
First Retire... Then Get Rich - wavephorm
http://www.mrmoneymustache.com/2012/05/14/first-retire-then-get-rich/
======
citricsquid
Having enough money to live if you stop spending money isn't rich, rich is
having enough money that you can spend and you don't have any long term
concerns. $500,000 (or even a million) for the rest of your life is not rich,
it's being _secure_. If you can't buy a new sports car on a whim you're not
rich. The plan (save and then live off of the returns) is sound and if you're
a careful spender it's great, but to say you're rich is a big stretch.

Pitching this as something that will make you _rich_ creates terrible
expectations of what the plan actually is.

~~~
Supermighty
I heard the best definition of rich from the Cosby show:

If you work for your money you're not rich. You are rich if your money works
for you.

~~~
jonmb
"Some people are so poor, all they have is money."

~~~
kamaal
I would love to be that poor.

------
typicalrunt
_Over time, this $20,000 stream accumulates and compounds at 5% after
inflation, and raises their combined net worth by an additional $1.329 million
over the next 30 years._

It wasn't mentioned, but I guess the money is being reinvested in equities. 5%
is a stretch goal seeing as the savings rate in the US is around 1% (or less).
Inflation there is running at about 2-3%. I see no talk of capital gains taxes
or broker fees in there, so I'm a bit skeptical when people throw around
instant, magical compounding calculations that net a million dollars.

Oh, it's _5% after inflation_ which means the money is compounding at approx.
8% or so. That's a very lofty goal!

~~~
ProCynic
5% after inflation is a rule of thumb he has for a long term investment
portfolio. He talks about it more here:
[http://www.mrmoneymustache.com/2011/04/10/post-4-what-am-
i-s...](http://www.mrmoneymustache.com/2011/04/10/post-4-what-am-i-supposed-
to-do-with-all-this-money/) . I'm not sure what the US saving rate has to do
with anything.

~~~
rondon1
From the article:

\- buying a conservative dividend-paying stock index fund – go to Vanguard.com
and start an account to buy some units of the VFINX fund, or if you have a
brokerage account you can buy SPY shares. \- last resort: just putting the
money into a cash account that pays the highest level of interest you can find
– Vanguard’s Prime Money Market fund or ING Direct’s Orange Savings Account.

VFINX is a -0.76% for 5 years ING Orange is currently at 0.80%

How can you assume 5% after inflation? That is no different that assuming that
home prices will go up by 2-3% a year. It sounds reasonable but there is no
way of knowing exactly how that will play out.

~~~
mgkimsal
you could invest is in australia, where banks are giving 5-6% on regular
savings accounts: <http://www.savingsaccounts.com.au/>

~~~
vellum
Good luck with that if you're American. Thanks to the new IRS regs, a lot of
foreign banks won't do business with Americans.

[http://www.accountingtoday.com/debits_credits/Taxpayers-
Stra...](http://www.accountingtoday.com/debits_credits/Taxpayers-Strained-New-
FATCA-Requirements-62356-1.html)

~~~
_delirium
I don't think it's ever been feasible; most countries won't let you open a
bank account unless you have an address in the country, unless you're in some
kind of special situation, like a "high net-worth individual" interested in
private banking services.

------
Aftershock21
If the goal of retirement is beach-sitting I don't want it. Money is energy of
your experiments in life and if you spend bare minimum you are missing a lot
in life. I would rather work on what I love for the entire life and create
more possibilities to get rich. Spending $20,000/year sounds like going on
hibernation mode for the rest of your life. Its a plan for people who are
chronically lazy.

~~~
Zimahl
Spending $20,000/year seems impossible in the US.

Unless you have a trust fund or came into money early, just saving $50,000 a
year for the last 10 years was pretty tough. You'd need to go without health
insurance and probably already own a home. Be in a high-pay, low schooling
job. No kids, no un-employed spouse, no pets. No health problems. No job or
startup failures. NO MISTAKES.

The people who have accomplished this exist but are few and far between. They
are the extreme exception, definitely not even a corollary to the rule.

