Why I don’t save for retirement (and neither should you)

The smartest financial move I ever made was to stop contributing to retirement savings. It may sound counterintuitive, even reckless. Dave Ramsey would have stress dreams about this article, but it may be time to get a divorce from your 401(k).

Here’s the truth: You actually don’t need millions to retire.

Those retirement calculators love to spit out impossible numbers: $3 million, $5 million, sometimes more. Numbers so big they make financial freedom feel like a five-decade slog.

Here’s the part they leave out. Most people following the “save for 40 years” script never hit those numbers. They keep working and waiting, but they’re aiming for a moving goalpost.

And this isn’t about only money. It’s about decades of your life you don’t get back.

The real shift isn’t stockpiling a fortune someday, but creating passive income now. You don’t need millions. You need cash flow. Changing your perspective on that changes everything.

Why the ‘retirement number’ is a mirage

Here’s the dirty secret about those retirement calculators: They’re built on a foundation of mediocre returns.

Financial advisers love showing you diversified portfolios earning 2% on treasuries, 4% on bonds, maybe 8% to 10% on index funds if you’re lucky. Then they compound those small numbers over 40 years and tell you that’s the path to freedom.

But what if I told you I routinely invest in small businesses earning annual returns of 32% or more? Same dollars, radically different outcome.

The $3 million to $5 million magic number isn’t magic at all. It’s a moving target designed to keep you paying fees to Wall Street. Inflation pushes it higher. Lifestyle creep makes it bigger. Market volatility makes it unpredictable.

And here’s the part Wall Street doesn’t mention: The longer your money stays parked in their products, the more fees they collect. It’s not a conspiracy; it’s a business model. Their incentive is to keep your money locked up for decades.

What $120,000 taught me about real wealth

Early in my investing journey, I had a choice with my $120,000 of life savings. I could do what most people do: Put it into bonds or index funds, let it grow slowly, and maybe, decades later, it would turn into something meaningful. At 4%, that money would earn about $400 per month. I’d be waiting 30 years before I could really use it.

Instead, I bought a small business that was already earning $150,000 a year. I made a few simple changes, tightened operations, hired a virtual assistant, improved SEO, and that same business had grown by nearly 40%.

That one decision changed how I think about investing forever. Once you see cash flow hitting your bank account in real time, “waiting for retirement” at 6% earnings stops making sense. A few investments pay back your income entirely.

Since then, I’ve repeated and improved that model over and over, not just with my own capital but with investors I work with. We buy existing businesses selling for three to four times earnings, translating to annual returns of 32% or more. And unlike stocks or bonds, those returns don’t sit on a statement. They generate cash flow starting in year one.

Compress 40 years into 5

Here’s the most important lesson I’ve learned: The difference between traditional investing and high return cash flow investing isn’t the return, it’s the time.

Traditional retirement thinking locks you into a 50-year plan. You keep saving, hoping compound interest will eventually catch up with your life goals. Cash flow flips that script. It lets you start living off your investments almost immediately.

I started this approach back in 2017 and bought, merged, and managed eight companies. After perfecting the process, I helped other investors and operators do the same. None of us waited for a magical retirement number. We built predictable income streams that paid our expenses, and with those returns financial freedom is available in under five years.

What surprises most people is this: You don’t need hundreds of businesses to create substantial passive income or diversification. A portfolio of 8 to 10 uncorrelated small businesses can deliver 60% to 80% of the diversification benefits of thousands of stocks, without watering down returns.

The future of financial freedom

Building wealth isn’t about chasing a number. A net worth target is a someday goal, and “someday” often never comes.

Cash flow is about today. It’s about building predictable income that pays your bills and funds your lifestyle now. It’s about having the freedom to pursue meaningful work while you’re still young enough to make an impact.

Financial freedom isn’t a number on a screen. It’s a system that pays you month after month and gives you back the decades most people trade away.

The retirement lie costs you 30 years. Cash flow gives them back.

—Joseph Drups

This article originally appeared on Fast Company’s sister publication, Inc.

Inc. is the voice of the American entrepreneur. We inspire, inform, and document the most fascinating people in business: the risk-takers, the innovators, and the ultra-driven go-getters that represent the most dynamic force in the American economy.

View the full article