Beck BodeIndependence Day naturally brings to mind concepts of freedom and liberty. But what does financial independence really mean, and how can you achieve it? This question is central to the work we do with our clients every day.
Let's explore this through several real client stories that highlight the importance of thoughtful planning, navigating financial complexity, and finding the right balance between present needs and future goals.
Understanding True Financial Independence
"I am at my best when I feel free," notes Ben Beck, CFP®, Chief Investment Officer and Managing Partner. "When I feel the ability to do what I need to do and have the freedom to do that rather than to be stuck in a particular scenario for a long period of time."
Financial independence isn't simply about accumulating wealth—it's about creating the freedom to live life on your terms. Money, especially as you age, gives you the ability to do the things that are most important to you.
But defining what independence means can be challenging. As Ben points out, "Defining the goals is often the difficult part. What's a goal? 'I want to retire at some point.' Okay, well, we all do. But what does retirement mean?"
For many of our clients, complete retirement isn't the goal. "A lot of the folks that we talk to are like, 'I don't necessarily ever see myself completely disconnecting from the work that I love to do,'" Ben explains. "It's just different at that point."
Navigating Retirement's Complexities: A Case Study
Consider the story of a successful client who diligently saved throughout his career, accumulating a couple million dollars in his 401(k) and IRAs. Now transitioning into retirement, he faces what Jim Bode, Managing Partner, calls "a good problem to have"—his required minimum distributions (RMDs) are forcing him to withdraw more money than he actually needs for living expenses.
"He is being forced to take out higher amounts of income than he actually needs to live off of," Jim explains. This creates unnecessary tax liabilities, reducing the overall efficiency of his retirement plan.
To address this challenge, we implemented a multi-faceted approach:
- First, we began strategically converting portions of his traditional retirement accounts to Roth accounts. "When he first started saving, that wasn't an option in his 401(k)," Jim notes. "Now he has that option to be doing those conversions."
- Second, we aligned his charitable goals with tax planning by making intentional charitable contributions directly from his retirement accounts, reducing his taxable distributions.
The result? This client is now optimizing his tax situation while supporting his values through charitable giving. "This is really what they're doing now—tax planning for the next generation," Jim explains. "They're passing on a tax-efficient portfolio that their beneficiaries will now inherit."
Optimizing After a Business Sale: Finding Opportunity in Transition
Another client came to us facing a significant tax burden from selling his business. While celebrating this achievement, he was concerned about the capital gains taxes that would accompany his windfall.
His wife ran her own business as a sole proprietor and had been making modest contributions to a traditional IRA—limited to $7,000 annually. Looking at their complete financial picture, we identified an opportunity to optimize their tax situation through a different retirement vehicle.
"What can we do from an organization perspective to optimize the situation?" Ben asked. The answer lay in establishing a Solo 401(k) for the wife's business, which allows for significantly higher contribution limits—potentially $50,000-$70,000 per year between employee and employer contributions.
"You're not going to hide from the IRS," Ben acknowledges. "But what most people don't think of is, how can I take advantage of the current tax code to save as much money as possible?"
This approach couldn't eliminate taxes on the business sale proceeds, but it created a tax-advantaged home for a portion of their newfound wealth, improving their long-term financial picture.
Short-Term Needs vs. Long-Term Planning: The 401(k) Loan Revelation
Financial independence isn't just about the distant future—it's also about having the flexibility to meet unexpected needs along the way. A younger couple with substantial but illiquid investments faced a short-term cash need and was considering withdrawing from their IRA, which would require returning the funds within 60 days to avoid penalties.
They knew about 401(k) loans but hesitated because of the 7-8% interest rate. What they didn't realize—and what many people misunderstand—is that interest paid on 401(k) loans actually goes back into their own account within that 60 day time limit.
"This interest that you pay on a 401(k) loan goes back to yourself," Ben explained to them. "You're borrowing this money effectively from yourself, and so you're paying that interest back to your account."
This revelation was "a little bit of a weight lifted off their shoulders," Ben recalls. While not an ideal long-term strategy, it provided a better option than racing against the 60-day IRA withdrawal clock, giving them the breathing room they needed without compromising their long-term goals.
The Hidden Challenge: Emotional Investing
Beyond specific strategies, achieving financial independence requires overcoming a fundamental challenge: managing emotions around money and investments.
"Investing can get emotional," Jim observes. "You're talking about resilience...when you see account values changing."
Ben adds that "we all want certainty," but "the future is void of certainty. We don't know today what's going to happen tomorrow."
This is where professional guidance becomes invaluable. As Jim explains, "That's why we're here—to make sense of the confusion, to help you stay on the course that is in your best interest, that's going to drive you towards that financial independence."
Our advice "is focused on what we expect to happen in the future and what we know historically has happened...and take all emotion out of it and focus on what's in their best interest," Jim continues. "I think that's the hardest part for an investor—to stay emotionless when it comes to the markets."
The Path to Financial Independence: A Balanced Approach
True financial independence requires more than just selecting investments. It demands a comprehensive approach that considers tax implications, cash flow needs, and your personal definition of freedom.
When working with clients, we focus on several key principles:
- Define what independence means to you. Whether it's traveling, golfing, spending time with family, or continuing to work on your own terms, clarity about your goals is essential.
- Organize your financial life optimally. As Ben notes, "It's not about picking the best investment at this time or looking at short-term market trends...it's about positioning your assets and then being in the right asset classes to have the most optimal return for you years down the road."
- Navigate complexity with trusted guidance. The financial world can be overwhelming, but having a trusted advisor who can "demystify" your financial circumstances enables you to make confident decisions aligned with your long-term goals.
- Maintain emotional discipline. Success in investing has less to do with intellect and more to do with resilience and patience through market fluctuations.
Closing Thoughts: Your Journey to Independence
As we celebrate Independence Day, it's worth reflecting on your own financial independence journey. Are you positioned to achieve the freedom you desire? Have you defined what that freedom looks like? Do you have strategies in place to overcome the obstacles along the way?
Financial independence isn't achieved overnight—it's the result of thoughtful planning, disciplined execution, and the flexibility to adapt as circumstances change. By taking these steps today, you can work toward the independence that allows you to live life on your terms tomorrow.
Listen to the full episode of the NoBondsCast Independence Day Special, "Declaration of Financial Independence: Why Even Millionaires Need a Better Plan," to hear more insights from Ben and Jim on achieving financial freedom, optimizing tax strategies, and planning for long-term independence. Available now on YouTube or at beckbode.com/podcast.
Looking for guidance on creating your own path to financial independence? Schedule a complimentary consultation with one of our advisors to discuss your personal financial planning needs and how to optimize your current financial situation for greater freedom and flexibility.
Beck Bode is a deliberately different wealth management firm with a unique investment philosophy that doesn't rely on bonds. We focus on long-term equity growth strategies for individuals and families seeking financial independence and building legacies for future generations. Learn more about our fee-only retirement planning approach.