In case you were wondering how they pulled this off at 35:
The author retired from his CPA job at KPMG to live the life of world travel and financial freedom. When he retired in 1984 he was making in excess of $125,000 a year. The concept works best where you have a high priced personal residence in a hot real estate market. The premise is that you sell your high priced house and your status car. Then you take the proceeds and invest it in a SAFE, CONSERVATIVE investment living off the interest and never touch the principle. You move to a lower priced area, either in the US or outside.
Although that leaves it unclear how you got the high-priced house in the first place, much less the status car (why buy one if you're going to sell it anyway?). And the "safe, conservative" investment was cash deposits at a bank paying 8%/year, but good luck finding that these days...
They mention in the article that they moved from cash deposits to stocks:
"At the time, bank CDs paid around 8 percent. Ah, yesteryear.
“We had to change our investment strategy. Instead of living off our interest, we switched to buying stocks,” says Paul. “We cash in from time to time just before our next trip.”"
"Although that leaves it unclear how you got the high-priced house in the first place,"
Get lucky and sell at the peak of the housing bubble. Let's say ten year ago you bought a house with a mortgage in Vancouver or Toronto for 300k, you can sell it now for 1mil if not more.
> Although that leaves it unclear how you got the high-priced house in the first place
1984, man. Prices were half or a third then what they are now. That probably means they originally bought the house in the 70s, when things were yet cheaper.
I think back to my grandparents, that paid around 20k for a house around 1960. If I were to buy an identical house today, I'd be looking at 200k minimum, probably more like 250k, and it would be on a one acre lot, not 20.
I have a relative who make more than that as an accountant. He does forensic accounting, essentially auditing financial records in corporate lawsuits. Reconstructing where money did or did not go. Testifies at trials as an expert witness and so on.
but the rules don't work with people working for 10 years, and retiring for 60. of course this is not illegal, but such a life style choice would not be scalable.
It appears that you are misunderstanding Social Security, and you may think that the US federal government plays by the same set of fiscal rules that a household, a corporation or a state has to use.
That article doesn't actually counter what the OP says. In fact it ends by stating that SS is being more strained and giving diminishing returns as time passes by, which sounds disturbingly like a ponzi scheme. It's unsustainable by design even without free-riders, much less with min-maxers gaming the system to not put anything in.
I don't know why you think social security is necessarily unsustainable. It's been running a massive surplus since the 80s. Unfortunately it was borrowed from to finance wars in the middle east, but that's not a problem with social security.
Pretty awesome. Chiang Mai is a great city. We lived there for a month but just moved to Uthai Thani, which is even cheaper. It's a lot quieter, but pretty nice.
Unfortunately, you can never really settle down in Thailand, unless you marry a Thai person. Foreigners aren't allowed to own land, although you can buy an apartment. But even so, it must get tiring to go on visa runs every 90 days for over 30 years.
If you have a retirement visa (age 50 years and up) or spouse visa (married to a Thai citizen) you never have to do a visa run. For all others, it's a PITA.
Also, it's not that cheap to live in Thailand. You can live cheap if you like. But if you want a car, TV, bottle of wine, a decent steak, etc. you pay far more in Thailand than in the U.S.
I've been living in the Khao Yai area for more than 10 years.
Added: Something is wrong with the story of that couple in the article re: their visa. Because the only one year visas are retirement, spouse and business visas. They could have retirements visas at their age but no visa run is required - you never have the leave the country at all, just renew it once a year. If they are in the country on tourist visas, well, there is no such thing as a one year tourist visa. There is a 60 day multi-entry tourist visa, valid for one year, extendable by 30 days one time after which you have to leave the country and re-enter getting another 60 days, rinse and repeat. (Added: maybe this is what they are referring to). And you used to be able to get 30 days visa exempt on arrival and do visa runs every 30 days indefinitely, but they put a stop to that recently.
That's an interesting perspective. My own perspective might be slightly skewed, since we moved from San Francisco, where we were splitting $4,400 per month for a 2 bedroom apartment.
