The Proven 5% Income Replacement Formula

How earning 5% can give you real financial freedom

The quote you just read comes from an investor whom I know and learn from, to me he is like the wizard behind the curtain pulling the strings that tie so many things together.

I have learned from being around him that real big wealth buys you freedom on a level that is hard to fathom until you’ve seen it first hand.

When you really stop to think about that quote you can learn a ton about business and investing from those few lines.

I once knew an investor friend who was somewhat of a far off mentor to me. Her name was Liz.

Liz left her bank job as a president and in the same month lost $50,000 in one trade.

Sitting on her deck overlooking the ocean one afternoon I learned the stratedgy I am about to teach you and I was able to grasp why that $50,000 lost meant little to her.

“ What the heck are you going to do now Liz? I said with stress “ You just lost more in one trade than you made in one year’s salary!”

She just looked at me and responded without any emotion “ It’s not really a big deal, I know what to do different next time and that money doesn’t effect anything I need to live”

“How does this not seriously bother you?” I questioned

“ Robby I learned a long time ago that my income in the stock market cannot be tied to trading alone!” she said sternly “and if you have any sense at all you will never rely on living off less than 2 - 3 sources of income to have peace of mind without a job”

That day I learned the 5% rule. Are you ready to hear it?

Most financial advisors call it F/U money… You get this number by dividing your annual expenses by 4%.

If I spend $60,000 last year then my F/U money number is $1,500,000. Whew that sounds pretty high, right?

Now that seems like a daunting number unless you learn a different formula for getting to your stock market freedom (F/U money) number.

My formula is your gross annual income times 15x = your base fund number

Then your base fund number times 5% gives you income without stress.

$75,000 times 15= $1,125,000 then take $1,125,000 times 5% = your annual expenses

Now how do you get there? By taking a small amount of stock you own and selling monthly and then eventually weekly covered calls on the stock.

Monthly is 1 month or 2 months Out the Money calls

You can easily earn 5-10% monthly on your money.

This money becomes your freedom account fund and as you build this fund you can do all sorts of fun things with the money.

You can also add any extra money you have to grow your fund more quickly. The more that money grows the stronger your focus on pushing that target over the edge will become.

The Income solution that pays better than dividends and you can control it…

Now while you own these stocks if they pay out dividends obviously you get an extra check with your covered calls premium as well.

There are many great books on covered calls out there, but my favorite site borntosell.com will give you all the basic info you need to get started. The site will also give you a plug and play system to track the stocks you buy and sell calls on.

Last year I earned roughly 60% on my freedom fund writing covered calls monthly and I only needed 5% of that money to live on and take care of expenses. The rest of that money gave me the power to budget for a lifestyle increase in 2026.

This stratedgy is all about money management. Every year I take out my 5% or more from my freedom fund and put it into a savings account to be my living expenses for that year.

Ofcourse, you have to pay taxes on the earnings, but that is the price of being an American investor.

I have been doing this for years now and it just feels 2nd nature and once you do this for a few years you will get the feeling of why I feel this is more reliable than focusing on only buying dividend stocks to build my future income around.

The Risks

You have risks with any investment and covered calls are no different. If you get called out of your stock then you will be forced to sell your stock for the agreed on price, but if you always sell a strike price above where you purchased the stock at then you will rarely be unhappy with that result.

For example if I purchase ZY at $40.00 a share then I would only sell the $45 calls and above.

I will eventually talk about how to add in cash secured puts to make this freedom fund grow even faster.

Below is a link to the e-book I have been working on with the mindset that if I died today what document would I leave my children to teach them how to produce income from the stocks I leave them.

To close out this letter,

I am your friend in success and I would like to remind you that the win isn’t the trade — it’s sticking to your plan. Protect capital. Stay intentional.
Keep going. You’re doing the hard part most never will. To eventually live like most never can.

⚠️ Disclaimer