How to retire early — 35 years early

[daylatedollarshort]

One thing I find interesting is that he's not budgeting - he's just claiming straight-up cash accounting (assuming his numbers are legit). Notice he doesn't have anything listed for the eventual items: accidents, appliances, home maintenance, healthcare, etc. He squeeks by with some good results, and says he only spends $25k/year.

Assuming the initial $400K house, $400K investable assets:
4% real return on the $400K of investable assets = $16K, not $25K
Budgeting 1 - 2% for repairs on the original $400K house would mean allocating $4 - 8K for annual home maintenance or reserves for future home maintenance alone, out of the $16K.

Maybe some households of 3 can retire forever on $800K of net worth in their thirties, but I don't see how it could be done on $400K of investable assets and a $400K house to support. I don't see how one can have a sustainable withdrawal rate of $25K for 60 or so years on $400K, even without all the travel and other expenses attributed to the business and not included in the $25K.

Annual home maintenance costs:

"According to a report by the University of Illinois Extension, homeowners need to budget 1% to 2% of the purchase price of their home, each year, to cover the costs of home maintenance and repairs. That’s $3,000 to $6,000 a year on a $300,000 home, and if it’s older or has appliances that will soon need to be replaced, you may need to set aside as much as twice that amount."

Sources:
https://www.mint.com/blog/goals/home-repair-02022011/

 

[Sarah in SC]

I thought diverting some of his expenses to the blog business was just a bit disingenuous as well. And the house stuff was also confusing, at least to me.

But I get it, he's got to show he's walking the talk so this is how he accounts for stuff.


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[Another Reader]

I don't think he retired on $400k of house and $400k of investable assets. IIRC, when he quit the job, he had a smaller house and more in paper assets. He went into the home building business with a partner and built a spec home. As the "internet retirement police," I think we can safely conclude he was not retired at that point.


Not sure when he and his former partner started the spec house, but at some point he bought out the partner for cash. The spec house was in addition to his house and the paper assets he held at the time. The net income from the spec house rent was what paid his 24k in expenses. IIRC, he bought the house he occupied before the current one after he retired. During this time he continued to earn income through the carpentry business.


Last year he got out of the spec/rental house. The trendy New Town type location the house was in plus the market recovery means that house probably sold for well over $500k. He also sold his house for something in the $400's. Both houses were owned free and clear. The wife is a real estate agent, so the selling expenses were probably fairly low. My guess is he netted out over $800k on both sales, paying capital gains tax only on the rental.


Estimates of the gross blog income vary, but it's likely well into the six figures.


Interestingly, he wrote an article (last May IIRC) about giving yourself the gift of not worrying about money. I thought at the time it was more about realizing that he was truly FI and would really never have to worry about money.

 

[daylatedollarshort]

I don't think he retired on $400k of house and $400k of investable assets. IIRC, when he quit the job, he had a smaller house and more in paper assets.

See:

Deconstructing 'MrMoneyMoustache' - Rejoinders Welcome : personalfinance

And on the blog - the history of the stache. Home equity is specifically included in his definition of stache in year 3 and at year 10, he has $800K stache (stache presumably including still home equity or did his definition of stache change between year 3 and year 10?) and is living in a $400K house.

I've no doubt the blog is making 6 or 7 figures now.

 

[Another Reader]

I don't rely on secondary analyses. I rely on the blog itself and what the writer states. I read through it a couple of years ago and noted the financial milestones. My memory is not perfect and that's why I say IIRC.


He originally lived in Louisville and sold the house there to move to Longmont. The spec house is well documented on the blog, including buying out the partner for cash. The wife also worked in software and got her real estate license probably to assist in the house building business and to save on their purchases and sales. Not sure if her money is included in the total.


The guy that writes Financial Samurai mentions a seven figure blog somewhere in a post that is probably MMM.

 

[daylatedollarshort]

I don't rely on secondary analyses. I rely on the blog itself and what the writer states. I read through it a couple of years ago and noted the financial milestones. My memory is not perfect and that's why I say IIRC.


