BC #14: "Cashing in on the American Dream: How to Retire at 35" by Paul Terhorst

[Sere]

From the blurb: "In our society, it's considered normal to work during the best years of our lives. You work when you're young, healthy and vital. You work when your mental powers are sharp, your mind inquisitive. You work when you still have a family at home and your kids need you the most. You give the best years of your life to a career and the last few years to yourself. Are we crazy or what? You don't have to resign yourself to that fate. With my plan you can live the rest of your life without earning another dime. You let your equity sweat for you. And this book tells you how to do it now" - Paul Terhorst.

Review/summary: Cashing in on the American Dream: How to retire at 35 is divided into two sections: Part 1 - Retirement at Age 35 is for Real, and Part 2 - How to Get Started. It covers much of the same ground as ERE or YMOYL, with some key differences: a) the Terhorsts retired 30 years ago and have stayed retired by most people's traditional definition (you can catch up on Paul and wife Vicki's world travels here: https://sites.google.com/site/paulvicgroup/), b) it outlines both an early retirement with a $400k stash and a bare-bones $100k stash, c) it has a focus on travel, and d) it is the first book I have seen to address the question of retiring with kids.
I was drawn to selecting this book because I am interested in how the Terhorsts’ model of living on $50 a day might operate in today’s economy, and whether it is applicable to people (such as myself) outside of America.
It's a pity that it hasn't been updated in the last quarter of a century, but I suppose the authors are too busy being adventurous! As the book was written for the top 20% of earners, to me, many of the figures in this book actually appear modern - $100-$200k per year being considered a very good wage, $50 per day for personal costs excluding housing, and so on.
I would definitely recommend this book to those who love to travel, and/or to those with kids, which I think are both unique points of this book. I would also commend this book for those who would like to aim for early retirement but aren't sure that they'd be able to afford it - it gives a lot of hints and new ways of considering things. However, I could not recommend it as an investment guide, as sadly it suffers the same issues as YMOYL.
I’ll add some more detailed comments on each of the sections individually below, based on a review I wrote for another forum.

Discussion: If you've already read the book or checked out the website, please feel free to discuss anything below.
Here are some ideas to start:

• 1. What are the similarities/differences between Cashing in on the American Dream and other books such as ERE, YMOYL etc?
  2. What do you think the "American Dream" represents (to Terhorst, to people generally in the 1980s, today, and to those outside of America)?
  3. How do Terhorst's numbers stack up today? Have you done any calculations for your situation? How do they compare?
  4. If you are interested in or are traveling retired, how do you think technology has changed remote investment options since the 1980s?
  5. Terhorst, and others, have attributed at least part of their success to the era in which they were born. How important do you think this is in your own case/today?

[Sere]

Retirement at Age 35 is for Real Part 1 is really about, as the title suggests, convincing readers of the feasibility of the book's premise - that you really can retire at age 35 (Terhorst did so successfully at age 33). He points out that pro-athletes never plan 40-year careers. While their payscale is obviously different to mine, here is a useful model - when a pro-athlete goes through university on a sports scholarship, and is scouted to a team, their agent/advisor invests their earnings, to ensure that when they retire in their early 30s, they'll have enough money for the future, once their bodies are worn out.

How much do you need to retire? Terhorst suggests a total net worth of $400k, or $500k if you can and want extra luxuries. He also suggests a "bare bones" form of retirement is possible on $100k. In today's dollars, it would be about $200k (bare bones) ~ $800k (standard), or a little extra in my local currency, AUD (approx. $216-865k). According to Terhorst, millions of Americans, at the time of writing, already had a net worth of over $400k and could choose to retire if they wished. According to the ABS, the same may be true of Australians today - apparently in "2009-10, on average, households in Australia held assets valued at $839,000, partially offset by average household liabilities of $120,000".
Interestingly, Terhorst includes your house, car, and any retirement savings in the net worth calculation (although, obviously, some retirement savings that cannot be accessed until a certain age shouldn’t be included). This method of calculation differs from many of the other books I've read on early retirement, where one's home equity, for example, is not included. The reason for this appears to be that Terhorst later recommends you convert such assets to cash, and travel permanently.

How much do you need to live on? Terhorst states pre-retirement he and his wife spent about $50 daily on "basic" living expenses. At first, I was surprised this rule seemed equally applicable today (at least to my lifestyle) until I read what “basic” includes: food, clothes, a maid (!), dry cleaning, movies, and dinners out, as well as "vacations, golf club dues, guitar lessons, gifts, a cigar now and then, and French cognac" (p. 14). Maintenance of assets (house, car etc.) is not included - only maintenance of yourself. Maintaining a $50-a-day 1988 lifestyle would cost almost double now. Of course, as ERE does such a good job of demonstrating, it is possible to live on far less. Terhorst ended up using this $50 rule post-retirement, to determine a target for their average spend while traveling. While it may be difficult to live on a budget in say Paris or New York, when visiting developing nations, it is possible to live on much less, so an average of $50 was possible.