I see what you mean about luxury items costing more, so it definitely depends on your lifestyle. We're renting a house for $200 per month, and we've found great meals for under a dollar at local restaurants. Going out to eat at western restaurants rarely costs more than $5 per person.
About the visa details, I met someone in Chiang Mai who was here on a retirement visa. He said he had to leave the country every 90 days, but I think he mentioned that they had recently changed the rules.
Well yes, that's a pretty hefty monthly rental. I just got back from Singapore which is even more absurdly priced. So you can definitely save a lot on housing in comparison to some places. On the other hand, if you want to buy then you find land prices are pretty high throughout the country, even in areas I wouldn't live if they paid me. I compare that to friends who bought ranch lands in the southwest U.S. - much cheaper and nicer.
But a basic car is hardly a luxury item yet costs 2X to 3X the same car in the U.S. does due to high import tariffs. I eat at the local places for $2 (used to be $1) but when you want a pizza you pay $10 for a small one that is no bigger than one of those giant slices of Costco pizza in the U.S. Try a steak of local beef and break a tooth it's so tough, so if you want a decent steak you pay $30 at a restaurant for import. I suppose that is a bit of a luxury. The list goes on. Some things are cheaper, others more expensive. It's just not uniformly cheaper as many people think.
Brings to mind the Victorian concept of "retire with competence".
Problem is that it pretty much depends on getting in the door with the rentier economy, and not everyone can be there (unless you fancy trying to run the world on an eternal Ponzi scheme)...
The real trick is living way below your means. The main cost factors for most people are shelter, transportation and food. If you manage to lower these three recurring expenses considerably, you can retire within 5-10 years (even if you don`t make a six figure income).
The problem with early retirement and having kids, is that kids need to go to school and presumably, in one place. So you can't just bounce around the world when you have kids, or at least it's not as easy, finances aside.
Early retirement does not imply any preferences regarding travel.
Early retirement means that you are financially independent, which is defined as the state of having sufficient personal wealth to live, without having to work actively for basic necessities.
Thanks for that amazing link. Anyone who enjoyed the original article will find the FAQ on this site {earlyretirementextreme.com} very insightful and interesting .
"Druckemiller’s latest cause is to foment generational warfare. He’s going to college campuses and telling students that things suck (which they know full well) and they need to go after Boomers who are gonna get too much in entitlements if things don’t change. Now from what I can infer, the presentation is sophisticated, since Druckenmiller throws other big Federal spending items into the mix, like defense. But the fact that he depicts tax rates as a problem is a major tell."
I assumed the social security benefits aren't that good if you only worked until 35?
In Canada, e.g., the Canada Pension Plan (our version of social security) pays on a schedule based on how many years you worked. You must work for 39 years to get the maximum benefit.
If you work fewer than 39 years, no consideration is afforded to whether you worked those years at the start of your life or the end of your life. i.e., the time value of money is completely ignored.
Thus, I think the subjects of this article are likely being shortchanged by SS in some ways: they contributed, say, $200K to the coffers of SS. SS then had 30 years to grow that money, but will pay out ignoring the 30 years of growth.
SS is scaled based upon the average income as computed over a person's working life. Since he's got lots of zeros in the calculation, and there's a cap on the SS wage computation ($37,800 in 1984) his SS-calculated income is lower over the entire period, and thus the benefit is heavily reduced.
It's not linear, but there's a hefty penalty to do it this way.
Social Security benefits require a certain minimum pay-in before you get anything out. If you're paying in a lot, you can get your points in quite quickly. I'm a 30-something well-to-do software engineer, and the last time the Social Security folks sent out paper letters updating on benefits -- which was several years ago -- I had already paid in enough to qualify for Social Security (at 60-something), even if I stopped working today. I'll get more, of course, if I keep working and paying in.
Social security requires 40 quarters (10 years, not necessarily consecutive) of pay-in, then bases it on your maximum wages. (It may be more complex than that).
