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First Retire... Then Get Rich (mrmoneymustache.com)
90 points by wavephorm on May 24, 2012 | hide | past | web | favorite | 106 comments

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.

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.

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

I would love to be that poor.

That's a bad definition of rich, but a good definition of wealthy.

I somewhat disagree. Rich is always relative. Having substantially more money than you need to live the lifestyle you want to live is rich by my standards.

Yes, rich is relative and $1,000,000 is rich to some and pocket change to others, but my problem with calling this situation being rich is:

> Having substantially more money than you need

They DO need the money, they do not have $500,000 cash they have $20,000 per year. If they are in a terrible car accident and they have to spend $200k on medical bills their entire life falls apart because having only $300k does not support their needed returns, replace that with any scenario that can cause unexpected costs. That to me isn't rich.

That's what high limit medical insurance is for. Unless these insurers commit effective fraud and not provide their service after the fact.

Or living in a country with good public health care?

In the end it's the same or worse. You'll be drowned in taxes in the typical European country with good free healthcare.

I haven't found that, and I moved from California to Denmark, the highest-tax country in the world (most of Europe has somewhat lower taxes). My tax rate is about 15% higher than it was in CA (counting all levels of government). But, I get complete health insurance for that amount of money, no co-pays or deductibles or maximums or employee share of the premium or anything, and I get it guaranteed for life at the same price, with no way to ever be dropped, have claims denied due to pre-existing conditions, have my premiums jacked up due to getting sick, etc. (well, unless I move to another country again). Just complete, bulletproof coverage, with much less bureaucracy too (no forms to file). And I don't have to change doctors or coverage if I change jobs.

If I could pay for that kind of guaranteed-for-life coverage in the U.S., with $0 deductibles, $0 co-pays, no maximums, no reimbursement paperwork, no excluded conditions, etc., for only 15% of my income, I'd gladly do so. In California, I spent around 7-8% just on my comparatively shitty health insurance + out-of-pocket, which had several exclusions and no guarantee I'd be able to renew at a similar rate if I got sick. So I consider the Danish offer a real deal. Even more so if your medical history has any major blemish on it, in which case U.S. premiums skyrocket to much higher than 15% of a typical salary.

People really need to think about this. How much would we save at the individual level with a real deal like this, and at the societal level when taxpayers no longer have to pay increased costs for all the people who waited until death's door because they couldn't see a doctor at a sensible time?

Maybe they will die quickly and cheaply when their problems are discovered too late. Beware the law of unintended consequences.

When you make a conscious decision to reduce your spending, you are also reducing your income, thus reducing your tax. When you are a low income earner, the tax rates are tiny.

Some insurance companies give bonuses to employees to find a reason to cancel a client's policy after a big claim. "You used the wrong middle initial on the application form."

This is what's so screwed up with our employer based insurance model, you would never purchase insurance from a company that engaged in tactics like that.

This doesn't necessarily follow from employer based health insurance, that can happen regardless of how you source your insurance.

The problem is that we get our health care through health insurance companies.

Eh, sport cars are cheap. If you can't buy that Gulfstream on the spot, you are not rich.

Even a million wont be enough if the value of the dollar keeps going ↓

That's why it's a "safe 4% withdrawal rate" -- you can do better on the stock market in nominal terms (8-9% or so) but you lose some of that to inflation.

Of course, if you're stuck in bonds and savings accounts then inflation (including exchange-rate related inflation) is, in fact, robbing you. Way to stick it to the retirees, Bernanke! :P

Bonds should always pay more than inflation.

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!

I think that the lesson is -- if you can get your expenses down to $20,000 (which is really hard), you have a chance. In real life, you'll have to make up the difference somehow

1. Work a little 2. Get expenses even lower 3. Find ways to get the 8% return you need (rental property?)

Even the site's writer admits in comments that he's not there. My biggest gripe is healthcare -- in the US, you need to factor in health insurance costs.

I spent 2 years driving from Alaska to Argentina, having the time of my life, and only spent $27k for EVERYTHING. (K13.5/yr) [1]

I think living on less than $20k is easy.