So is it still possible to travel the world on $50 a day? I'm certainly convinced that it is possible to live on $50 a day at home, but can it still be done while traveling? nomadicmatt.com does exactly this, and has published a book called “How to Travel the World on $50 per Day” which [img]Vagabonding[/img] reminded me a lot of. So if you are prepared to live like Matt, forgoing the cognac, cigars, golf and maid, the 1980s figures appear reasonable. Even today, the average disposable income in Argentina, where the Terhorsts bought their apartment, is apparently approx. $34 per day.

[Sere]

How to Get Started Part 2 is longer than Part 1, although sections are specific to US tax law and interest rates in the 1980s and no longer apply. Sadly, gone are the days of being able to derive 8% returns from one-year CDs - in fact, 1% seems more likely now. However, it is really only ch. 4 that is affected. This investment choice surprised me at first, given that prior to retirement, Paul Terhorst was a practicing CPA. However, it does seem that, at the time, this was an appropriate investment. Telecommunications in the 1980s weren't what they are today, especially in the countries Paul and Vicki visited, so it would have been difficult to keep on top of shares or manage property. Furthermore, with a respectable rate of 8% interest at the time ($18k p.a. on $500k), the safety and security of a guaranteed CD would have been extremely enticing.
Terhorst argues that housing takes up a third (33%) of people's income. An article in the Sydney Morning Herald defines "mortgage stress" as spending more than 30% of your pre-tax income on your loan repayments, and apparently 3/10 Australians with home loans are in this predicament (meaning the majority have more affordable housing costs than Terhorst assumes back in 1980s USA). Obviously, if you are handing over a huge chunk of your income to the bank each month, Terhorst's advice may be applicable.

What about those mortgage holders who don't have as large repayments? Or those who have already paid off their mortgage? I think this is a very personal issue, and everyone will have different solutions that work for them. We also need to assess why we are converting our home equity into cash. If it is to buy one-year CDs, it is not worthwhile today. A one-year term deposit in Australia will currently earn you a maximum of 2.9%. Considering the average home equity held by each household is $297k in Australia, if you were to put it into a term deposit, at 2.9% at the end of the year, you'd have $8,613 - well short of $50 a day (more like $23 a day). The main lesson I'd take from this ‘rule’ is simply make sure you aren't in a house that is too large and expensive for your needs.

Why do you live where you live? If the answer is work, or family that you never see, or because it's familiar, maybe it's worth thinking about whether you could live somewhere that you would enjoy more, meet people who are more similar to you, or would cost you less - or maybe all three! Terhorst recommends living somewhere the jobs aren’t, living like a resident rather than a tourist, having a trial period of 3-6 months, renting rather than buying, not comparing cultures, learning the language, and going with the flow.
Although they recommend renting rather than buying, Tehorst admits that he and Vicki did buy a property in Argentina. Later, they describe vacation homes as a "fuzzy blanket" for those who aren't ready to give up having some sort of "base" and have two guidelines: 1) your vacation home should cost no more than $40,000 or so, and 2) should be in a place you'd like to live once you retire. The second piece of advice is timeless, but surely the first is vastly outdated? Well, there are still properties around US$40k in Argentina - I found a block of land for $40k, and an apartment for $47k. Of course, Argentina may not be for everyone, but Terhorst's book, once again, provokes some interesting thoughts.

Chapter 6 recommends asking, "If you only had two years to live, would you continue to work where you work? Live where you live? Treat your spouse and kids the way you treat them now? See your friends as often as you do now? Travel about as much as you do now?" (p. 111). This is further elaborated upon in Chapter 7, which provides advice for retiring and post retirement life. Chapter 8 gets down to the nitty-gritty of living on $50 a day, starting with
The advice to “Choose hotels that offer what you need and nothing more” is excellent. I saved $100 a night by getting a hotel room that didn't have a bathroom attached. There was a shared bathroom right outside the door, and as it was low season, we had that whole wing of the hotel to ourselves, so we didn't have to share at all. In fact, in general, the Terhorts' advice for travel is pretty great, and surprisingly applicable today. For example, it is still true that when retired, you can get cheaper deals by traveling during the off season, flying on mid-week flights, using non-refundable tickets, staying in hotels for longer stays and getting discounts, etc. He also suggests flying hand luggage only, and when checking in at hotels, if you're traveling as a couple, have just one person go in, without the bags - they are more likely to think you're shopping around and give you a competitive rate. The final rule for this chapter is Less is more which reminds me a lot of the fulfillment curve in YMOYL.

