Sep 17, 2011 153 comments

The Race to Retirement – Revisited

Earlier this week, I spilled the beans and detailed Mr and Mrs. Money Mustache’s combined savings history from zero net worth to retirement. In the article, I tried to explain that it wasn’t a struggle or a sacrifice to become financially independent in nine years, it was in fact unavoidable.

If you get paid a ridiculous amount of money, and spend only a normal amount of money, it builds up very quickly to become an accelerating and unstoppable force, like a snowball on a steep hill. And many people agreed that with a top salary of $125,000 per year, and a wife that made it up to $70k in her short career, we were indeed earning a ridiculous amount of money.

Weren’t we?

Let’s look at the averages over that 9-year period.
Starting from graduation, I earned 41, 57,77,83,100,110,110,125, and 50k
During the parallel years, my girlfriend-then-later-wife earned 0,0,0,44,60,65,65,70,60

So my 9-year average earnings were $83,000, and hers were $40,400. When we average our salaries together, we were equivalent to a couple earning $61,700 each.
PLUS I made a $100,000 profit from renovating one of our houses and some appreciation. That brings up the annual average to $67,255 each.

So if you happen to be part of a working couple earning this much each – congratulations, you are no more than nine years from retirement, even if your net worth is currently ZERO!

But what about a more typical family – say, a high-school teacher (median US salary $51,000 according to Wikipedia) and an elementary school teacher ($40,000 from payscale.com) with a kid and a mortgage on a $200,000 house. These folks have a combined before-tax income of $91,000, which works out to $80k after federal and state taxes according to the tax calculator at efile.com.

Let’s say they spend just as much as the MMM family does for our lavish lifestyle with plenty of travel, great bicycles, and two cars ($24k per year), plus have zero equity on their $200,000 house, so they pay $10,000 of interest per year on that as well. Total spending is thus, $34k/year, leaving $46k of their $80k take-home pay available to save.

We will assume their savings earn a 5% return, whether from paying off the mortgage or saving in index funds:

End of Year 1 ‘Stash: = $46,000, plus investment gains of $1150, total = $47,150
Year 2: $47,150 + 46,000 + $3507 investment gains = $96657
Year 3: $99,657 + 46,000 + $6132 investment gains = $151,790
Year 4: $151,790 + $46,000 + $8739 investment gains = $206,529
Year 5: $206529 + $46,000 + $11,476 investment gains = $264,005
Year 6: $264,005 + $46,000 + $14,350 investment gains = $324,355
Year 7: $324,355 + $46,000 + $17,367 investment gains = $387723
Year 8: $387722 + $46,000 + $20,536 investment gains = $454258
Year 9: $454,258 + $46,000 + $23,863 investment gains = $524120
Year 10: $524120 + $46,000 + $27356 investment gains = $597476
Year 11: $597476 + $46,000 + $31024 investment gains = $674,500
Year 12: $674,500 + $46,000 + $33,724 investment gains = $754,224
Year 13: $754,224 + $46,000 + $38861 investment gains = $839085

OOPS! The investment gains are larger than your entire living expense! Congratulations, you are retired!

So with two median US teachers, the maximum reasonable length of a career under MMM Principles is thirteen years. This puts our quintessential teacher couple out on the streets enjoying an early retirement by their mid-thirties at the latest – assuming no teacher pension, no social security, and no career advancement – only 2% annual raises to keep up with inflation.

It’s just basic math, but it’s a very happy type of math, since it means that even for an average middle-class salary, early retirement WELL BEFORE AGE 40 is not at all an extreme goal.

Previous Post: A Brief History of the ‘Stash: How we Saved from Zero to Retirement in Nine Years Next Post: Guest Posting – Notes From The Laundry Room

Want More?

eva September 17, 2011, 2:31 pm

Sorry, I am still not convinced, mainly because your starting number seems off to me. I don’t think 40K-50k is ENTRY-LEVEL, meaning your median earner is probably well-into their career. Maybe I’m a purist, but I’d like to see distribution as well. Basically, most teachers I know are making closer to 25K to start, 35k tops, and don’t reach that level of earning until they’re too old to retire early.

Maybe it’s just that I have such a low income and am bitter that I can’t do it, but I still think that seems not quite right.

Reply
- MMM September 17, 2011, 3:18 pm
  
  Teacher salaries vary widely by state, so they make much more than my example in New York, California and Illinois, for example, and less in Southern states like Georgia. This is the median. If you wanted to follow my example strictly from a newly graduated teacher situation, they might start out lower than my example, but finish at a higher level.
  