~~~
grecy
> Spending $20,000/year seems impossible in the US.

It's not impossible at all. Get rid of all your high reoccurring monthly
expenses. Cell phone. Cable. Gym. etc. You absolutely don't need any of that
junk. It's just keeping you at work. It can be inconvenient not to have a cell
phone, but a lot less inconvenient than spending 38/hrs a week at work.

Also, it's important to keep reminding yourself you live in the consumption
capital of the world. The entire US is geared towards spending money, and you
will be encouraged to do so many times per day. Your friends, family,
colleagues, dentist and the guy at the gym are all going to encourage you to
spend money - it's just how the society works. You will have to develop a
think skin, and remind yourself to resist spending money at every opportunity.

I'm in Canada, and I feel the pull to spend money here daily. ("Come grab a
coffee with us". "checkout this new canoe you should buy". "I found a good
deal on...". ""pfft. I get unlimited free texts for only $50/mo." ... etc.
etc. etc.

At the end of the day, it's your choice if you want to keep spending money and
going to work, or cut out the spending to limit the amount of time you need to
go to work.

NOTE: I'm from Australia, lived and worked in the US for a year, now have
lived and worked in Canada for 6 years and my family live and work in NYC, so
I have some perspective on "consumerism"

~~~
_delirium
_The entire US is geared towards spending money, and you will be encouraged to
do so many times per day._

This is true to some extent, but it also varies a lot by social groups. If
your social group is all people making $100k+, there's a lot more of this
casual spending, and more entertainment and socializing is oriented around
money-costing activities. If your social group makes less money, the amount of
money-spending peer pressure gets somewhat less.

An odd aspect of it is that people who make more money generally have nicer
living places, yet seem _less_ likely to use them. With people who make a lot
of money, the default is always to meet up at a restaurant, a cocktail place,
etc.; whereas among my friends who make less money, dinner parties, house
parties, etc. are much more common, even though their housing is considerably
more modest.

~~~
Drbble
My experience is the opposite. Rich people throw house parties. Poor people go
to the bar.

------
stephen
I would not call this "Financial Freedom through Badassity" (his site's
tagline), it's more like "Financial Freedom through Being Frugal".

Not that there's anything wrong with that.

~~~
ChuckMcM
Agreed, and while I would love to reliably get a 5% return above the inflation
rate, its not always so straight forward.

------
kamaal
This reminds of a conversation I had with a Uncle of mine some weeks back. He
is sort of Semi Retired. So I asked him how can one retire at 40.

There came the answer, he asked me to define retirement. After some answers
and counter questions he asked me to look at it this way. Retirement is not
doing 'nothing ever after'. Retirement is basically having enough money to not
fear getting fired, to not worry about bills, expenses, food, clothes, fuel,
health care and kids education. Then when you are this free, go and work on
what you always wanted to work on. May be that is music, may be that is apple
farming or whatever. But when you go down this route, you never stop working.
Except that you now work on things you enjoy.

But if your definition of retirement is doing 'nothing ever after'. Then you
sure need lots and lots of cash, real estate, good insurance and kids who can
take care of you in old age. That is difficult to achieve, assuming you don't
win the start up lottery. After total analysis(I'm 27 currently), this is what
I believe can make you rich.

    
    
        a. Never have credit card,loans or any kind of debt. 
           Interest is a dangerous thing and often eats most
           of your earnings.
        b. Understand how much you need to save and invest.
           Get a good savings and investment plan *now*.
        c. Productivity is extremely important because you are
           working against time.
        d. Have side projects, that can be monetized. Do not
           work for your company for more than what they pay
           you.
        e. Use every savings and investment opportunity, even if
           it means saving and investing little.
    

With a little hard work, clever savings, investments and avoiding debts and
interests any person go far. Also I don't get blind consumerism to keep buying
stuff you just don't need at all.

With all this and monetizable side projects any person can be financially
stable by 40-45ish to have money to relax and take life as it is supposed to
be taken.

------
sparknlaunch12
The fictional example forgets to factor in unexpected health costs, emotional
distress from no close family and living in a shack in a war torn village.

Okay, slight over exaggeration but anyone could retire early. However it takes
sacrifice. It usually involves living away from your family and living in a
second/third world country. It assumes you have no unplanned costs (health,
weather...). Not terrible but worth considering before quitting your job.