Chapter 9 is "Retiring with Kids". As I'm not a parent myself, I don't feel in a position to comment too much, but given that Paul and Vicki don't have kids either (Paul wrote this chapter by talking to a lot of couples who do and retired early), I will make a few comments. The chapter starts out with a familiar and depressing picture of the 'average' family in the 1980s, and it doesn't sound like things have changed much - everyone living largely in their own little bubble (and we can't blame iPads back then!). Terhorst drives home the message that "your kids need you now", and makes a good case for retiring early if one possibly can on this basis (rather like the arguments Mr. Money Mustache makes). He also provides some arithmetic, budgeting $11 per child, or $5,000 per year (I know some will complain that this is clearly ludicrous, and Terhorst himself acknowledge that some people spend $5,000 on a 6-year-old's birthday party alone (gasp!), but I wouldn't be surprised if some parents were already pretty close to this today- The Tightwad Gazette followers, for example). Also consider that the 2014 poverty line in the US for a single person is $11,670, a couple $15,730 (so just $4,060 more) and for a couple with a child, $19,790 (another $4,060 again). So $5,000 per child is approximately 25% above the poverty line today. I'd be interested to hear any parents' views on this chapter.

Chapter 10 is on building your net worth, including a high-risk/low-risk program which entails having most of your investments in low-risk options (like CDs) and a small proportion (start with $10,000) in a higher risk type of investment that suits your interests.
The final chapter outlines the "bare bones" retirement on $100,000 (well, $110,000 actually, to generate $743 of monthly income at the time - equivalent to the average Social Security payment at the time). To update these figures, the age pension in Australia last year was $577.40 per fortnight for one person in a couple, or $1251 per month. The 1988 rate of US$743 adjusted for inflation and converted into AUD would be $1601 per month. So the 1988 US rate was perhaps a bit more generous. (A single rate today is $766, or $1659 per month, so we could say they are roughly equivalent though - and a Huffington post article reports on a man in the 2010s who is living on social security checks of $828).
$110,000 in 1988 USD would be equivalent to approx. $237,000 in today's AUD. That would yield, at the current term deposit rate of 2.9%, $3,190 per year. Which is only $265 per month - far short of what is needed. On the other hand, if you can find investments which net you 8-9% per annum (hint: not term deposits at the moment!) like the Terhorsts were getting back in the 1980s, you can receive $18,960-$21,330 per year - a quite respectable $1580-$1778 per month. So as long as you're a bit more creative and successful in your investments, and build up a decent buffer, these adjusted figures still seem to work.
For living on this sort of income, Terhorst suggests living overseas, and/or living like a student, searching out moneymaking sidelines and focusing on spending priorities. Advice on how to achieve each of these is provided in the rest of the book, before concluding "you'll find less of a need for financial security once you discover you can live without a paycheck" (p. 219). Which, incidentally, is the theme of another excellent book, recommended in ERE, How to Survive without a Salary.

The very last segment of the book, a summary called "The Rules” states that part of the reason Terhorst can have such a great life is because "beyond the rules, I happened to have been born at the right time. I grew up and went to work during the most sustained, spectacular boom in economic history" (p. 225). He's probably right. Others, like Warren Buffett, have said similar things. As evidence, Terhorst points to a 1987 article from the Journal of Accountancy, which shows the improvement in the standard of living over 35 years. In the 1980s, a person had to work 6 mins on average to buy a dozen eggs, down from 13 mins in 1960. It took 2 hours to earn enough to buy a toaster, down from 6 in 1960. And 17 mins to buy a 6-pack of beer, down from 30 in 1960.

But what about today? I looked at current prices, compared to the average US hourly wage which I understand to be around $24, and it seems it takes just a little longer to buy a dozen eggs today - 7 mins compared to 6 mins. Seeing as I'm unsure exactly what figures or store they used in the 1987 article, such a minute difference could just be a difference in our methods, as opposed to any real increase in the cost of living. The cost of a toaster has gone down drastically - 20 mins now, compared to 2 hours. And a 6-pack of beer takes the same amount of time to earn. Now, I did use the cheapest examples for each of these categories (at Safeway and Walmart), but even comparing mid-range options, things haven't changed much. To buy a dozen free-range eggs would cost the average worker 15 mins of time (although, as far as I'm aware, most eggs in the 1980s were cage eggs, so the cheaper price is probably a better comparison). To buy one of the mid to high-end range toasters at Walmart would take 1 hour - still half the time it took in the 1980s. And you only need to work for 1 min more to buy Michelob instead of Budweiser. (I apologise for any inaccuracies here... I'm doing my best with online research!)
What about in Australia? The time required to work to earn these items, and the average wage, are surprisingly similar to the US examples. Using an average hourly wage of $23, and prices from Coles and Kmart, it appears to take 8 min to earn enough to buy a dozen cage eggs (just 1 min more than in the US), or 15 min to earn enough to buy a dozen free-range (exactly the same as the US today). For a low-range toaster, 20 mins, and a mid-range toaster, 1 hour (both exactly the same as the US today). It's only the 6-pack of beer that is more expensive than the US - 28 mins for a 6-pack of Hammer & Tongs, or 33 mins for VB.
As I don't have historical data for Australia, it's hard to tell whether things have gotten more expensive in Australia based on these figures alone. While I don't have any comparisons for eggs, toasters, and beer, I do have some figures for other commonly bought items, drawn from TV ads that I compiled a couple of years ago. Replacing the eggs with another basic food item that is commonly advertised over the years, margarine, and working with a 1980s average wage of $8 an hour, it would have taken 12 mins to buy a tub of margarine. In 2014, it takes just 4 min. To replace the toaster with another electrical item that I could find a price for, a telephone, what would have taken 23 hours of work in the late 80s/early 90s to afford would now take just under 1 hour. And to replace the beer with another beverage which is commonly advertised, Coca-Cola, in the 1980s it would have taken 12 mins of work to buy a 1.25L bottle, whereas in the 2010s, it is just 4 mins. Surely you could find other examples that aren't as wallet-friendly, but it certainly appears that the standard of living in Australia is very good now also, despite a lot of what we commonly hear. Obviously this will differ from person to person, location to location, product to product, but we're talking averages here.