  I know plenty of teachers who already made 50k+ right near the start of their careers. The profession as a whole deserves to get paid more, in my opinion, but it’s nice to know that on average they are still doing well.
  
  If you don’t like the teacher example, just substitute in “plumber” or “carpenter” or “accountant” or any of the other middle-class jobs in our wonderful country.
  
  These days I earn $40 per hour for carpentry, for example, and it’s a trade I taught myself with zero schooling! This would work out to an annualized rate of $80,000 if I decided to work full-time, even if I never hire any $15-per-hour employees to further increase my efficiency and net hourly rate. If I did that with two workers, I could easily make over $100k – and this is just for playing with power tools!!!
  
  Note that bitterness and negativity is the most expensive habit you can acquire – that will cost you jobs and income potential for life. Stop questioning Mr. Money Mustache and start BELIEVING instead!!
  
  Reply
  - Pachipress September 19, 2011, 1:33 pm
    
    What I struggle with is not being bitter at not being able to do it, it is being hard on myself for such foolish spending I have done in the past. I have had to learn some big mistakes twice before I got real conscious about the spending. I love your blog MMM. It keeps me moitivated to keep on plugging towards even a 4 day work week for dh so he can be at home more with my younger children.
    
    Reply
  - Nathan May 21, 2014, 7:00 pm
    
    I recognize that this response is 2.5 years after the fact, but I felt compelled to weigh in on this as my girlfriend and I are in somewhat of a similar situation. She and I are both 24 and when she began working as an elementary school teacher about three years ago (circa summer 2011) at the age of 21, she was making $50K per year. I graduated one year after her and pulled in a salary of $70K during my first year in the work (and still make approximately the same amount). Though we live in the District of Columbia, which is a relatively high income jurisdiction, our incomes work heavily in our favor because we chose to live in a studio apartment instead of a one or two-bedroom like many of our friends. Our mustache-like choices have put us in a position where we are able to save upwards of 50% of our take home pay per month while still being able to live quite comfortably in major metropolitan area. These numbers work, you just have to make them work for you.
    
    Reply
  - Robert February 15, 2016, 5:50 pm
    
    While I agree that saving and keeping one’s expenses down is absolutely necessary, where I think you have erred in this example is the living expenses, at least for California. California is one of the least frugal friendly states in the US. Prices for 1500 SF houses run $400k+, and I am sure salaries are not that high starting out having been a teacher myself there. That alone will add about four years to your timetable. HOWEVER, that said, I think the takeaway here is still valid. If everyone were taught to start doing this from their first jobs at age 16 or so, there would be very few people in the US who still had to work at the age of 38.
    
    Reply
    - Mr. Real Estate September 21, 2016, 5:48 am
      
      The numbers you use for CA are pretty interesting. After I graduated in 2013 I moved back to the central valley and started a job at 52k/year. I bought a 1700 sqft house for 200k that has an in-law suite not included in the square footage as well.
      
      So while CA does have a high COL, it’s largely skewed by the bay area.
      
      Reply
      - Stephen A. Schullo January 26, 2017, 10:35 am
        
        You can live a frugal life and live in this wondrous state. In fact, when I was a young man, practically living on minimum wage and living in LA, I was never broke. Of course, I drove a cheap VW for 14 years until I got myself educated, and married above my station. I am now 69 and way out of place on MMM blog because I retired the old fashion, boring way, at 61! Yikes thats ancient around here, but I am very comfortable financially, frugality pays off over time. But even here in the beautiful California desert, the standard of living is lower than in LA, and especially in SF.
        
        Reply
    - Bohemiana June 16, 2017, 11:19 am
      
      I live in Long Beach, which is quite a bit cheaper for housing than the Bay area or Santa Monica area. It’s a great city–so lucky I stumbled up on it on a business trip here from NYC and then moved here. Housing is the biggest cost for sure but there’s savings in a lot of other areas like you can drive a used car you paid for cash, BBQ out in the backyard or balcony instead of going out, groceries are cheap (on sale), you only need clothes for one season, etc. I think San Fran would be harder than my area but here in LA it’s totally possible. Depending on your family size you don’t need a big house, even with 2 kids of the same sex, a 800-sq. ft 2-bedroom condo is enough.
      
      Reply
  - Charlie Lockwood October 23, 2018, 8:48 am
    
    I am a 29y/o teacher in NV. I bought a 200k house. My gf and I plus two fur babies live comfortably. In recent years I have read up on your blog as well as my other man crush- Tim Ferriss. My goal is to retire at 45 or possibly sooner. At 45 I’ll have 20 years in PERS and that is important to me.
    
