes.  You’re no longer fully dependent on the labor  that you have to survive.  Now you’ve got some more breathing room.  And for some people, that’s enough.  Really, that’s the idea of the old fire idea.  Financial independence, retire early,  the acronym, fire movement.  A lot of people are living that life.  That’s perfectly fine for some folks.  And there’s nothing wrong with that.  In fact, for many people,  that kind of modest freedom is more than enough.  But that is only the first threshold.  The second question is, what is your lifestyle number?  Not survival, not the bare minimum,  not just scraping by with a paycheck.  I mean, the number required to live the life  that you actually want,  the travel that you want, the home that you want,  the margin that you want,  the experiences you want with your spouse,  your children, your family,  the generosity that you want,  the fun that you want,  the richness of life that you actually want to enjoy along the way.  That number is different for everyone.  And the truth is, for many people,  once they really sit down and they think about it,  it’s often far less than they imagined.  Because eventually, most people realize  the game is not endless consumption.  You can only drive so many cars.  You can only wear so many watches.  You can only accumulate so much stuff  before it stops actually improving your life.  So the real work is actually getting honest with yourself.  What number gives you freedom?  And what number gives you your ideal lifestyle?  And those are not always the same number.  And if you do not define them,  you can spend your whole life chasing a target  that was never clear to begin with.  Once you know those numbers,  you can keep building beyond that.  You continue to buy income producing assets.  You continue feeding the machine.  You continue buying more golden geese.  Because the goal is not just to stop working  as soon as you possibly can for many folks.  The goal is to build enough durable passive income  that you can choose how you want to live today  and how long you want to keep building.  And then above that, there’s one more bucket.  It is the vault.  This is the idea of legacy capital.  This is where you separate lifestyle capital  from bedrock capital.  Lifestyle capital is what supports your life.  Your freedom and your lifestyle expenses.  Bedrock capital is what outlives you.  It goes into the vault.  It is the capital you do not need to consume.  It is the capital that you protect.  It is the capital you allow to remain invested  in durable productive assets for the long term.  And that is the capital that can change your family tree  in one generation.  That is the capital that says, my kids and my grandkids  they’re not starting from zero.  So that is how I think about solving the riddle.  First, cover your expenses.  Then define your ideal lifestyle.  Then keep compounding beyond it.  If you want to build more optionality  and eventually build the vault.  Because once your investments produce enough passive income  to cover your life, you don’t just have wealth.  You have freedom.  You have time freedom.  Financial freedom.  Relationship freedom.  Purpose driven freedom.  And once you build beyond that.  You don’t just have freedom.  You have a legacy.  A real legacy.  A legacy that is built to last.  Now, this part does matter.  Not all income strategies are wise.  Chasing yield absolutely can’t get you hurt along the way.  Weak assets that have some flashy distributions.  They’re not golden geese.  They’re just louder problems along the way.  And growth, growth in and of itself is not just the enemy.  Speculation is the enemy.  Short term thinking is the enemy.  Building your whole future around this myopic short term perspective.  That is the enemy.  So this is not an argument for sloppy income investing  over growth investing.  That’s not what we’re talking about here.  It’s not an argument for buying junk just because it throws off some cash flow today.  It is an argument for owning durably wonderful assets.  Durably wonderful businesses that produce reliable income streams  and can be held long enough to actually matter and change your life.  Come in full circle.  Most investors ask one question.  What will this investment return?  But the better question is when will it start paying me?  And maybe the deeper question is this.  Will my plan make aging feel more peaceful or more frightening?  Because if your strategy requires you to slowly sell off your life’s work  while hoping that the math holds,  you may end up with a really large nest egg  and very little certainty.  Wealth does not really change your life when it’s built.  It changes your life when it starts actually working for you.  The goal was never just a retire.  The goal was freedom.  The goal was certainty.  The goal was control.  The goal was actually to make longevity a blessing.  If the plan requires you to spend down your life’s work  while hoping that the math holds, that is not freedom.  That is pressure.  And that is not the kind of pressure that I want to apply to myself  or my family along the way.  I’ve seen multiple scenarios, peers of mine, extended family  and the like that have run into this unfortunate situation.  I’ve got extended family members that have run into significant health issues  a little bit later in life.  