He originally lived in Louisville and sold the house there to move to Longmont. The spec house is well documented on the blog, including buying out the partner for cash. The wife also worked in software and got her real estate license probably to assist in the house building business and to save on their purchases and sales. Not sure if her money is included in the total.


The guy that writes Financial Samurai mentions a seven figure blog somewhere in a post that is probably MMM.

The MMM blog author posted in the Reddit post to the initial poster's financial analysis and questions:

"I am hesitant to focus too much on personal details and can never explain it fully - it always leads to recursively-packed cans of worms."

Anyway, most posters here know to at minimum plug their numbers into a few retirement calculators and crunch the numbers, understand how sequence of returns works (4% real average return does not mean you can take out 4% every year if you get a bad initial return), maybe 4% won't be the forever SWR, to budget for average expenses not optimal expenses like new roofs, your house unless you plan to downsize or rent it is not an investable asset because you still have to live somewhere, car replacements and healthcare, have a plan for LTC, healthcare expenses change over time and generally increase as you get older, cancer and car accidents happen, kids cost more as they get older, parents and grandparents may some day need financial help, if you quit work early it changes your SS projections, etc.

 

[Options]

...

And admittedly, I haven't read his blog...

Lost me right there. It's not possible to intelligently comment on anything one hasn't studied thoroughly, IMO. Last year, I read the entire blog, going back to the very first entry. I'm neither a fan nor a detractor, but the man does look critically at spending and it's impact on the environment as wel as it's lack of correlation to happiness. Overall, the best takeaway is I believe is the overall "work less, live more" approach to frugality (one of my takeaways, anyway). That and the Republic Wireless analysis which sold me on androids and RW.

 

[Another Reader]

From your Reddit citation (the MMM response):


2: When we declared ourselves "Retired!" in 2005, it was based on a different formula: $100,000 in equity on a tiny $200k home we had just downsized to, and $700k in invested assets paying at various rates, averaging 6%.

 

[daylatedollarshort]

From your Reddit citation (the MMM response):


2: When we declared ourselves "Retired!" in 2005, it was based on a different formula: $100,000 in equity on a tiny $200k home we had just downsized to, and $700k in invested assets paying at various rates, averaging 6%.

I think the Reddit person addresses all that quite well, including the state of the stock market and housing market during this time (crashes) and the 6% returns. To me, the blog author's full replies in the Reddit post speak for themselves.

I can't add any more than the Reddit person, so I won't post more on the subject.

 

[W2R]

Although I am pretty skeptical of most of what I read online, I am reluctant to judge people for what they claim or say.

What's more important to me than whether MMM misrepresented his total assets and spending, would be the ideas he might give me that might be beneficial to my own situation or to that of others. So far I haven't seen that much of any value to me in his writings, but maybe I will someday. I admit that I haven't read everything on his site.

ERE was interesting until Jacob ditched his RV and took a 6 figure job as a quant. He then started reposting articles from years back instead of coming up with new content.

I am skeptical about Jacob's spending claims on ERE, and felt that way even before he took that job. Still, I felt his earliest posts on that blog were valuable and thought provoking. I don't feel like my skepticism detracts from the value of his early posts to me and to others. Who can forget him making that rake? Not that I would ever actually DO that, but that was so novel and thought provoking.

 

[Another Reader]

My point is he had $700k in invested assets, paying 6 percent on average. At a 4 percent WDR, that's $28k gross. He withdrew nothing, living on the income from the properties and his building/ carpentry business. He still had a mortgage, so the 4 percent would not have been enough at that point.


I agree with the Reddit thread author as he summarizes at the end. This is not a reasonable amount of money for a 50 or 60 year retirement, even with a large percentage in net rental income. Young, enthusiastic folks could get themselves in quite a bit of trouble if they blindly followed the ideas without understanding what really happened here.

 

[JoeWras]

A So far I haven't seen that much of any value to me in his writings, but maybe I will someday.

