Financial Freedom in Retirement Is All About Cash Flow

You may think accumulation is the most important part of the game, but income is like water: You can’t live without it.

A woman drinks water from a water bottle on the beach while the sun sets in the distance.
(Image credit: Getty Images)

If things you thought were true were actually wrong, when would you want to know?

When I was a child, I recall my mother saying that drinking and driving was against the law. For many years after that, whenever I saw someone drinking a soda while driving, I assumed they were criminals. Years later, I figured out that my mother was talking about drinking alcohol while driving.

I can laugh at the absurdity of this today, but it is the perfect example of how easy it can be to carry around half-truths when you don’t know what you don’t know.

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Many people go through life believing things without ever considering the possibility that those things are actually wrong. I see it every day in nearly every conversation I have with people: the misinterpretation of financial terms, the misapplication of various wealth strategies and confusion about how much risk they are actually taking.

Why does this happen? Well, the internet gives everyone instant access to unlimited amounts of information. Unfortunately, there is rarely any context, and we have a tendency as human beings to process information as true or false based on the source and a basic understanding of the topic. If Google says it, then it must be true! As a result, people end up with a false sense of confidence and a laundry list of beliefs that aren’t necessarily true.

Misconceptions come with costly consequences

Your financial future rests on your understanding of what you’re doing and why you’re doing it, and the consequences are real. Any misinterpretations you may have about money could potentially destroy your quality of life and reduce your chances of experiencing true financial freedom.

The biggest obstacle to unlearning something you have always thought was true is to accept the possibility of having inaccurate information. Once you do that, unlearning bad financial information is not as complicated as you may think.

The biggest misconception I see over and over again is the focus on accumulation. People tend to evaluate their progress or level of financial success based on how much money they accumulate. While having money in the bank is important, reliable cash flow should be the ultimate goal.

Think about it: You can survive without any money accumulated, but you cannot easily get by without cash flow. Cash flow can be generated in any number of ways: a paycheck from your job, a business you own or a passive-income source. Regardless of where it comes from, cash flow is like water – you simply cannot survive without it. (To see some strategies for increasing cash flow in retirement, check out my Cash Flow Guide (opens in new tab).)

How to know if your money is fulfilling its primary purpose

Money is obviously a big part of our lives, so we have a tendency to desire more of it. But how do you decide how much is enough?

What I find is that people often use arbitrary account balances and rates of return to assess how much progress they have made, but neither of these things actually indicates whether your money is fulfilling its primary purpose: income replacement, also known as cash flow.

While having money is, of course, part of the equation, it is the wrong measurement for success. A lot of people with plenty of money still struggle with not feeling financially free or confident, and that is a problem.

Achieving financial confidence starts with answering these two questions:

  • How much actual income do you have coming in right now that you don’t have to work to receive? I am talking about actual dollars being deposited into your checking account or brokerage account.
  • If you quit working tomorrow, how much money would you need to cover all of your expenses? This includes taxes, trips, lifestyle expenses, etc.

If you’re like most people, there is a gap between how much income you’re receiving and how much you need. (That is why you work, to fill that gap.) If you want to stop working, you’ll need to figure out how to close this gap with passive income.

How is financial security different from financial freedom?

So, how do you do that? Start by understanding the difference between financial security and financial freedom.

The idea of financial security cannot necessarily be defined by exact numbers or percentages and is often expressed as a feeling of safety. That’s why most people focus on reducing debt and accumulating money. They believe that spending less, paying less in interest and earning more on their investments is what will lead them to a successful retirement.

Having large sums of money brings a sense of financial security, but it does not create financial freedom. If you’re like most people, knowing creates more confidence than assuming, and a good way to know is to complete a Gap Report™. (Get your GAP Report™ here (opens in new tab).)

Security vs. independence vs. freedom

I speak with people every week who have millions of dollars saved but don’t feel financially free. They say things like, “I think I will be OK,” or “I feel OK with what I have,” but their word choices — “I think” and “I feel” — say it all: They are not confident.

In short, if you have large sums of money, but you are still working to support your income needs, worried about market returns or uncertain about the future… that is not freedom.

There is a middle ground where you have both financial security and lifestyle flexibility in the short term, which I refer to as “financial independence.” For instance, many business owners have companies or real estate that create a revenue stream. Their business runs without their full attention, allowing them flexibility to do what they want when they want, but they must still contribute at some level in order to maintain their income sources.

Rental properties are the perfect example of great cash flow machines that generate income to potentially support your lifestyle and help you achieve financial independence. It is obviously a good thing to have these assets growing and producing income, but it still takes time and effort.

You may have a pretty great life collecting rent from your tenants, but the simple fact that you must collect it is work, not to mention addressing repairs and upkeep, managing expenses and (worst of all) dealing with unhappy people.

There is nothing wrong with running a business to provide cash flow. For some people, their business is their passion, but it is difficult to achieve true financial freedom when the business income relies upon you showing up.

This is why many people who have considerable rental properties often cash out and move to sources of passive income — because they want true financial freedom.

A true source of passive income is one where you don’t have to do anything to generate it, including Social Security, pensions, annuities, private markets and royalties.

Now, we can argue about the definitions of financial security vs. independence vs. freedom, but that would be missing the point.

Passive income is the path to financial freedom

Failing to understand the differences comes with a cost. If the point is to have enough passive income to cover your cash flow needs, why would you spend thirty-plus years measuring your progress based on account balances and rates of return?

As you can see, words matter, and definitions are important. These conflicting ideas could be why so many people think that they are on the path toward achieving freedom but never seem to reach it. They fall short of the goal because they don’t truly understand what is needed to have financial freedom and are steadfast on accumulating assets.

To have financial freedom, you have to have passive income. If you have to have passive income, then focus on building reliable income sources. It is that simple.

For more information on creating passive income and achieving financial freedom, visit

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Brian Skrobonja, Chartered Financial Consultant (ChFC®)
Founder & President, Skrobonja Financial Group LLC

Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder and president of a St. Louis, Mo.-based wealth management firm. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently to reach their goals. Brian is the author of three books, and his Common Sense podcast (opens in new tab) was named one of the Top 10 podcasts by Forbes. In 2017, 2019, 2020, 2021 and 2022, Brian was awarded Best Wealth Manager, in 2021 received Best in Business and the Future 50 in 2018 from St. Louis Small Business.