One of classic books on many early-retirement reading lists is Cashing in on the American Dream: How To Retire at 35 by Paul Terhorst. However, this book was published in 1988 and has been out-of-print for a while. Luckily, I noticed that there were several used copies available on Amazon for $0.01 + 3.99 shipping (or $4 with free shipping) and grabbed one.
Terhorst earned his money as an accountant, making partner at a major accounting firm in his early 30s. He retired in 1984 at age 35 with a nest egg of around $400,000. He and his wife Vicki (no children) refer to themselves now as “perpetual travelers”. He wrote this book in a era before the internet became popular – imagine how hard it would be to gather information on this topic back then, limited to early BBS chat boards or snail-mail newsletters. Sometimes I take for granted how easily we can share and discuss information today.
Paul and Vicki used to have a Geocities page that is now defunct, but they still occasionally write travel articles and it looks they have a small internet presence here.
Implementation: Managing Expenses
The basic retirement plan in the book is to spend no more than $50 a day = $18,000 a year (1988). Adjusting with the Consumer Price Index, this would be around $33,000 a year in 2010 dollars. However, personal inflation does not necessarily match the CPI, and they reportedly still manage on $50 a day as recently as 2003.
A major part of lowering your expenses is to avoid living somewhere expensive. Realize that the most expensive cities in the US are up there with the most expensive cities in the entire world! When you’re retired, you can live anywhere. The book includes several example of smaller cities in the southern US with temperate climates, lots of things to do, and a proximity to a major city and airport. They also support living close to the center of these smaller cities, using public transportation, and not owning a car – another big source of savings.
In addition, the author is a strong proponent of spending a good chunk of your time in foreign countries where a dollar goes a lot further. Latin America (Argentina) and Southeast Asia (Thailand) are places where they have lived. The key is to “live like a native, not like a tourist”. Don’t stay in hotels or live in gated communities made for expats. If the natives live on $10,000 a year, you should be very comfortable at $20,000 a year.
They pay for health care with cash in the same foreign countries, which offer quality care at much lower prices than in the US. The rest of the frugal-living advice is pretty standard. Prioritize your spending, cut out the excess consumerism, etc.
Implementation: Creating Investment Income
Investment advice is often referred to as the weakest part of this book. You have to realize that the 1980s were a completely different financial environment. With high inflation, you could buy FDIC-insured CDs paying 8% interest annually. Thus, he recommended liquidating all your assets to cash, including selling your home, and then build a CD ladder creating 8% income. Obviously, this is not an option today. But if you take a step back, you’ll see that the basic premise is that you should never take on any more risk than you need.
It’s hard to find any updated investment advice from Terhorst, but it appears like they are still happily retired and don’t worry about money much. If they needed money, you’d think they’d republish their book. I did find this 2003 Kiplinger’s Personal Finance article which provided some insight:
…they began to move their money into stocks – mostly low-cost index funds – when interest rates declined in 1992. Now they have 40% of their portfolio in large- and small-cap stocks, 40% in natural resources companies (oil, gold, platinum), and the rest in money market accounts. [...] Their assets now total more than $1 million
These days, I pose that a more realistic early retirement portfolio might be 50% dividend stocks and 50% investment-grade bonds paying out a 3% yield that will keep up with inflation overall. However, creating $33,000 a year would require $1,100,000. Creating $18,000 a year ($50/day) would require $600,000.
Implementation: Saving Up That Nest Egg
I think this area is actually the weakest part of the book. The advice is essentially work hard at your career and be a good company man. Do all the right things to get promotions and work your way up the ranks to management and upper management… until the day you bail out. This is what Terhorst did, and he doesn’t really explore any other options like starting your own business. I suppose the truth is that this method will work for many, but it’s not very satisfying.
The main lesson that I got from reading this book is that the concept of “early retirement” for everyday middle-class folks has been around and available for decades. However, most people today don’t seem to even know it’s an option. I guess it takes a special disposition to be unsatisfied enough with the normal 9-5 grind to do what it takes to get out of it. I’ve also realized that many people – good people! – are quite happy with working 40+ hours a week for 40+ weeks a year for 40+ years of their life. There are so many different ways to balance work, investment income, and spending to retire partially or retire early.. but first you just have realize that you have that option!