And I will say fortunately, one of them specifically  that ended up having a debilitating degenerative disease ALS  had the luxury after having built a substantial amount of wealth  and turned it into some cash flow along the way  that he was able to get long-term care internally at his own house  in such a way that he did not have to burden his children,  his extended family, his siblings or the like.  He got to live the rest of his life out on his own personal terms.  That is a much, much better solution than having massive amounts of anxiety along the way.  It was very difficult undoubtedly.  But it was far superior.  The last several years were far superior  to what otherwise would have been had he been in a more precarious financial situation.  I’ve also seen folks where they have been in brutal spots financially  and peers of mine that are growing up early adolescence  starting to get into middle age sandwiched between having to be the sole provider inside of the house  but also care for the children inside of the house  and also have the financial burden of caring for the parents along the way  and that is an extremely heavy burden  and I would never want to have to burden my family members in the same vein  so I’m going to work diligently to put in place a system that precludes that from occurring.  By no means are we perfect  but the intent is to try to get out in front of these issues  due to the fact that as we progress the longevity of everybody’s getting a little bit longer  right?  We are all so fortunate to have beautiful advancements in health care, beautiful advancements  every single century that goes by.  It is just a wonderful time to be alive.  Longevity continues to expand.  The quality of life continues to expand but you don’t just want the longevity right?  It’s not just your lifespan.  It is your health span.  How long are you going to be healthy and able to enjoy this along the way  and if you do not have your financial foundation and your affairs set up  the amount of stress and anxiety that crushes your soul in those last,  the last quarter of life really does adversely affect your psyche  and really adversely affect the health along the way as well.  So we would much prefer earlier upstream to put ourselves in the position  where we have freedom, much more freedom which derives exclusively  from the cash flow of your investments and it provides a lot of flexibility  because it’s not everybody’s going to be way different right?  Your freedom number is different.  Your lifestyle number is different.  Your vault number is different but you should choose that.  You should spend time doing that deciding for yourself what you want to do for your  and your family right?  You have personal goals.  Try to build that, construct that.  It’s not a hope and a wish and a prayer.  It’s something that you should be doing and going out and constructing right?  We don’t do this based on luck.  It’s something that you can do yourself.  You can flick ding materially change the trajectory of your family’s future.  Flick ding make a dent along the way and make an impact on your family tree.  It’s not something that’s passive.  It’s something that’s active that you have to proactively go do.  So spend some time in quiet isolation.  I would encourage you if you have not done so.  Spend some time in quiet isolation.  Think through.  If you’ve not gone through your basic budget to understand what your freedom number actually is.  What are your controllable expenses and your non-controllable expenses  so that you know exactly how much passive income you need for your family  along the way.  Please do so.  I would encourage you to do so.  I would also encourage you to spend a little bit of time with your spouse  and quiet solitude thinking about waving a magic wand if we could wave a magic wand  and have all the money in the world.  What would our lifestyle number be?  How much would we need on an annual basis to be able to live the life that we would want with our family?  Is it 200,000, 300,000, 500,000?  What is the amount of cash flow needed for us to go live the life that we would want with our family  on our own terms?  And that number will be different for everybody.  But sitting down and contemplating that, then you have a target from which you can build.  You can strive towards hitting that target.  And once you’ve defined those numbers, what the freedom number is, what the lifestyle number is,  then the sky is the limit from there.  Because once you hit those things, you’ll come to realize that compound interest is the eighth wonder of the world.  And it is amazing to see what happens over long periods of time.  Because once you’ve hit some of those numbers, the ability to materially change the family tree in one generation  by getting more capital into that hypothetical vault where the capital is never to be touched  and it has to be passed along to the next generation.  And it is incumbent upon you as the patriarch or matriarch of the family to ensure that your next generation  also then passes it along to their heirs along the way.  And it is really how you can materially change the family tree in one generation.  So as a call to action, I would say, I would implore you to spend some time in quiet solitude  with your spouse contemplating what is your freedom number and what is your lifestyle number.  And I will wish you all the success in the world in crystallizing that.  And hopefully that adds a little bit of value for you and your life along the way.  So with that, we’ll get the heck out of here.  But until next time, you’d be great.