However, many statements assume that he's making no income and paying no social security taxes in the interim. He wrote a book, presumably received royalties, and has done other "side jobs".
He may very well have continued paying social security taxes in his "retirement."
I am not sure. This seems to me a very boring way to live. Sure, it's fantastic to travel around the world and explore different places. But, there is also a lot of satisfaction in meaningful work. Plus, a lot of things are really fun BECAUSE you are taking a vacation or rest away from a job.
Meta: The static headers and footer eat up about 50% of the screen real-estate. Makes reading this a real chore.
On topic - If you can save up some 25x your living income, it's absolutely possible to retire from a normal job early and live off the interest of your investments. However, it's not a trivial amount of money to manage (it takes a savings of around 1 million to provide an "average" American household income), and your job can quickly become managing that money to ensure you get your interest on a regular basis.
61 comments
[ 2.7 ms ] story [ 133 ms ] threadThe author retired from his CPA job at KPMG to live the life of world travel and financial freedom. When he retired in 1984 he was making in excess of $125,000 a year. The concept works best where you have a high priced personal residence in a hot real estate market. The premise is that you sell your high priced house and your status car. Then you take the proceeds and invest it in a SAFE, CONSERVATIVE investment living off the interest and never touch the principle. You move to a lower priced area, either in the US or outside.
(from http://www.amazon.com/Cashing-American-Dream-Paul-Terhorst/d...)
Although that leaves it unclear how you got the high-priced house in the first place, much less the status car (why buy one if you're going to sell it anyway?). And the "safe, conservative" investment was cash deposits at a bank paying 8%/year, but good luck finding that these days...
“We had to change our investment strategy. Instead of living off our interest, we switched to buying stocks,” says Paul. “We cash in from time to time just before our next trip.”"
Get lucky and sell at the peak of the housing bubble. Let's say ten year ago you bought a house with a mortgage in Vancouver or Toronto for 300k, you can sell it now for 1mil if not more.
1984, man. Prices were half or a third then what they are now. That probably means they originally bought the house in the 70s, when things were yet cheaper.
I think back to my grandparents, that paid around 20k for a house around 1960. If I were to buy an identical house today, I'd be looking at 200k minimum, probably more like 250k, and it would be on a one acre lot, not 20.
The 10x headline multiple seems shocking, but when you unpack it, it's not that shocking.
A single inflation rate paints an inaccurate picture when the difference between income and living expenses increases are that dissimilar.
According to [1], that works out to ~$285,000/year in 2015 dollars.
[1] http://www.davemanuel.com/inflation-calculator.php
Correct. But inflation was higher too.
>Plus our benefits are grandfathered in if Congress screws around with Social Security.
>"But at least now, when we go to the United States, we have coverage and if we get sick, we won’t be devastated financially.”
Not sure how I feel about people taking advantage of safety net, while doing whatever they can to avoid contributing.
They presumably worked the required number of quarters for their SS benefits, and played by the rules at the time.
This article from the Washington Post can help: http://www.washingtonpost.com/blogs/fact-checker/wp/2014/01/...
Your level of benefit is based on the average of how much you made (adjusted for inflation) during your best 35 years.
http://www.accuracy.org/release/social-security-has-a-large-...
When the boomers were in their prime earning years, supporting a smaller, aged cohort.
What article did you read this in?
>giving diminishing returns as time passes by
You mean that we're choosing to pay less to SS beneficiaries? SS is not an investment vehicle.
>It's unsustainable
It's entirely sustainable. What article are you referring to here?
Unfortunately, you can never really settle down in Thailand, unless you marry a Thai person. Foreigners aren't allowed to own land, although you can buy an apartment. But even so, it must get tiring to go on visa runs every 90 days for over 30 years.
Also, it's not that cheap to live in Thailand. You can live cheap if you like. But if you want a car, TV, bottle of wine, a decent steak, etc. you pay far more in Thailand than in the U.S.