So the key message I take from this is that while inflation/deflation at a national scale may not be something we can control, we can control lifestyle inflation. Although it is relatively easy to look at older books and dismiss them on the basis of their antiquated figures and examples, I wonder if, sometimes, a part of their value might not lie in their seemingly quaint numbers. Cashing in on the American Dream challenged me to think about what is possible and what a “bare bones” retirement might look like today. It also challenged me to think beyond my immediate surroundings, and consider rural living, geoarbitrage, and other potentially cheaper forms of living that, caught up in my work bonds, I hadn’t seriously considered before.

[jacob]

https://sites.google.com/site/paulvicgroup/ (their homepage)
http://www.retireearlylifestyle.com/pau ... erview.htm

The US Median(*) income is $16.71/hour. Part time positions are growing. Consequentially, the median wage per [wage earning] person in the US is only $26695/year.

(*) The distribution of income in the US is far from flat so the average is not that representative.

[Sere]

Thanks for that figure Jacob, it certainly changes things a bit. There has been a shift here towards greater casualisation of the workforce also, but I don't know if it is as severe.

[C40]

Overall, I think the book was pretty good. It was worth reading and there were some things I learned from it that will help me. Compared to other early retirement books, it’s not the strongest. It’s pretty light reading, so I was ably to get through it quickly.

Here was my favorite paragraph from the book:
(To set context, he had just told a story about how, at a party or gathering, when there was a person new to the group, the host was introducing everyone. They were all “retired”, but as he introduced each person he’d say “This is Frank. He’s retired, but now he sells fishing lures that he makes… and this is Suzy. She’s retired, but now she’s the president of a non-profit that…..” The host seemed to be uncomfortable just saying “So-and-So is retired, without needing to also mention something ~productive that they were doing)

Why was the host embarrassed to introduce people as “retired”? I think it’s because “retired” has come to mean “non-productive”. The club member was too polite to call anybody names. But consider what Americans call productive. Make napalm, grow tobacco, distill whiskey, or sell handguns and you’re productive. Sign forms for the government, hype toothpaste, collect tolls on a bridge, or play pro ball and you’re productive. Retire and you pass to nonproductive status. Whether you write, sing, play golf, travel, or meditate makes no difference. You’re still retired. And that seems to define your role in life

When I read books that I think I will learn from, I take notes. For this book, because it is quite straightforward (and because he did a good job of keeping the book simple and these chapter highlights clear and concise) I just wrote down the headings from each chapter that Terhorst himself highlighted:


PART ONE – RETIREMENT AT AGE 35 IS FOR REAL

CH1 – IT TAKES LESS MONEY THAN YOU THINK
- Do your arithmetic
- Do some soul searching
- Do what you want
- Live on $50 a day
- Turn hard assets into cash
- Buy 1-year insured CDs

CH2 – YOU CAN KICK THE WORK HABIT
- Look for meaning in yourself, not your job
- Enjoy your career and then move on

CH3 – LIFE AFTER WORK – WHAT YOU CAN DO
- Make a to-do list
- Remember that work was just….. (talking on the phone)
- Go for responsible pleasure
- Modify the work ethic
- Life without guild
- Do what you wish, but you must do something


PART TWO – HOW TO GET STARTED

CH4 – MAKE YOUR ASSETS WORK FOR YOU AND SAVE ON TAXES
- Convert home equity to cash
- Convert other assets to cash
- Buy one-year insured CDs

CH5 – CONTROL YOUR LIVING COSTS
- Move
- Go south
- Live where the jobs aren’t
- Live like a resident, not like a tourist
- Try living abroad for 3-6 months
o Rent – don’t buy
o Don’t criticize, complain, or compare
o Learn the language
o Go with the flow

CH6 – WHEN DOES RETIREMENT MAKE SENSE FOR YOU?
- Take the two year test
- Talk to others
- Don’t expect enthusiasm from your friends
- Manage the change
- Fill your new days with your old activities

CH7 – RETIREMENT’S FIRST FEW YEARS
- Fill your new days with old activities
- Make a clean break (from work)
- Avoid making major purchases for two years
- Go back to work if you feel like it
- Do what you want

CH8 – LIVE ON $50 a DAY
- Cut your infrastructure
- Sell your vehicles
- Convert your home & other assets to cash
- Move
- Spend on yourself, not on your assets
- Spend more if you must
- More $ will add very little happiness