    I agree with your numbers above. However, I would like to take trips along the way and I’m paying for my second Master’s degree out of pocket. Therefore, I’m choosing to work a little longer. But that’s my choice.
    
    I would like to say thank you to MMM for providing these informative articles. It’s a real shame that people get defensive and hateful towards the idea of living a great happy life within your means. No one is making you choose this lifestyle.
    
    Furthermore, if I come up a little short and have to work a few more years, ow well, I’ll still have a nice savings and my home paid off or close to paid. So, to me, there is no downside.
    
    I think everyone should find balance. When I read your posts I interpret it as how can I make this work for me? Is there a balance between living extremely frugal and living pretty frugal. Find what works for you with the lifestyle you want to live.
    Thanks MMM for opening my eyes to possibilities. Keep up the good content!
    
    CL
    
    Reply
- Colin Webb September 17, 2011, 9:50 pm
  
  You are right, many teachers don’t make a lot to start out but once they get some experience under their belts they make a pretty good income considering all the benefits (health and retirement) and time worked during the year. Having the option to pick up work during the summer months to put extra money in the wallet is a great option. I also stongly enourage frequently scrutinizing your budget. You can do it but you must believe you can do it!
  
  Reply
- Lisa November 9, 2012, 5:54 am
  
  I am a Canadian teacher and so make more money than my American counterparts, and my starting salary 16 years ago was $29K. My ex was making much less than I was working in a grocery store, so we were pretty average people. I had student loans and we needed daycare and both of those cost us quite a bit. I agree that early retirement can be achieved through frugality, but average salaries are not entry level salaries. Therefore, I think this scenario is a bit optimistic.
  
  It can still be done, of course, but you would need to tack a few years on to the timeline.
  
  Reply
- haitien_princess January 18, 2014, 6:56 am
  
  I am not sure about the assumptions either. But, you are wrong about the salaries. I live in NY, teacher starting salary is mid 50k. I make well over 80k after 13 yrs.
  
  Reply
Mary September 17, 2011, 5:06 pm

I know this sounds dumb, but I can’t figure out how the above was calculated. $46,000 * .05 = 2300 which is twice that of $1150 in interest earnings for the first year. What am I doing wrong? By improving my understanding of the math, I hope to be able to better understand how to strategize around my personal finances.

Thanks!

Reply
- MMM September 17, 2011, 10:42 pm
  
  Good question! I figured that for the first year, you start out with zero savings, and ramp up to $46,000 by the end of the year. So the average balance over the year is $23,000. 5% of that is $1150.
  
  Reply
- Chad July 8, 2015, 5:28 am
  
  This is a bit late, but…the thing is you have to realize each dollar you invest at a 5% actual return rate per year will only have returned that value…. after an entire year.
  
  That $43000 wasn’t invested in one lump sum at the beginning of the year, but invested gradually over the duration. That is to say, if we simplify, the average dollar invested only has a 6-month time-in-investment, or, the yearly average income in investment works out to $23000, as MMM said in his reply.
  
  What this means is you get 6 months return on $46000, or 12 months return on $23000.
  
  Either way, returns would be estimated as 46000+(0.05*46000)/2
  
  Each subsequent year would start with a lump sum, and then add that year’s investments over the 12 month period, so calculating for following years you’d go….
  
  (1.05*end of last year stash) + this years investments + (0.05*this years investments)/2
  
  That is to say…
  
  End of year 1 stash = 46000 + (0.05*46000)/2 = 46000 + 2300/2 = 46000 + 1150 = $47150
  End of year 2 stash = (1.05*47150) + 46000 + (0.05*46000)/2 = 49057.5 + 46000 + 1150 = $96657.5
  
  And so on and so forth. I hope this helps illustrate the math at play here. :)
  
  Reply
  - ArmyColonelK February 18, 2017, 6:49 am
    
    Nicely stated.
    
    Another mild hiccup in the math is that the 5% investment returns are always assumed to be tax free. But if they are in a tax-sheltered account, any withdrawals before age 59.5 will take a 10% penalty in addition to paying taxes. Puts a crimp in the FIRE.
    
    But MMM tends to have answers for these quibbles, and the basic concepts and attitudes are sound.
    
    Reply
    - Lisa February 24, 2017, 2:24 pm
      
      BZZT! Incorrect. Rollover the 401k into an IRA, then start distributions 5 years later, penalty-free. Or do 72(t) distributions, also penalty free. http://www.madfientist.com/how-to-access-retirement-funds-early/
      
      Reply
      - Ben November 13, 2018, 12:38 pm
        
        Yeah, but you every time you rollover funds to the ROTH you’ve got to pay tax on the conversion, so your funds shrink a bit as a result. You still pay tax one way or the other.
        