[1] http://theroadchoseme.com/the-price-of-adventure

So how do you pay for medical bills when you or a spouse gets cancer and needs chemotherapy, or even something as basic as a root canal causing horrendous pain? Will all that fit in a 27k budget?

It's a good point.

My countr(ies) of permanent residence have health care for all.

Also, checkout what happened when I took a foreigner into the ER in a Third World country (Ecuador) [1]

When I made the journey, I got a bunch of immunizations (free in Canada) and the doctor had lived and worked in Central and South America for many years. His advice was not to bother with Travel Insurance, because outside America, it would be cheaper to just pay for whatever I needed than pay the premiums, then deductibles, the deal with the hassle. Health-care is only unimaginably expensive in America. In other countries it's priced reasonably and I'm certain something like a root canal or even a broken bone would not have made a significant impact to my budget.


How did people do it before allopathic medicine? The old "original" way was a lot better.

With a spouse and two kids in tow?

No spouse or kids for me.

These guys [1] Are making the same journey right now through every country in central and south America with 2 adults and 5 kids !

You can do it, if you want.


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... . I'm not sure what the US saving rate has to do with anything.

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.

Because historically, that's what you've been able to get. You can't look at a 5 year timeline (and, obviously, cherry-picking the 5 year time period where stocks dropped by half isn't exactly fair). You should be looking at a 30 or more year timeline.

Even on a 30 year timeline, you can find runs where the average return is less than 8% (just as you can find periods where the return is greater). That doesn't mean it's not a reasonable forecast of what you can expect.

"Historically" home prices went up in the US until 2006 for well over 30 years.

It is interesting that you bring up cherry picking because that is exactly how mutual fund companies work. They have a lot of funds, the funds that do well stay around and the funds that do not do well are canceled. This fund that I mentioned is only 8 years old. Knowing which mutual funds are going to produce over 30 years is like knowing what stocks are going to produce over 30 years. You can 'cherry pick' examples for 8% or -8%, but it is crazy to assume that the fund you pick is going to get 5% over inflation over 30 years.

...and home prices will continue to go up for another 30 years (and the 30 years after that). Of course there will be recessions (and likely even depressions) during those times. What's your point?

I think you're missing something here. Nobody is talking about picking actively managed mutual funds (which you're right, are a total gamble/ripoff). The Vanguard fund mentioned above is an index fund. It's not at all crazy to assume that by picking the world's biggest index fund, you are going to get 5% over inflation over 30 years.

There is a reasonable line of thinking that the Internet and modern computer modeling and retail investing have had the effect of pricing in the future growth in equities, and so traditional growth will not continue.


Pricing in the future growth in equities =!= no more growth...

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

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.


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.

The big risk in any kind of investment like that is you can be burnt on small variations in the exchange rate.

Australian banks pay 5.5% PA. The exchange rate can vary 1-2% per day, and trying to predict long term trends is difficult at best.

(I'm Australian if it matters)

I should have explained myself better. I'm assuming he's in the US. The savings rate comes into play when you consider that it is determined by looking at the prime lending rate between banks, which is currently at or near 0% in the US.0

But it's all about risk. If you want 0 risk to your principal, you are going to get 0% interest rate. If you put your money in the bank where it is (hopefully) FDIC insured, you get a bit of risk but not a lot, so you get a bit of interest. Since risk and reward (your interest) are correlated, the higher your return (8% compounded before inflation) the higher risk bracket you are in.

If US interest rates go up, the bank savings rate will go up as well, making it easier to get to 8% annual compounding rate with little risk. That means any other type of investing (equities, etc) will become less risky at the 8% level (but not without some risk).

you can spend an infinite amount of time talking about investing, but yeah it's stocks, counting on diversity for risk management. And it's more about dividends than stock price http://www.mrmoneymustache.com/2012/01/02/guest-posting-the-... . The goal is to get a steady stream of cash now, not have assets that you plan on selling when you get to 70.