~~~
ProCynic
Where do you get living in a third world country? The numbers are reasonable
ballpark figures taken from real people living in America. With spouses and
kids and health insurance that covers medical disasters.

~~~
dgabriel
Health insurance for my family of 5 is about 7 grand a year, and food is about
6 grand, and utilities are about 3 grand (Internet/water/electric/gas). That's
15 grand before transportation, rent, or any luxuries. I frankly have no idea
how a family with children can live on 15-30 grand a year without being in
constant stress.

~~~
grecy
You just added up to 15k for the very basics. Let's throw in another 12k for
rent, 5k for transport, and 5k for "fun". So you're at 37k in expenses.

Assuming you have two adults here with an "income"* of 20k each, you've still
got 3k spare. I'll bet after a few years of that you'll get better at it and
can reduce your spending even more.

Keep in mind you've been conditioned into thinking you need to spend money to
have a good time, i.e. Disneyland, movie theater etc. This is not true.

*NOTE: "income" could be anything you want it to be, it doesn't have to come from going to work.

------
lanstein
I'm pretty sure nobody in this story lives in San Francisco.

~~~
gghootch
Actually, MMM lives in the SF Bay Area.

See [http://earlyretirementextreme.com/how-i-live-on-7000-per-
yea...](http://earlyretirementextreme.com/how-i-live-on-7000-per-year.html) as
also seen in @ProCynic's post.

Edit: ok, fail.

~~~
ProCynic
That's Jacob Fisker. MMM lives in Colorado.

------
gfodor
This certainly doesn't sound like very much fun. You slave away for 15 years
to get your $500k stash. And then, once you've gotten there, you retire, and
end up cutting back on expenses by driving a shitty car, quitting your gym,
etc. Now, you just "sit back" and wait 30 years for your $1m to roll in. Then
you're 65 and practically dead. (Oh and don't forget, inflation is ignored
here and has probably eaten well into your real returns.)

Better to save up enough money to live on semi-comfortably for a year or two
(say, $200k) and make a leap out of the ratrace. Start a business that has the
potential to generate a large amount of income quickly with low startup costs
and be sold as equity for a high price after some time. Fail, and repeat for
the next two years. Hopefully at some point you will get cash flow positive
and will not be forced back into the rat race. If you've played your cards
right your incoming cash flows will largely be passive, leaving you the
freedom to expand into new areas in the quest for high growth. One can imagine
that after 5 years of being out of the rat race, you will end up stumbling
upon a high growth business that can start bringing in serious cash.

After 5 years of effort you will hopefully have $1-5m. You almost certainly
will have more than the $250k you started with. Provided you have been smart
and not increased your standard of living as you earn this money plug it into
safe, income generating investments like bonds, CEFs, and dividend value
stocks.

Congratulations, you can now kill off any income streams you may have had that
were taking up time (and were not passive) and can decide if you want to live
on the interest or continue searching for more growth, to get you to that $10m
point where the interest starts being "I think I will buy a new car today"
levels. You're also probably in your late 30s early 40s and can actually still
enjoy life.

~~~
grecy
You're missing the point of being "frugal". It's not about "giving up" the
"good life" and punishing yourself to go without. It's about coming to the
realization all that crap isn't making you happier anyway, so better not to go
to work to earn money to buy it.

I drive a $450 car, have no TV or cell phone and have never been happier in my
life.

> Now, you just "sit back" and wait 30 years for your $1m to roll in.

When you say "Sit back" what you really mean is "do whatever you want with
your time". It's important to note that doesn't mean doing nothing - it means
exploring your passions and dreams, which could be anything from volunteering
at the homeless shelter to contributing to open source projects to building
that deck on your house to actually raising your own kids instead of sending
them off to expensive childcare. I sure as hell don't sit around and do
nothing when I'm not at work.

> Then you're 65 and practically dead.

That's the whole reason you need to get out of work NOW! At this rate, you'll
(everyone) will be sitting at a desk until they are "practically dead". At
least if you get out of work now, you can enjoy the years between now and 65
doing whatever the hell you want to every day. And, of course, all the years
that come after 65 too.

>"I think I will buy a new car today"

I actually have never bought a new car, and have no interest in doing so. If
you actually want to buy a new car today, then you have linked happiness with
money, and it will be very hard for you to live the frugal life which lets you
go to work less.