CH9 – RETIRING WITH KIDS
- Do your arithmetic
- Do some soul-searching
- Do what you want

CH10 – BUILDING YOUR NET WORTH
- Manage your career
- Control your spending
- Set up a savings routine
- Start a high risk / low risk investment program [He suggests using about 10% of your capital on very high risk investments – and gives examples similar to venture capitalism

CH11 – BARE BONES RETIREMENT
- Arithmetic / Soul-searching / what you want
- Live overseas or in the U.S. like a student
- Search out moneymaking sidelines
- Focus on spending priorities


Chapter 7 was the most interesting for me. Probably because I’m getting pretty close to retiring, so it was the most relevant for me.

The dated investing advice was a bit annoying, but because he suggests such a simple investment strategy (laddering CDs), it takes very little time for him to explain it.

1. What are the similarities/differences between Cashing in on the American Dream and other books such as ERE, YMOYL etc?

I believe it was written a comparable time ago as YMOYL. Terhorst was writing more towards the type-A high earning crowd – people who may have already had enough money to ERE (if they reduce expenses) without even knowing it. People who would just need to sell their big house and resign. It basically lays out what Terhorst did and said that is THE strategy. YMOYL is more about being intentional with your own spending – doing your own math and making your own decisions and figuring it out on your own. ERE is like YMOYL but with about 5x more information (good information)

2. What do you think the "American Dream" represents (to Terhorst, to people generally in the 1980s, today, and to those outside of America)?

I’m not sure. I don’t recall the book actually containing much about “the American Dream”. I’m assuming now that it was used because it’s a catchy title – and that it was decided after the book was written. I’m not sure whether he means:
1 - The American Dream as working and making a lot of money and having a lot of trappings (and “Cashing in” means to trade those – or literally – to cash them in to get income and be retired instead of working more and buying more.
2 – The American Dream as being so rich that you can not work.

I think it’s the first. But then “Cashing in the American Dream” would make more sense that the actual title that has “on” included. I guess the “on” would support #2.

3. How do Terhorst's numbers stack up today? Have you done any calculations for your situation? How do they compare?

Because they were written for high earners / high spenders, they end up making sense for us low spenders now. His net worth targets match almost exactly with mine (Bare sustainable FI around $300k, more ideal retirement at $400-$500k).

The $50 a day thing was a little annoying for me. I’m wondering if that daily figure is something that works better for people who are traveling? I’ve never asked myself “how much did I spend today?” and split up my monthly bills into a daily figure. It would’ve been more relatable for me to just say $1,500 a month.

5. Terhorst, and others, have attributed at least part of their success to the era in which they were born. How important do you think this is in your own case/today?

Well, for investing, CDs had really high rates back then (but was inflation really high right then?) and if I recall correctly, the stock market went crazy in the 80’s.

For actual spending, I don’t think it makes much difference. We had a huge thread on this subject (whether it is harder to get by / retire than it used to be) where we discussed spending a lot. I did some analysis myself and found that:
- Healthcare and college tuition went up a TON
- Common expenses like food and homes cost about the same
- Technological goods (including cars) are now much less expensive comparing the actual products directly.
- (plus there are new spending categories – internet, cell phone, etc. that didn’t exist back then. For a person suffering from generational lifestyle inflation without recognizing it, spending could seem much harder to control now)



OVERALL:
I’m glad I finally read the book. While it was light reading and there wasn’t anything in there that will change my life, it was still worth reading. There are so few books on the subject of very early retirement that it’s worth reading all of them.

[Dragline]

I just finished it. It was pretty good – kind of a blast from the past. It was interesting reading about things that had changed and things that had not. For example, he talked about going to a kids' baseball game and not seeing any parents there. While I recall being raised in that environment in the 1970s, that would not be the case at all today. Now there are way too many parents helicoptering away at these events.

Some of the things he brought up were timeless, like the quotes from Walden, the particular financial death trap of expensive automobiles, and this most excellent little list of what people “wanted from their jobs”:

“(1) The chance to do something that makes you feel good about yourself; (2) the chance to accomplish something worthwhile; (3) the chance to learn new things; (4) the chance to develop your skills and abilities; (5) the amount of freedom you have on your job.”

These are pretty much the same factors that Dan Pink boiled down into three things in “Drive” – Autonomy, Mastery and Purpose, which correspond with (1) and (2) for Purpose, (3) and (4) for Mastery and (3) and (5) for Autonomy.

Terhorst goes on: “Unfortunately, what we want out of our jobs and what we get from them are two different things. Thomas J. Peters and Robert H. Waterman, Jr. wrote the bestseller “In Search of Excellence” (Harper & Row, 1984) about American companies. They found that most of us “desperately need meaning in our lives and will sacrifice a great deal to institutions that will provide it to us.”

Which kind of led me back to “Man’s Search for Meaning” by Frankl.