He's also taking out $20k per year, a whopping four percent. Standard in the financial planning industry is that long term retirees need to keep their annual draw down to about 2% to keep their portfolio steady or growing.

So 4% to spend, 5% in real growth, 2% inflation -- 11% nominal gains per year. That's achievable, but he's going to need to be a damn good investor.

Any discussion on early retirement is incomplete without a mention of John Greaney's safe withdrawal rate study: http://www.retireearlyhomepage.com/safesum.html I highly recommend his site.

Why would a retiree need to keep their portfolio growing?

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.

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.

> 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"

"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."

This is very true. I would like to think that I have for the past couple of years successfully tried to buck this trend. The idea of "improving credit score" means nothing to me anymore. Thats because I do not want to take loans. If I do have to make a purchase where debt is likely (like a house), I wouldnt let that debt be more than 3-4 years and so pay a lot of money upfront. At least in the US, its easier than one thinks to live a life with positive cash flow. Just have to have the mindset that a 3-4-bedroom-house, 2 or more cars, and owning a lot of stuff in general is not necessary.

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.

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

OK then pay rent for an apartment for you and your kid to sit in while you never eat or do anything or seek medical attention. 20k/year

My apartment is $5000/year (midwest US).

That $20'000 figure is when you've already bought your furniture, appliances, house, car, etc. And you live in an area where costs are significantly more reasonable, such as a small town in Colorado where the author lives vs. the bay area, one of the most expensive places in the USA to live.

68.6 million Americans live in households with incomes under 20k.

None of them are rich.

In college I lived comfortably on $10k/yr in a high COL area.

On who's health insurance?

I lived cheap as well in college, but that was with 3 months at home in the summer, cheap college town rent, and still on my parents health insurance.

In high school I had a sweet apartment and great food and I got by on a minimum wage part-time job which truth be told was mostly funding luxuries. Everyone should just stay do that, find some parents to live with and retire.

I feel like I'm missing something. Why couldn't you work on the stuff you love instead of sitting on the beach?

There seems to be an assumption that you can either be: 1) spending money; or 2) doing nothing but sitting around. Surely that choice, if it was ever true, is no longer true. If my living expenses are covered, it costs me $0 in additional spending to do a lot of the kind of productive stuff I would like to work on if I had more spare time.

For example, I have 4-5 open-source projects that I would love to contribute to, and several ideas for projects I'd like to start/maintain. That doesn't cost much. There's even quite a bit of research you can do without much money. Obviously some takes money (e.g. maintaining a chemistry lab or HPC cluster), but lots of math, CS, and humanities research takes little budget; just time, energy, and access to a university library.

If anything, I find it a lot easier to think of ways to spend money on leisure than on work. It might be cool to travel to a lot of places, stay at nice hotels, etc. But that isn't advancing the productive part of my life goals; that'd just be a nice-to-do vacation break. The productive parts for me aren't capital-constrained.

If you are into research you can become a professor and get a tenure. No need to live on $20k. However if you want to be/stay as an entrepreneur you better spend some cache on things you don't want to do yourself.

That's an option, but there are a lot of downsides to being a professor, in addition to upsides. It's not at all a clean alternative to being an independent researcher; you're an employee expected to play a certain kind of game (which involves things other than scientific merit, like status/PR, grant funding, publication-counting, etc.).

But in any case, my main point was that you're incorrect that not spending money means sitting around on a beach doing nothing.

I disagree 100%. I already posted it here, but it's worth noting I drove from Alaska to Argentina in 2 years for $27K ALL IN. It was the hardest thing I've ever done in my life, the complete opposite of lazy. This is what I plan to do full time when I "retire" in a couple more years.

grecy, what sort of vehicle did you do your trip in? Did you sleep in your vehicle, a tent, or what?

I'm trying to figure out how I could do something similar. I may not like it so I want to start with a short trip.

I still can't figure a way around the health insurance aspect though. In the USA, life seems to get incredibly difficult without a permanent residence - health insurance is not possible without it, so far as I know. And a driver's license probably gets tricky as well. I don't want to take a nice trip and wind up either in jail or facing a huge debt burden due to some unexpected health problem.