~~~
gfodor
The problem is in the "do whatever you want with your time" phase you actually
aren't "doing whatever you want with your time." You are doing things that
don't cost much money to do, like volunteer at a homeless shelter or
contribute to open source projects. If that is your life's passion, good for
you, and maybe this plan would work.

But also, don't forget, during this 'early retirement' you're in a very risky
financial situation full of worry for a very long time. (Probably the rest of
your life.) If a $50k hospital bill comes your way, you're in a bad spot.
You're potentially drawing down your assets over the years if you spend a
little bit more than you thought you would so the risk could go up over time.
In the approach above I outlined you still go into a period of risk, but it's
shorter (with higher risk) since after a point you are shielded from financial
worries.

The "buy a new car today" example was just that, an example. It could also
mean "travel to Italy to work on my open source project out of a coffeeshop"
or "open up my own homeless shelter to help my local community."

~~~
grecy
> you actually aren't "doing whatever you want with your time."

Each person needs to sit down and think about what they would do if they
didn't have to go to work every day. (the old "what if you won $100mil
question) it's important. Actually think about it, and make it happen. I drove
from Alaska to Argentina for 2 years. I'd call that doing whatever I want.

> If a $50k hospital bill comes your way

Because the whole "career" and "retire at 65" approaches are such rigid paths,
many people seem to think an alternative lifestyle/approach to money is
equally rigid and inflexible. If huge bills were to pile up, you could just go
to work, full or part time as required. It's a very flexible thing to do.
Also, I live in a country where medical expenses are not a concern.

You keep thinking that if I don't have some money behind me, my choices about
how I spend my time will be limited. What you don't realize, is because you
are going to work every day, you don't even get any choices.

Would you rather not be at work on Monday morning and get the choice between a
(free) walk in the park or a drive in your $500 car, or be at work thinking
about the $100k Ferrari you might have one day?

~~~
gfodor
I'm not proposing that you be at work every day either. I'm proposing you
spend an extra 5 years after you exit the rat race (earlier than you would
here) to secure a 7 figure sum and a series of passive income streams to
ensure absolute financial freedom, and defer your "do whatever you want phase"
by a few, but not many, years.

So, the timeline goes from this:

\- Phase 1 (years 1-5) : Save $500k

\- Phase 2 (years 5-30): Live frugally but without working for 25 years but
without true financial freedom while interest accrues

\- Phase 3 (year 30): Reach true financial security after you build wealth via
the markets somehow (risky) and no longer worry about money whatsoever. You
are now old and your liklihood of getting here by building wealth via the
markets is probably lower than you think.

Alternate reality:

\- Phase 1 (year 1-2): Save aggressively $200k by living like a bum.

\- Phase 2: (years 3-8): With your independence, start a series of high growth
ventures (some of which will fail) and work incredibly hard to build wealth.
By year 5 you should be cash flow positive, by year 8 you should have $1-5m.

\- Phase 3: (years 9-15): You are completely financially secure with a passive
risk free income on interest of $150k-250k/yr on your cash sum. This is time
for you to decide if your dreams require more passive income than that. If so,
spend this time continuing to work independently and building wealth. If not,
you're retired here and can do what you please on your 6-figure risk free
salary.