I got a lot out of the $71 for gasoline last year. It has inspired me to press my old newspapers into shingles using pine resin and dirt.

Right...

 

[Bestwifeever]

The MMM blog author posted in the Reddit post to the initial poster's financial analysis and questions:

"I am hesitant to focus too much on personal details and can never explain it fully - it always leads to recursively-packed cans of worms."
...

I think this quote is really funny in that he tells us personal details about his expenses as he sees fit to account for them, down to the penny--nosy Parker that I am, I want to know his income too (isn't that how it usually works, compare one's expenses vs income? Maybe he might not seem to be retired from even his POV if the majority came from earned income, or maybe he is living way above his means?) because that is the other half of a financial equation.

The John Greaney link (In 2b's post #29 above) is percentage based vs dollar amounts and is more interesting and relevant to me. But more power to MMM and his internet persona--good for him for building a brand in his retirement.

 

[Major Tom]

I find this forum far more useful than any financial blog which is oriented around the personality and opinions of one person. The variety of different perspectives on this site, and the fact that many of the frequent contributors have an intelligent, moderate and analytical approach, ensures that (for me at least) it is a valuable resource. However, it does require a commitment to spending some time reading and evaluating the information and various opinions presented here, before deciding how the content relates to you.

MMM's site hurts my eyes. I can't help it - blatant self-promotion is a big turn-off for me, while I find people who carry themselves with both intelligence and humility to be more interesting.

Just my opinion of course and for those who get value from his site, then that's great.

 

[MBAustin]

I find this forum far more useful than any financial blog which is oriented around the personality and opinions of one person. The variety of different perspectives on this site, and the fact that many of the frequent contributors have an intelligent, moderate and analytical approach, ensures that (for me at least) it is a valuable resource. However, it does require a commitment to spend time reading and evaluating the information and various opinions presented here, before deciding how the content relates to you.

+1. Very nice articulation, Tom, of why I and lots of others stick around here.



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[Kabekew]

All I need to do is look back to my college days and the college days of my children. We got by living in small apartments, eating simply and enjoying the many low cost activities available around us. I really don't see an issue getting by on $10-15,000/yr in the right location.

A lot of people live off $10-15K a year now, let alone $25K a year like the original blogger, so I don't get why blogs on how to live super-frugally are noteworthy or interesting.

At what point does the advice become "You don't need to save anything to retire -- just quit your job now and live off public assistance, section 8 vouchers, and charity handouts?" Because that's the lifestyle these MMM kind of blogs are apparently celebrating.

There's also the social problem of "retiring early" in order to retire into poverty and live that way the rest of your life. Yea, in college it was no problem sleeping on a futon and living with roommates, because you had your whole life ahead of you and knew it would be better. But retiring into that in your 30's? Knowing it will never get any better? I don't think it's a fair comparison.

Then who are your friends and neighbors in your $15K/yr lifestyle? The down-and-out? Your suburbanite friends from your old life who you're going to invite to your $400/mo apartment to see how poor you live? I think there's a big social impact to retiring young with little money that is overlooked by the younger followers of those blogs.

 

[haha]

Then who are your friends and neighbors in your $15K/yr lifestyle? The down-and-out? Your suburbanite friends from your old life who you're going to invite to your $400/mo apartment to see how poor you live? I think there's a big social impact to retiring young with little money that is overlooked by the younger followers of those blogs.

There is a giant disconnect between reality and people's beliefs in these groups. It's not the first time. The same thing was going strong in the late 60s-70s with Mother Earth news, Stewart Brand's Whole Earth Catalog and other similar publications. Interesting, but after a lot of hippies went up to Mendicino County and tried their hand at agriculture- mostly some dope growing and a lot of welfare, they eventually got tired of all the sick children, all the communards with the clap, and the hostility of some of the townspeople.Then the communalists who had some brains and foresight headed for law school, graduate school, business school and they were suddenly the yuppies of the 80s. The holdouts can still be found in places where they blend in, and where they can live very cheaply.