I realize you don't have the health insurance issue since you've already mentioned that you live in a country (Canada?) where this is not an issue.

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.

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

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
    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.

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.

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.

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.

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.

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

I have found it quite possible to spend ~$20k annually living in San Francisco and (currently) Palo Alto. Of course, I don't own a car, don't have kids, and live with six housemates, but the lifestyle suits me just fine for now.

Actually, MMM lives in the SF Bay Area.

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

Edit: ok, fail.

That's Jacob Fisker. MMM lives in Colorado.

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.

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.

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."

> 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?

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.

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.

1) Living frugally doesn't have to suck. Being "I think I'll buy a new car today" rich doesn't actually make you any happier. 2) Retired means that you don't have to work if you don't want to. It doesn't mean that you have to sit around and do nothing. 3) Inflation is not ignored. 4) Most of the people here at HN probably can save $500k in 7-8 years, not 15.


> 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.

This is the part where you lose me. It reminds me of Sidney Harris' cartoon: http://www.flickr.com/photos/jpallan/4633000725/

Now I'm actually trying to implement a version of what you suggest, myself. So I do believe it's possible. But how likely is it, really? Based on my experience, it is very, very hard. And I'm suspicious that it won't work. It seems far more likely that after a couple years, I'll have spent a bunch of my savings, and will just have to go back to full-time employment.

Also, FWIW, I really don't need a "high income" business at this point. Just enough to cover my yearly expenses, which amount to about $30-40K. More is always welcome of course, but I'd rather live on less and not have to go back to work as an employee. It didn't agree with me.

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

Okay, great.

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

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

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...

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... . Or if you want to get extreme: http://earlyretirementextreme.com/how-i-live-on-7000-per-yea...

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.

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.

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.

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

How do you define retired? His passive income from investments exceeds his total expenses + inflation so he doesn't need the part time income. Maybe you want to call it financially independent, but I'd say I was retired if I didn't have to work.

Actually I think calling it 'financial independence' would head off a bunch of knee-jerk reactions and make it a lot easier to have a real discussion about.

It's not a knee-jerk, he's just using a very well known term that has a specific meaning. It means to cease all work. All. He hasn't. He even admits it in the linked article but justifies it because it's doing what he wants. Retired means not working. He works.

If you're working for money you're not retired. There's even a whole spiel in the link above about how they tried to become property developers which failed when the market collapsed, which is actually a lot of work.

I'd buy semi-retired. Or he works part-time. But retired has a very specific meaning that he is ignoring. He just seems to be confusing 'I enjoy my new job' with 'I don't work' just because he didn't like working 9-5 as a programmer or whatever it was he did.

Retired as meaning not working at all is not a universal definition. Most people in the financial independence circles define it as not having to work for a living. As long as you can choose whether or not to work, you can say you're retired.

You find you are going to spend that unneeded money on yourself, it is disingenuous to say you are retired.

In his case, it was a combination of frugality, a decent paying job, and good investing, esp. in real estate (note the "Eventually both rentals were sold and the gains were put elsewhere.") in the "Brief History of the Stash" article. Having gains on real estate probably means he sold them pre-crash.

I'm a fan of the MMM blog because it describes an attainable alternative lifestyle for talented people who aren't already wealthy. It may not be a lifestyle that many people want, but at least it's a change from the high college debt, two income trap, expensive city lifestyle that seems to be the norm for lots of young families.

I don't aspire to live on 20K per year, but thinking about how lowering your personal "burn rate" can give you more freedom in your life is a great mental exercise.

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.

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?

> 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.

I'm not sure what point you're trying to make. The core idea is that you can live a decent life in America for much less than most people do. By doing so you free up enough money that even simple, fairly conservative investments can generate enough passive income to cover your reduced living expenses in short order. After that you can do whatever you want: sit on a beach, learn metalworking, pile up a huge mountain of redundant cash, anything. That's all he's really saying, and he's got numbers to back it up.


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