How To Retire Early and Live Well With Less Than A Million Dollars [Book Review]

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I enjoy reading older books about early retirement; I seek to learn from their experiences, but I also look for ways in that their perspective is colored by their own time period. For instance, a book written in the 80s1 – an era of high inflation – would likely assumed that interest rates would be moderately high forever, at least in the 5% range. The tendency to extend recent trends into the future is unavoidable, and something you should consider when reading or making forecasts today.

This is a review of How To Retire Early and Live Well With Less Than A Million Dollars by Gillette Edmunds, a book published in 2000 that was recommended to me by a reader. Edmunds was a former tax attorney and financial journalist who retired in 1981 at age 29.

Unreasonably High Expected Returns
Remember that for both the 1980s and the 1990s, the average annualized total return of the S&P 500 for both decades was around 18% a year. Imagine two decades of such returns, all before the dot-com bust and the housing bust. Edmunds retiring in 1981 turned out to be some of the luckiest timing possible. As a result, a major criticism of this book is the continued expectation of high stock returns going forward. The quoted excerpts below are taken verbatim from the book:

  • Can you retire today? His answer is that “most middle-class Americans, including me, could live comfortably on the investment returns from $500,000.” Perhaps, but with currently-accepted safe withdrawal rates of 3-4%, this would only create $15,000 to $20,000 a year in income. Instead, the book promotes withdrawals rate of 8-10%, which would have left many nest eggs completely wiped out from 2000 to 2010.
  • “An average, educated, experienced investor can reasonably expect to make 10% a year for life.”
  • “Anyone should be able to produce a 7.75% return.”

I bet these assumptions sounded reasonable, perhaps even conservative, in 2000 but they are just bad jokes today.

Owning Non-Correlated Asset Classes
Edmunds tells us not to time the markets, ride out temporary market drops, and to maintain low investment costs. He advises you to hold a variety of “non-correlated” asset classes such as:

  • Real Estate
  • Foreign Stocks
  • US Large Stocks
  • US Small Stocks
  • Emerging Markets Stocks

Edmunds believes that these asset classes are on different business cycles. When one is going up, the other is going down. However, I don’t like the term “non-correlated”, as very few asset classes have negative correlations these days. Low or minimally correlated is a better term. As we saw in the recent financial crisis, when the poo hits the fan correlations can go back to 1 (everything goes down together). However, I agree with the general asset allocation advice of holding different asset classes with minimal correlations. He counts as an early proponent of not holding too much in US stocks (no more than 1/3rd of total portfolio), and an equal amount in foreign stocks (also use for 1/3rd of your portfolio).

I did have an issue with the lack of supporting evidence as to why these assets and not others, as we only get weak arguments like “after owning bonds for about five years, I realized that a portfolio of five different high-return asset classes that excluded bonds had both high predictability and high returns”. I’m sorry, but making a conclusion to stop holding bonds after 5 years of data is just plain bad advice and makes him come off as egotistical.

He ends the book with a philosophical epilogue with the usual “money isn’t everything, enjoy life with family and friends” material. I don’t mean to belittle the importance of this factor, just that I didn’t really learn anything new from it. He does come off as well-intentioned and talks about the effect of his divorce. Despite its flaws, I found this book worth the read as it encompasses the overall philosophy of one person who had been successfully retired for 20 years. Just remember he had a very strong tailwind of high returns, and adjust your own expectations accordingly.

Other “early retirement” books that I’ve reviewed:

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  1. Great post.

    Technically uncorrelated means to have a 0 correlation or something close to it. Negatively correlated is still correlated and too much negative correlation can hurt your portfolio.


  2. It would be interesting for someone to write an article revisiting all these folks who retired early and wrote books about it at various points in time to see how they are faring today.

  3. A good read The Most Important Thing by Howard Marks, in which he has little regard for “future predictions”. Predictions that are accurate once in a while is of little value and is not actionable, it is only when those predictions are consistent and accurate.

    He states that many people overestimate the extent in which outcomes are predictable and controllable and they underestimate the risk present in the things they were doing.

    Mark Twain put it better: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that ain’t so.”

  4. Great review, and it really makes you take a fresh look at your current plans when you see how people’s long-term expectations may not match reality. So much can change, from taxes, inflation, markets, etc. that can put a major crimp in your plans.

  5. A search on Gillette Edmunds brings up, which is just a godaddy page. I wonder if Gillette is still retired 🙂

  6. @Tim – Thanks for the clarification, I was under the impression that negative correlation was best in terms of modern portfolio theory. I suppose too much negative correlation can be bad if that meant one of the asset classes doesn’t have overall positive returns?

    @Andy – I wish that would happen too! The paradox is that the truly retired and happy folks are probably just quietly enjoying their lives. 🙂

    @Khai – Thats a good point. Here are my highlights from reading The Most Important Thing:

    @Marc – That domain expired just a few days ago by coincidence, although I don’t think he’s written anything recently.

  7. Strictly speaking, negative correlation does imply two assets are better diversifiers. At the extreme, a correlation of -1 means that the two variables move in opposite directions. Assets with a correlation less than one will diversify, but the lower the correlation the better. I think Tim was just clarifying the definition of “uncorrelated” to mean correlation of zero (two variables or returns move independently, or aren’t related) rather than having a correlation of -1 (move in opposite directions).

    The statistic of correlation is independent of expected return, or the mean (average) of a series. Two variables could have a correlation of negative one and both have positive expected returns.

  8. This was a nice review, thanks; I just started re-reading “Retire Early …”. Your comments about the 8-10% withdrawal rate are spot on. I was in high tech during the 1980s to late 2002 – for most of that time we thought a withdrawal rate of 8-10% was too modest, a 12% return was wimpy, and we thought the party would never end. Then came 2000.

    BTW, Gillette Edmunds now has a financial management company in Oakland, CA – started in 2010, and he’s the sole employee. Says it manages 14 clients.

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