People can be incredibly shortsighted, it was as if they popped out of their mothers' wombs only 2 weeks ago. I am not talking about the gurus. Like gurus always do, they know what they are selling. The followers are puzzling to me. However I came from a tradition where it was accepted that only some people understand the game. Your task is to be certain that you are one of those, and not one of the marks.

There was a similar back to the land movement in the 30s-Helen and Scott Nearing were well known leaders. Most of these people were rich or from rich families though, from the tradition of New England transcendentalism. So they could easily supplement their lives, or escape from the lifestyle altogether if it began to bind. It appears as if it may take 40 years or so to awaken people's appetite for another go round.

Ha

 

[Dreaming of Freedom]

There is a giant disconnect between reality and people's beliefs in these groups. It's not the first time. The same thing was going strong in the late 60s-70s with Mother Earth news, Stewart Brand's Whole Earth Catalog and other similar publications. Interesting, but after a lot of hippies went up to Mendicino County and tried their hand at agriculture- mostly some dope growing and a lot of welfare, they eventually got tired of all the sick children, all the communards with the clap, and the hostility of some of the townspeople.Then the communalists who had some brains and foresight headed for law school, graduate school, business school and they were suddenly the yuppies of the 80s. The holdouts can still be found in places where they blend in, and where they can live very cheaply.

People can be incredibly shortsighted, it was as if they popped out of their mothers' wombs only 2 weeks ago. I am not talking about the gurus. Like gurus always do, they know what they are selling. The followers are puzzling to me. However I came from a tradition where it was accepted that only some people understand the game. Your task is to be certain that you are one of those, and not one of the marks.

There was a similar back to the land movement in the 30s-Helen and Scott Nearing were well known leaders. Most of these people were rich or from rich families though, from the tradition of New England transcendentalism. So they could easily supplement their lives, or escape from the lifestyle altogether if it began to bind. It appears as if it may take 40 years or so to awaken people's appetite for another go round.

Ha

I went to a Mother Earth News Fair last year. It was pretty interesting and I did learn a lot, though not nearly enough to learn how to support myself off-grid with no money (not that I am really hoping to). From the looks of it, the largest demographic age group at the fair in Kansas was baby boomers. Considering that a large percentage of boomers have not saved anywhere near enough for retirement, and probably won't be able to, do you think some of those baby boomers are reliving the 60's & 70's, and trying to figure out how to live on only Social Security in their latter years?

BTW, I do like Mother Earth News even though only half of their stuff appeals or applies to me, but I am a DIYer that dislikes most TV (except PBS). Maybe I fit in their Gen X almost Y demographic group. It would be interesting to know the demographics of their readers and fair attendees!

 

[Ozstache]

A lot of people live off $10-15K a year now, let alone $25K a year like the original blogger, so I don't get why blogs on how to live super-frugally are noteworthy or interesting.

At what point does the advice become "You don't need to save anything to retire -- just quit your job now and live off public assistance, section 8 vouchers, and charity handouts?" Because that's the lifestyle these MMM kind of blogs are apparently celebrating.

This a gross misrepresentation of what MMM's blog is all about. To me, his blog showed me how to significantly reduce spending on life 'trinkets' and increase spending efficiency on the remaining things that enable happiness. These two combine to give a much lower retirement income requirement than normally accepted which, through the divisive power of the 4% (ish) 'rule', a substantially lower net worth is required. This can be rapidly achieved through low-cost index fund investing during your golden working years. Simple really.

As evidenced by comments like above, the biggest hurdles that MMM detractors have with this cunning plan is with the spending side of the equation. Firstly, over the last 100 years, marketers have worked hard on our minds using greed, envy and fear to convince us to buy their stuff or feel deprived if we don't. It can be very difficult to see through this brainwashing to see what spending REALLY counts for happiness and what is just unnecessary lifestyle inflation. Secondly, spending efficiently is seen as requiring too much effort for the outcome but that is because people tend to focus only on the seemingly small short-term saving, not the multiplicative greater long-term reduction effect on retirement net worth accumulation requirements.