Terhorst concludes that only a minority of people actually find meaning in their work for a really long period of time and comes up with these two rules:

1. “Look for meaning in yourself, not in your job.”
2. “Enjoy your career and then move on.”

These are great take-aways. Contrast that with the horrible advice we usually give young people is that they must find something they love and make it their career.

I also liked the way he and his wife divided decision making sometimes. He always picks the transportation and she does not interfere or complain. She always picks the hotel and he does not interfere or complain. DW and I are like that on a number of things.

On the five book-tated topics:

1. What are the similarities/differences between Cashing in on the American Dream and other books such as ERE, YMOYL etc?

I agree with C40 – this book was primarily directed at high earning baby boomers and, while it had some advice for people not choosing to live abroad or travel, was really focused on that idea. I can see why it did not have the same kind of resonance as YMOYL for large numbers of people. For different reasons, ERE is say “less easily accessible”, than say something like MMM.

Terhorst was really bucking against a tidal wave or a trend at the time to work more, not less – almost nobody was doing what he did and there was no internet community for him to talk to. I found his chapter about “kicking the work habit” to be most illuminating as to what he was dealing with.

2. What do you think the "American Dream" represents (to Terhorst, to people generally in the 1980s, today, and to those outside of America)?

To Terhorst, it seemed to mean financial independence and the ability to travel. Most people in the 1980s were more like the others he described. Work and career were paramount considerations, and the acquisition of stuff was a sign that you were successful. Part of it was driven by the fact that the idea that women would be allowed to have careers was still relatively new and was a highly desired goal to be achieved.

This was actually quite “new” at that time, as the focus in the 1960s and 70s was different and the “new attitudes” were bemoaned by older people. The sitcom from that era “Family Ties” illustrated this dichotomy pretty well between Alex P. Keaton and his parents.

Today, I think the “American Dream” has become more of a marketing tool or label that gets bandied about whenever someone wants to put a favorable gloss on a particular lifestyle or product. Nobody knows what it is (or has a different definition), but everybody still wants “it”. Outside America it typically means whatever you can do in America that you can’t do wherever you are.

3. How do Terhorst's numbers stack up today? Have you done any calculations for your situation? How do they compare?

I did not run them, but adjusted for inflation, they still seemed reasonable. With the collapse of the Communist bloc and advent of the internet, there has been an explosion of many more possibilities for different lifestyles in different places. Think of all the travel agents and other inconveniences that Terhorst had to deal with back then that can be solved today with a few minutes on the internet.

4. If you are interested in or are traveling retired, how do you think technology has changed remote investment options since the 1980s?

There’s no comparison – the pre-internet era was almost like the stone age. We may be more likely to be paralyzed by having too many choices, now, though.

5. Terhorst, and others, have attributed at least part of their success to the era in which they were born. How important do you think this is in your own case/today?

I think he’s correct to a point. The marketplace for high-paying jobs is more competitive that it used to be and a lot of those old medium-paying jobs (like travel agents) don’t exist anymore. Things are harder for an average worker in the US largely due to globalization. Correspondingly, more people outside the US have more opportunities than they did before.

It has not affected me personally. But I often say that “nobody lives in the aggregate,”, which means that looking at large bodies of statistics does not really inform as to the possibilities, or lack thereof, that an individual faces, which are likely to be much different than a “mean” or “median” situation. So saying things were harder or easier “back then” just begs the question “for whom and in what situation?”

[Dragline]

Oh, here's a little post-script article on where he and his wife are today:

http://www.nextavenue.org/30-years-ago- ... 35-update/

You be interested to see that they did go back into the stock market:

"No Longer Living on Their Interest

The Terhorsts have needed to tweak the financial side of their retirement, too. Their original plan was to sell their assets, put the cash in the bank, and live off the interest in a cheap part of the world. 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.”

The buy-and-hold strategy has served them well. In words that are reminiscent of Elaine Stritch’s classic Stephen Sondheim song, I’m Still Here, Paul says: “We’ve had three major crashes — in 2000, 2001 and 2008 — and we’ve lived through them all and come out on top.”

Paul says airfare deregulation has been a boon, keeping flights affordable. So has banking technology. “We used to have to cash traveler’s checks; now we can go to any ATM,” he notes.

Now that the Terhorsts are 65, they’re also collecting Social Security, which supplements their income; they started claiming at 62.

Their reason for beginning benefits as soon as they could rather than delaying and receiving larger checks later? “We’re in good health and can enjoy the money today. That might not be true later on,” says Paul. “Plus our benefits are grandfathered in if Congress screws around with Social Security.”"

