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Posted by on Dec 29, 2016 in ETF Strategist, Investment Perspective

How To Retire At 30 (Part 2)

How To Retire At 30 (Part 2)

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By Roger Nusbaum, AdvisorShares ETF Strategist

 
The New Yorker ran a lengthy profile on Mr. Money Mustache, the very widely followed personal finance blogger who retired when he and his wife were 30. They had $600,000 accumulated, had paid off their mortgage and based on their numbers were going to live on $24,000 per year (maybe $25,000, I have seen both numbers). I wrote about his story three years ago, which you can check out for a little background.

In the post from three years ago I pointed some parts of their story that seemed difficult to reconcile in terms of living on $24,000 per year. It not that I don’t or didn’t believe them, more like there’s more to their story. The following excerpt from the New Yorker articulately raises and addresses some of the questions I had three years ago.

Retirement, in his hands, is a slippery term. It doesn’t mean playing golf or sitting on the porch. It is merely the freedom to do what he wants when he wants. He likes some kinds of work, when they aren’t jobs—carpentry, home improvement, the blog—but he disdains the idea of spending another minute of his life in a cubicle, in order to afford a dryer, or a Tesla. Some people have questioned his definition of retirement and argue that his premise is flawed, in light of how rich he got to begin with, relative to most Americans. Others cite the rental income he and Simi earned for many years from their first house, after they’d moved into another, or even the money he earns from the blog. He has now accumulated enough in additional savings to spend much more than twenty-four thousand dollars a year. But the point, for him, is to live lean and free.

They do work at least here and there, maybe a little more than here and there. In addition to the rental income Mrs. Money Mustache works part time as a realtor, the New Yorker says, and sells things on Etsy. Being a part time realtor could mean just about anything but if she sells one $300,000 per quarter (Zillow reports the median home price where they live is $331,000) then her take could be about $4500 which annualizes out to ¾ of their $24,000 target in addition to the other little income sources mentioned three years ago that still are in place today. In my post from three years ago I posited that the Mr. Money Mustache blog was generating at least a little income. In the New Yorker article, he disclosed that the blog revenue is $400,000 per year.

I don’t get it. In no way do I doubt their veracity but their idea of living below their means would be alive and well without being devoted to 4% of their accumulated assets from back in 2005. Of course, I don’t have to get it. They found their groove, that is the important thing for them and one of several great lessons they can provide to their readership.

Conceptually, there is a lot of overlap with what they are doing with their personal finances and what I’ve been writing about on this blog going back to the beginning in 2004. A key building block of understanding is that retirement for most people will be much different than what they perceived it to be or what they saw as their grandparents and parents retired. There are no more pensions (very few of them anyway), Social Security is not intended to cover all expenses and we know from countless studies and articles that Americans are woefully under-saved for retirement. I would argue the “average” retirement savings disseminated in the various articles are more like emergency funds than retirement portfolios.

What Mr. Money Mustache and his wife recognized early on is the need to live below your means and make retirement more about the value of time than anything else. A relevant term to their situation is “multiple streams of income,” even without $400k from the blog, which is something we’ve talked about here countless times.

Retirement being about the value of time is a very important concept. This has been a cornerstone to how my wife and I have built our lives. We both work a ton of hours from home but with plenty of flexibility when we need it and love what we do. Arguably, I am already retired. By Mr. Money Mustache’s example, I retired when I started this phase of my life in my mid-30’s. Continuing the thought, the concept of retirement is now outdated. Working on your own terms (a direct quote from Mr. Money Mustache) can provide purpose and intellectual stimulation as well as relieving some of the burden from your portfolio (an $800,000 portfolio designed to generate $32,000/year would be much better off if a $10,000 part time job can cut the need down to $22,000).

For quite a while I have said that if you make enough to pay your bills, save a decent bit for your future and have a little left over for some fun then you’re in pretty good financial shape, maybe even rich. This doesn’t necessarily require a six-figure income.

With the above paragraph as the framework for how I think about spending and saving, I don’t get the devotion to $24,000. Again, I don’t need to get it, it’s their deal. I have my deal, hopefully anyone reading this will figure out their deal or groove or anything you want to call it, the sooner the better. In addition to making for more effective and suitable financial planning and investing I think stress levels are greatly reduced for people who have been lucky enough to figure this out for themselves.

Many bloggers have identified the idea of retirement has evolved into the idea of financial independence and that the Mustaches are living it and providing a great example in their blog. As Ben Carlson recently mentioned “the goal shouldn’t be about making it to a certain age so you can ride off into the sunset, but rather getting to the point where you don’t have to worry about money anymore.” If you’re middle aged or older, have accumulated decent retirement savings and enjoy your work then you have a good shot of being at “the point where you don’t have to worry about money anymore.” If you don’t feel that way about your work you can try to do something about it, even the pursuit of new work can be a lift.

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