I could go on but everything I have said, and much more, can be found over at MMM's blog and forums. Suffice to say that MMM's influence on me was that I was able to retire decades earlier than I thought I would have before I came across his website, and for that I am grateful to him.

 

[Major Tom]

Anyway, most posters here know to at minimum plug their numbers into a few retirement calculators and crunch the numbers, understand how sequence of returns works (4% real average return does not mean you can take out 4% every year if you get a bad initial return), maybe 4% won't be the forever SWR, to budget for average expenses not optimal expenses like new roofs, your house unless you plan to downsize or rent it is not an investable asset because you still have to live somewhere, car replacements and healthcare, have a plan for LTC, healthcare expenses change over time and generally increase as you get older, cancer and car accidents happen, kids cost more as they get older, parents and grandparents may some day need financial help, if you quit work early it changes your SS projections, etc.

Hey, easy now. You've just covered everything we talk about here on E-R.org. If you give it all away in one post we'll have nothing left to talk about, other than what we did all day

 

[Fermion]

I do find it encouraging that you can make 7 figures from a blog. This gives me hope that there is still a lot of meat left on the internet bone.

 

[Major Tom]

I do find it encouraging that you can make 7 figures from a blog. This gives me hope that there is still a lot of meat left on the internet bone.

I was gobsmacked when I heard that figure. Does "making 7 figures from a blog" mean that the revenue from the blog is over $1M/year, or does it mean something else? I wasn't going to say anything, because that seems like an incredibly high income for a blog owned and operated by a single individual.

 

[Options]

There is a giant disconnect between reality and people's beliefs in these groups. It's not the first time. The same thing was going strong in the late 60s-70s with Mother Earth news, Stewart Brand's Whole Earth Catalog and other similar publications. Interesting, but after a lot of hippies went up to Mendicino County and tried their hand at agriculture- mostly some dope growing and a lot of welfare, they eventually got tired of all the sick children, all the communards with the clap, and the hostility of some of the townspeople.Then the communalists who had some brains and foresight headed for law school, graduate school, business school and they were suddenly the yuppies of the 80s. The holdouts can still be found in places where they blend in, and where they can live very cheaply.

People can be incredibly shortsighted, it was as if they popped out of their mothers' wombs only 2 weeks ago. I am not talking about the gurus. Like gurus always do, they know what they are selling. The followers are puzzling to me. However I came from a tradition where it was accepted that only some people understand the game. Your task is to be certain that you are one of those, and not one of the marks.

There was a similar back to the land movement in the 30s-Helen and Scott Nearing were well known leaders. Most of these people were rich or from rich families though, from the tradition of New England transcendentalism. So they could easily supplement their lives, or escape from the lifestyle altogether if it began to bind. It appears as if it may take 40 years or so to awaken people's appetite for another go round.

Ha

Personally, it's a huge embarrassment being from the baby boomer generation (always feeling like I have to apologize to the generations that came before and after). The movie The Big Chill nailed it.

 

[daylatedollarshort]

I love the Mother Earth News site, personally. I don't live in a commune or raise livestock or even have a garden, but moving to more sustainable urban living practices (more cooking from scratch, lower water and energy bills, higher MPG cars, plans to xeriscape) helped us to really trim our ongoing expenses and eliminate many extra years of full time work. Our energy bill alone is $2K a year less than it used to be on average. Over a potential 40 year retirement that is $80K in after tax money right there alone.

 

[daylatedollarshort]

I was gobsmacked when I heard that figure. Does "making 7 figures from a blog" mean that the revenue from the blog is over $1M/year, or does it mean something else?

It means $1M a year. I'd be surprised if it netted less than $500K, maybe much more. You should make a realistic blog about your own story, Major Tom. It is quite interesting to hear about and of course realistic as well.