Cashing in on the American Dream: How To Retire at 35 by Paul Terhorst (Book Review)

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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.

Author Background
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!

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  1. Great find and even better for the price paid!! I will have to check out Amazon today after work and see what cheap reads I can find.

  2. also, no kids…..that’s a huge help

  3. Exactly right….no kids, don’t live in America and you’re more then 75% of the way there.There being….Asia, New Zealand, South or Central America….and a good quality of life. I’ve been doing it since 2003.
    It’s just a matter of taking a leap…..because once you do, you realize just how little America has to offer these days and how satisfying some of the other alternatives are especially given that you don’t have to work any longer to support the overhead and six figure salaries of bank, media, credit card, tech and healthcare industry executives and their minions.

  4. As soon as I saw “(no children)”, I laughed. You include it as a parenthetical, when in reality it is the single most important factor.

    Nearly all these “early retirement” stories seem to have one of the following factors:

    1. No children.
    2. Govt or military pension with healthcare benefits.

    Sure, they save, limit consumption, don’t run up debt … but those all pale in comparison to the two factors above.

    Still waiting for the story of the couple with 2 kids that worked a 9-to-5 private sector job with no pension that (FULLY) retires at 35 … or 40 … or 45. That’s the “how we did it” story I’d like to read.

  5. Sunil from The Extra Money Blog says

    David, what are some of the pros and cons? Why don’t you think more Americans do that / what you are doing? The US taxes on global income basis, yet exclusion is only the first 90K+. What if you are making more? Does it still make sense to live elsewhere and miss out on the “benefits” provided by the US? Also, “quality of life” is a highly subjective variable. Many feel the US offers the best quality of life, even for those below the line of poverty. On average, an American lives a better quality life compared to an average person elsewhere. Thoughts?

  6. Sunil,
    Quality of life is relative. We are a wealthy nation in US, but we spend a lot of money on fighting wars and keeping people in jails. There is not a lot of community in our country. Our government is certainly better than some, but generally disfunctional. The biggest benefit to living in the US is knowing it is unlikely a war is going to breakout in your backyard. Most Americans don’t live elsewhere because of family/intertia.

    Maybe the book should be “How to Retire at 400,000”. Because I’ve been doing everything right, but I won’t have 400,000 when I’m 35. There’s no rule that says that being smart and a hard worker means you are going to make a lot of money. There’s no rule that starting your own business is going to work either. In order for me to make 400,000 by the time I’m 35 I would have had to make a lot of gambles (like in tuition loans) to get there.

  7. With a private sector employed hubby and 2 kiddos I will have to rely on winning the lottery soon to retire at age 35.

    Doing what you love is invaluable.

  8. Sunhil…I think the reason people stick with the status quo, even a dysfunctional one is that they are afraid of change. People become very comfortable living with, even dependent upon the very things that make them most unhappy.
    Security is an illusion, almost nothing can be taken for granted or counted upon anymore.
    What are the benefits of living in America? Not personal safety, not a healthcare industry dedicated to ripping you off for your last dime, not a free press that distorts and manipulates information to please the government or its corporate sponsors, not personal privacy, not free and fair elections. Urine tests and wiretaps for all, that will be 21st century America’s legacy.
    My experience is, that if you let go of all the false ego gratifiers, if you follow exchange rates around the world, if you live within the strict confines of a budget that makes economic sense…..that the richness of your life will expand many times over by redefining and living your life as a global citizen.

  9. The thing is, if you have $400,000 by 35 … why stop there .. you clearly know what you are doing, and can live a pretty nice life doing what you are doing … I wouldn’t stop and say, lets live on the bare minimum when I am clearly extremely successful at what I have been doing for the last 10-15 years …

    and by doing that you will be helping yourself and any family needs as well

  10. Another book, with a Catchy Title, meant to sell copies! Its really foolish to think this can be attained by the average person. If your extreme, are DINK (double income no kids), live at home & dont buy anything, you may get there, but dont get sick, you may go Bankrupt!

    Someone wrote about living outside the US & I am seriously considering it, I think most people don’t realize how some places are really catching up with US standards, or even better. I am talking about places like Singapore, or Australia…

  11. @Kevin – I don’t think Terhorst thinks they live on “the bare minimum”, heck, they’ve been traveling the world for 25 years after writing this book. He has something rare – *enough*.

  12. It’s true that kids cost more. How much more is highly variable, just as variable as how much any household spends. One method is to save like crazy and retire before you have them. My wife and I may be end up on this route, although not by choice. At the very least, we will be able to work half-time and still save some in tax-deferred accounts. Like I said, it’s not all or nothing. Other couples make it happen with one-income.

    @Jay – Check out Money Mustache, I think he has one or two kids and worked as computer programmers, retired in his 30s, and now spends around $20k a year.

  13. Mpower: Cost of living in Spore and Australia are extremely high…..higher than Chicago for sure!

    Thailand and Malaysia are better choices. I would say Malaysia is 1/4th the cost and Thailand is probably 1/5th.