I've been living in the Khao Yai area for more than 10 years.
Added: Something is wrong with the story of that couple in the article re: their visa. Because the only one year visas are retirement, spouse and business visas. They could have retirements visas at their age but no visa run is required - you never have the leave the country at all, just renew it once a year. If they are in the country on tourist visas, well, there is no such thing as a one year tourist visa. There is a 60 day multi-entry tourist visa, valid for one year, extendable by 30 days one time after which you have to leave the country and re-enter getting another 60 days, rinse and repeat. (Added: maybe this is what they are referring to). And you used to be able to get 30 days visa exempt on arrival and do visa runs every 30 days indefinitely, but they put a stop to that recently.
That's an interesting perspective. My own perspective might be slightly skewed, since we moved from San Francisco, where we were splitting $4,400 per month for a 2 bedroom apartment.
I see what you mean about luxury items costing more, so it definitely depends on your lifestyle. We're renting a house for $200 per month, and we've found great meals for under a dollar at local restaurants. Going out to eat at western restaurants rarely costs more than $5 per person.
About the visa details, I met someone in Chiang Mai who was here on a retirement visa. He said he had to leave the country every 90 days, but I think he mentioned that they had recently changed the rules.
But a basic car is hardly a luxury item yet costs 2X to 3X the same car in the U.S. does due to high import tariffs. I eat at the local places for $2 (used to be $1) but when you want a pizza you pay $10 for a small one that is no bigger than one of those giant slices of Costco pizza in the U.S. Try a steak of local beef and break a tooth it's so tough, so if you want a decent steak you pay $30 at a restaurant for import. I suppose that is a bit of a luxury. The list goes on. Some things are cheaper, others more expensive. It's just not uniformly cheaper as many people think.
Problem is that it pretty much depends on getting in the door with the rentier economy, and not everyone can be there (unless you fancy trying to run the world on an eternal Ponzi scheme)...
The real trick is living way below your means. The main cost factors for most people are shelter, transportation and food. If you manage to lower these three recurring expenses considerably, you can retire within 5-10 years (even if you don`t make a six figure income).
Early retirement means that you are financially independent, which is defined as the state of having sufficient personal wealth to live, without having to work actively for basic necessities.
Retires at 35, explores the world for 30 years
Claims Social Security at 62.
http://weknowmemes.com/2015/05/25-ways-the-baby-boomers-had-...
"Druckemiller’s latest cause is to foment generational warfare. He’s going to college campuses and telling students that things suck (which they know full well) and they need to go after Boomers who are gonna get too much in entitlements if things don’t change. Now from what I can infer, the presentation is sophisticated, since Druckenmiller throws other big Federal spending items into the mix, like defense. But the fact that he depicts tax rates as a problem is a major tell."
Guess who planted those memes?
In Canada, e.g., the Canada Pension Plan (our version of social security) pays on a schedule based on how many years you worked. You must work for 39 years to get the maximum benefit.
If you work fewer than 39 years, no consideration is afforded to whether you worked those years at the start of your life or the end of your life. i.e., the time value of money is completely ignored.
Thus, I think the subjects of this article are likely being shortchanged by SS in some ways: they contributed, say, $200K to the coffers of SS. SS then had 30 years to grow that money, but will pay out ignoring the 30 years of growth.
It's not linear, but there's a hefty penalty to do it this way.
However, many statements assume that he's making no income and paying no social security taxes in the interim. He wrote a book, presumably received royalties, and has done other "side jobs".
He may very well have continued paying social security taxes in his "retirement."
Parents often push kids to be competitive and achieve, when actually there are plenty of other ways to a fulfilling life!
On topic - If you can save up some 25x your living income, it's absolutely possible to retire from a normal job early and live off the interest of your investments. However, it's not a trivial amount of money to manage (it takes a savings of around 1 million to provide an "average" American household income), and your job can quickly become managing that money to ensure you get your interest on a regular basis.