[Sere]

Great list C40. I agree with your musings on the definition of the American dream. It probably was just selected as a "catchy title", but it intrigued me, whether it referred to cashing in the American Dream for something else, or that what he was advocating was indeed the American Dream. And I think Dragline is right too, that this is now a concept that is bandied about that is relatively meaningless (we have something similar here, but it tends to be defined as the dream to purchase an unnecessarily large house on a block of land).
Thanks for the post-script Dragline, that was an interesting read. I actually did some calculations when I first read the book last year, wondering whether the Terhorsts could have coped with the low interest rates of current times, and figured that while a 0.9% rate (current at the time I did the calculation) on $500,000 would yield only $4,500 per year ($12 a day), $500,000 in 1988 money would have inflated to just over $1 million, which would yield around $9,000 a year, or just under $25 a day. Which is obviously just half of the Terhorst's goal of $50 a day, and drastically lower than their inflation-adjusted goal (I suspect it would cost more like $100 a day now to obtain what cost them $50 back in the 80s). The average disposable income in Argentina where the Terhorts bought their apartment is approx. $34 per day it seems, but I doubt this would stretch to the sort of lifestyle the Terhorsts are accustomed to (and support their other travel). So I'm not surprised to hear they had to branch out further. A good lesson in flexibility. (As is Jacob's re-employment, in my view. I always like to hear what people get up to after they finish their books, otherwise there is often too much of a temptation to follow them like a "recipe" as the first chapter of ERE puts it. The whole point is having the freedom to do what you want, whether that be the freedom to travel, engage in hobbies, spend more time with your kids, or select work you personally find interesting, or some combination of these).

[jennypenny]

Sorry, I'm late to the party again ...

I really liked the book. Some of it is dated but so am I , so as Dragline said it was a blast from the past. I won't repeat what others have said. I'll just add my random musings.

The kid question: IMO, it’s easier and harder with kids than Terhorst suggests. Kids today (did I just say 'kids today'? ) have more access to stuff and can see what they are missing. That can increase the 'demands' and peer pressure issues. OTOH, parents can opt for homeschooling or other alternative lifestyles more easily than before. I guess I'm saying there are more options now, but also more ways to drain a parent's wallet.

The college question is interesting. I think if I were just starting out, I'd do it differently than we did it. I’d put away what I was going to give each kid for college (25K? 50K? 100K?), and use the investment income from that money as their annual allotment. That would balance what you give them annually with what you give them for college, and leave a savings fund for emergencies related to each child. ("Sorry Junior, you don't get as much for college as your sister because I withdrew some of it for your bail money." )

I’m a little disappointed in the “your kids need you now” emotional blackmail that was in the book. It's one of my biggest gripes with sites like MMM, too. Sure, your kids need you, but they don’t need both of you around the clock for 18 years. That's just as extreme as working 80 hours a week and never seeing them. For me, the point of ERE is the freedom to do what you want with your life. If it involves work of any kind, you shouldn’t feel guilty that you are short-changing your kid because you aren’t at their beck and call 24 hours a day. Using that kind of an argument is no different than saying you should spend all the money you can on your child—only the medium of exchange is different. Teach kids how to care for themselves and fill their own days (based on what’s appropriate for their age). Show them what a healthy, engaged adult looks like. Be a role model, not a nanny <-- which does not require money or self-sacrifice.

Others' view of early retirement: I agreed with his take on people’s negative view of early retirement. It’s an upper/upper middle class view, but in my experience it's still accurate. Even if people are ok with the concept of retiring early, they will still judge you harshly if you have kids and aren’t indulging them, and you don’t also fill all of your free time with volunteer or charitable ventures.

Handling Change (p.123-126): I thought this section was very good. I'd never really thought about it since my own dance in and out of the workforce has been much more fluid than my husband's will be. Terhorst discusses how to manage change using the Holmes and Rahe stress scale. I can see now how proposing that DH retire at the same time that we sell our home, move to another state, and send our last kid off to college might be asking too much of him. I like 'clean breaks' but I can see how if a person doesn't, they need to manage the changes going into early retirement.


On to the questions ...

1. What are the similarities/differences between Cashing in on the American Dream and other books such as ERE, YMOYL etc?
It's dated and only really lays out a plan for those starting out in at least the middle class and above. It also relies completely on money, which makes it very different from ERE. ERE takes Terhorst's concept and shows that (1) you can start from anywhere and still achieve it, and (2) money isn't the only path (and maybe not the best path).

2. What do you think the "American Dream" represents (to Terhorst, to people generally in the 1980s, today, and to those outside of America)?
I'd never read this, probably because of the title. Cashing in on the American Dream sounds like a guide to getting all of the useless status stuff that people think proves a person is successful. Now I realize he means Liquidating the American Dream. (you'd think an accountant would get that part of the language right ) His formula is simple--sell off everything that stands for the American Dream, turn it into cash, and use it to finance a nomadic lifestyle.

What I think Terhorst doesn't understand though, is that he is basically asking people to trade in a rooted lifestyle for a rootless one. Some people are comfortable with that, but others aren't. Some people are satisfied living a nomadic lifestyle and still feel rooted living that way, but some people need more tangible, visible roots. Isn't there an old nomad v. homesteading thread that talks about this??