  14. I just dont see why someone who learned how to be successful and save up $400k by age 35 (and in the 1980s no less), would just up and give that up to scrape by

    Maybe thats just me, I couldn’t do it

  15. @Kevin – I wouldn’t do it either, but I kind of see that as my own personal preference for lots of security. I respect these guys for living their life as they want with little fear and dealing with everything as it comes. With 25 years gone by, I don’t think it’s just been sheer luck.

  16. Kurt from Money Counselor says

    Interesting thesis; I’d find a $400k nest egg far too risky to abandon serious efforts to earn money. I’d hate to find out at age 55–when I’d been out of the workforce for 20 years and, sadly, too old for many employers except Wal Mart to consider hiring, that I needed more money. What about care in my very old age? Serious partly or totally uninsured health issues? Hyper-inflation? Too much could go wrong–and it wouldn’t have to go terribly wrong–over the course of 40 or 50 years to chew up $400k in a hurry. I admire the goal and sentiment, but would need about four times as much to make the leap.

    Thanks for the review and post.

  17. Sunil from The Extra Money Blog says

    @Mpower – xmasy is right. the countries you mention are not representative of the point being made in this discussion. thailand and argentina are more like it, not aussie and singapore

  18. Lol…i love how the author used free google page to update his status 🙂

  19. My husband and I are planning on moving to Costa Rica as soon as we can save up enough cash. We plan to buy a home for cash, use sustainable energy, and grow/raise our own food as much as possible. Healthcare is extremely reasonable, as are property taxes. I fail to see the “perks” of living in the United States as was mentioned above. I cannot think of many reasons to stick around here.

  20. So, what are we talking about here? Why should we be leaving the best country in the world and live somewhere else for the sole reason that we don’t want to work anymore?
    Why do you think so many imigrants are coming here all the time? Are they all stupid or uniformed?
    I’m an imigrant myself and I know I couldn’t make it thus far in my old country. And I didn’t do anything special, just applied for a job fresh out the college (graduated in my old country), got one after a month and from there changed employers and got into the 5% soon after that.
    It will be plain stupidity for me and my family to go back to the now somehow evolved old country and spend my savings there.
    Anyway I look at it here is still much better than in any other country.

  21. Read How to Retire Early and Live Well with less than a million dollars…by Gillette Edmunds pub. 2000…he was married and had kids too…so this may answer some questions as to how to get out early and have enough money…even with kids

  22. Well, we were very much on our way to retirement at 35 when I was 20 and 25. Then kids happened. Now I’m 30 and, it ain’t gonna happen.

    Moral of the story- kids equal work in more ways than one!

  23. In 2003 my CPA knew Terhorst. He met with Paul and shared some insights with me. Paul had worked for one of the big 8 accounting firms and had very wealthy clients. He was less than excited about his work. His wife was working in the corporate world and not enjoying it. Hint: Enjoy your work if you want to keep on working.
    They sold off everything they didn’t NEED and put the money into laddered CDs as you mentioned. They then moved to Argentina where they lived in a little house a couple blocks from the beach. Nice lifestyle but not their dream. He made contact with his wealthy clients and they began house sitting for those clients all over the world. Now, wouldn’t that cut down your expenses and raises your level of living?
    One of the most important lessons in the book is that we don’t own our possessions. They own us. I mentioned this to a man I knew who seemed to be wealthier than God. He threw up his hand and exclaimed, “ABSOLUTELY!”. He continued saying, “I used to own my own homes all over the world, my own yacht and airplane and a lot of cars. I love exotic cars. One day two of my employees called in sick and I found myself having to take care of the yacht and plane. I decided to sell all my homes except one in Europe and one here. I sold the yacht and the plane and all the cars except one that I knew I could depend on. I now have more money than I could ever spend the rest of my life and never change my lifestyle.” His lifestyle was very 1st class by the way. So, eliminate all the excess in our lives and have less to take are of and keep clean and simplify your life. It makes things much easier. I retired shortly thereafter and moved to New Mexico near a small town as suggested. The town isn’t much but our views and the environment would be hard to beat. A mild 4 seasons, clean air, dark skies and lots of elbow room. Closest neighbor is at least 1/4 mile away.
    My wife is from Brazil. We’ve looked at the option of living there. Not much that I’d want to put up with. In the cities the noise level is way beyond tolerable. Inflation is constantly out of control and the corruption is way out of hand. I know we have corruption in the USA as well but there seems to be a bit more control over it. Healthcare is good in foreign countries and certainly much cheaper, but it can sometimes be nearly impossible to get an appointment. I’m beginning to find that here in the US. We make trips to Mexico for dental and optical when we need. It’s a fun day, especially when we do it with friends.
    I’ve visited every continent except Antarctica (too white for me). Although they all have a lot to offer, I keep finding things I don’t want to deal with. Ever tried banking in Brazil or Costa Rica. Their security is heavier than our airports today. And, the lines can be hours long. I like drive ups. 8^)
    Whoa!! Joe. Enough for now….
    Happy New Year. May 2015 fulfill all your dreams and may you love everything you do. Life is too short not to enjoy it.

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