\- Phase 4 (optional): Get to $10m-20m in the bank. Congratulations you now
have $500k-1m a year to play with and literally do whatever you want if your
dreams so require it.

~~~
ProCynic
This is perfectly compatible with the MMM plan. Nothing says that you can't
spend as much of your retirement as you like on high growth ventures. The
definition if retirement here is no longer being financially dependent on the
rat race. Though I will note that this will work even better if you learn to
enjoy living frugally. Every dollar you don't spend is less time you HAVE to
spend working.

------
sevenstar
Does Mr Mustache not know how to make paragraph breaks? His plan sounds like
the austerity plan they are giving Greece.↓

~~~
ProCynic
Paragraph breaks was a wordpress bug.
[http://www.mrmoneymustache.com/2012/05/14/first-retire-
then-...](http://www.mrmoneymustache.com/2012/05/14/first-retire-then-get-
rich/#comment-34211)

~~~
sevenstar
Okay, great.

------
ww520
Does the 4% withdraw rate account for inflation? If not, 20K will worth very
little in 30 years.

~~~
fennecfoxen
4% is a commonly used estimate for the average annualized _real_ return on the
stock market - so yes, a real return adjusted for inflation.

------
rflrob
For those of us who don't follow this site, is there a suggestion as to where
the initial half million dollars comes from? That's not always an attainable
goal for someone under about 40...

~~~
ProCynic
It comes from a 50%-90% savings rate. The focus of the site is on how to live
a nice middle class life on very little money. Here's how he did it:
[http://www.mrmoneymustache.com/2011/09/15/a-brief-history-
of...](http://www.mrmoneymustache.com/2011/09/15/a-brief-history-of-the-stash-
how-we-saved-from-zero-to-retirement-in-ten-years/) . Or if you want to get
extreme: [http://earlyretirementextreme.com/how-i-live-on-7000-per-
yea...](http://earlyretirementextreme.com/how-i-live-on-7000-per-year.html)

~~~
mattmanser
It's also worth noting he's not actually retired, he's actually a self-
employed handyman and also says in the article his wife works too and plans on
working more when their boy is older.

~~~
jonmb
Mr. Money Mustache defines "retired" as being able to do whatever he enjoys,
including work he enjoys. From what I can tell by reading his blog for the
past couple of months, he has no desire to sit around on a beach or play golf
all day.

~~~
Drbble
And the rest of us define retired as not having to work to pay our bills. I
like my job, but if I got hurt or laid off I would have trouble.

~~~
jonmb
True, most of us define retired that way. I don't think Mr. Money needs to
work anymore either, but he/they do.

------
simonbarker87
This isn't really a millions miles away from what Tim Ferris is suggesting in
4 Hour Work Week (which everyone seems to universally hold up as the best self
help book ever ... I disagree) but going about it in a different way. I think
all ideas like this have merit in certain circumstances, the trick is to
realise that it won't all apply to your situation and that you should take the
basic principles and see if it fits for what you want in life.

------
chives
This is the strategy of weak people. If it is actually used, in the way
prescribed, by an average middle class American it will inevitably lead to
financial ruin.

The only people who can realistically live off of this strategy are investors
who know what their doing and can easily make orders of magnitude more than
this using their own methods.

Though if you think this is the strategy for you, then more power to you. Can
I just get you to sign a waiver that bars you from whining to the government
or big business when it doesn't work out for you?

~~~
grecy
> This is the strategy of weak people. If it is actually used, in the way
> prescribed, by an average middle class American it will inevitably lead to
> financial ruin.

It's worth pointing out you've been conditioned to think this is the strategy
of weak people. Who are you to call someone else "weak" for choosing to spend
less time at a job? This person is not going to have a big screen TV like you,
not going to drive a fancy car like you and has a few thousand square feet
less than you to live in. These are all choices we are free to make, and
calling someone "weak" for that is unproductive and pointless.

You've been manipulated into thinking you _must_ work full-time until a few
years before your life expectancy is up, and anything else is "weak". This is
a lie.

It's also interesting you think it will lead to financial ruin. If everyone
did this, it would undoubtedly lead to lower growth than we have now, and, as
sad as it sounds, many corporations would not be making billion dollar profits
year over year. Of course, millions and millions of people would have more
time to enjoy with their families and to pursue their dreams.

------
bstewartnyc
Dumb.