I think the book is more radical than it reads now remembering back to what the '80s were like. That was the era of the Bonfire of the Vanities and Working Girl. GenXers who didn't line up to follow their parents into mind-numbing careers to make as much money as possible were called slackers. Pardon the expression, but my family would have thought this book was a crock of shit. They would have seen Terhorst as lazy or worse, and thought he was somehow gaming the system. This is partially because of the family's lingering immigrant mindset. The goal was always that kids should achieve more than their parents. They thought of a job as a gift, so retiring early was an ungrateful act. They also wholeheartedly supported the women's movement (the '80s version) which meant they thought all women should make a point of overachieving and working themselves to death to prove they could do it, just like men. To the day she died, my mother thought I 'sold out' by taking time off to raise my kids.

3. How do Terhorst's numbers stack up today? Have you done any calculations for your situation? How do they compare?
You can absolutely make those numbers work, even in the US. What's changed is the number of items that people would put on the 'needs' list.

4. If you are interested in or are traveling retired, how do you think technology has changed remote investment options since the 1980s?
The internet is a godsend for good investors, and a path to ruin for bad investors. In some ways, people have more opportunity to screw up their retirement than secure it.

5. Terhorst, and others, have attributed at least part of their success to the era in which they were born. How important do you think this is in your own case/today?
*sigh* I miss the days of 8% CD rates. Sure, the Terhorsts were lucky to cash out during the high-flying '80s. OTOH, more people have access to the information they need to accomplish the same thing today. I also think it might have been easier for someone like him in the '80s (a middle-class white guy), but it's easier today for people who fought barriers other than financial ones in the past.


Great book. Thanks Sere!

[Sere]

Glad you enjoyed it jennypenny
I agree with your musings on kids. I see the gadgetry that my nephew/nieces are exposed to at school (in my day, it was just GameBoys )
Your observation about homeschooling etc. is a good one also. (I did note that one of the things I quite disagreed with the author on was the suggestion that you should consider quitting your job to lead a life of freedom and joyful experiences, and yet expect your parents to fund your kids' education...)

I'd never read this, probably because of the title. Cashing in on the American Dream sounds like a guide to getting all of the useless status stuff that people think proves a person is successful.

I felt the same. Were it not for the subtitle, I don't think I would have touched this foot with a ten-foot pole!

They also wholeheartedly supported the women's movement (the '80s version) which meant they thought all women should make a point of overachieving and working themselves to death to prove they could do it, just like men.

This reminds me of the comment from Nick on p. 137: "I can't understand why so-called liberated women want to bash their way into the executive suite. Working at the office all day is the most unliberating thing anyone can do. To lead a rich, fulfilling life you need to free yourself from the job, not enslave yourself to it." Stripped of its obvious hyperbole (clearly, office work is not "the most unliberating thing" in the world) and somewhat limited perspective (I would suggest that women wanted to "bash their way into the executive suite" for the same reason supposedly free, well-to-do men do - it is better recognised, better paid, and generally better respected than almost any role traditionally open to women across the board, or to supposedly working class men) I think Nick has a point.

You can absolutely make those numbers work, even in the US. What's changed is the number of items that people would put on the 'needs' list.

and

I also think it might have been easier for someone like him in the '80s (a middle-class white guy), but it's easier today for people who fought barriers other than financial ones in the past.

Nicely put.

On a related note, I recently read a book called "The Upgrade: A Cautionary Tale of a Life without Reservations" (http://www.amazon.com/Upgrade-Cautionar ... he+upgrade) similarly aimed at a high-earning audience in which the writer instead moved from the UK to the US in order to live in luxury hotels that cost less than his London flat rental.
A very different lifestyle to mine either currently, or envisioned post-ERE!

[IlliniDave]

I'll have to check this one out. Like some others, I consider myself dated as well.

I'm struggling to gain confidence that I can get by on $72/day for 3.5 years and $109/day thereafter (inflation adjusted). So it's good to get some reinforcement. A crude back-of-the-envelope calculation at 2% inflation for 25 years puts $50/day 25 years ago at about $82/day today, meaning I'm looking in the same ballpark. Using the same math a $400K net worth translates to about $650K today, so I'm in decent shape relative to that. my $72-$108/day target includes housing costs, although I don't have any sort of mortgage. Working in my favor is that I have less of a need/desire to travel to be content. My wanderlust is better sated by more in-depth regional exploration.

I suspect the days when virtually guaranteed interest rates (US treasury bonds or FDIC bank CDs) which amounted to 5% or more real return are long gone. So there is a bit more risk to be negotiated to make a pile of capital last through time while providing ongoing "income".

I can't trivialize the circumstances of my time and environment when it comes to allowing my progress towards this goal (ER for me, not ERE). I certainly landed in a fertile field with a lot of the right tools.

Thanks Sere--like I said above, this one is one I'd probably like to check out.

[Sere]

Nice calculations @IlliniDave, and glad you found it of interest
A recent letter from my retirement fund indicated that they have reclassified government bonds in my country as "high risk" given their forecast low returns for the next decade or so and forthcoming predicted negative returns... Certainly different to the "low risk"/"safe" days of bonds that Terhorst, Dominguez et al experienced at the time of their writing!