        Reply
        
        Frugalharpy September 5, 2019, 2:12 pm
        
        Yes, but if assuming you are “retired”. You can just rollover x amount that is below the standard deduction (so for 2019 the standard deduction is $24,400). So, even though it’s a taxable event but since it is at the standard deduction no federal income tax occurs.
  - Karla March 11, 2017, 12:16 pm
    
    Thanks Mary, MMM, & Chad! I was just today figuring out the 1/2 of 5% return on savings to make my Excel sheet equations match the numbers in this example. One more hiccup is that the total from Year 2 goes from $96,657 to suddenly $3k more, to start Year 3 at $99,657. If you start Year 3 at $99,657, all the remaining numbers match up to the example except the investment gains start to differ a little in Year 12. (Hey, you could of gotten a nice $3k inheritance at the end of Year 2, but this would go in the savings, not the beginning amount, but I digress.) Starting Year 3 with $96,657 still has the couple retiring in 13 years, with at least $38k in investment gains to use for living expenses. Thanks for all the Mustachian advice!
    
    Reply
nd September 17, 2011, 8:45 pm

You should take inflation into account, too. If inflation runs at, say, 3%, it sounds like a small deal, but it’s a huge deal. That means prices are doubling roughly every 25 years, so if you’re 40 when you retire, then by the time you’re 65 prices have doubled, and if you live to 90 (hopefully), then prices have quadrupled. If you’ve been living off the interest from your stash, your stash hasn’t grown, so you’re still living off the same dollar amount each year. Your real income has been cut in half, and if you started off living on 36k a year, then you’re now living on 18k at age 65 (and 9k by age 90) in real terms, which might not have been what you bargained for.

In your example, if you were assuming 5% real returns (above inflation), I’d say you’re being too optimistic. That means you’re expecting, say, 8% total returns for the rest of your life, which might happen, but I don’t think it’s prudent to assume it. If your entire stash is in stocks, then maybe a 4% real return is reasonable, but you should start out with a bigger stash for a margin of safety. There have been very long periods when the stock market didn’t return anything (look at ’65 to ’82, it’s a 0% annual return.)

Reply
- MMM September 17, 2011, 11:03 pm
  
  Hey, at least I don’t throw around the idea of 12% annual returns, like Dave Ramsey :-)
  You are free to adjust my numbers to your own liking – these ones work for me. Remember the flip side of my assumptions – I assumed no social security, no raises, no pension, no summer jobs for the teachers, no rental house investments, and no work at all after retirement. In reality, Mustachians will achieve BONUS earnings in all of these categories, so in reality I am sure they will kick the ass of the relatively wussypants projection I have made in this article. ROCK ON, TEACHER FRIENDS!!
  
  Reply
  - MaudMan October 1, 2011, 7:08 pm
    
    I’d still like to know how anyone is able to have investment GAINS in this market… I’ve only managed to lose money — or at least break even over the last several years. What are you investing in that can consistently make 8-12% annually?
    
    Reply
    - MMM October 1, 2011, 8:09 pm
      
      I haven’t been getting anything like 12%, of course, but for the last few years most of my investments have been in real estate (rental houses).
      
      The rest is just in S&P index funds and other classes – they have paid 2% dividends, and I have done a few quick 2-3% flipperoos to profit from from the volatility of recent years (buying on extreme crash days, selling a few weeks/months later on high points again). This is risky and perhaps foolish, but it has paid off over the last few years.
      
      Overall, the last 10 years have provided no stock returns other than dividends, so on average, none of us have made any capital gains on them – nothing to feel bad about!
      
      Reply
      - MaudMan October 2, 2011, 4:00 pm
        
        Thanks for the explanation Mr. MM. :) I guess I don’t feel so bad. OK… I take that back. I feel horrible about how my stock market investments have done lately, but I guess everyone is in the same boat.
        
        For about the last 15 years, I invested 100% in index funds. For whatever reason, I decided a year ago to start using Schwab’s managed portfolio services. My wife & I already had all of our investments, minus our 401Ks, with Schwab, so it was an easy transition. They charge .50% of total portfolio value being managed — no other transaction costs. So there is incentive for them to increase our portfolio value. A year later, I’m having serious doubts as to whether that was a good move or not. Our managed portfolio is worth almost exactly what it was 1 year ago when they took over. It has earned dividends along the way, so I guess that’s a good thing and we can look forward to when the markets perk up again.
        
        I’m seriously considering going back to straight index funds with the 4 retirement accounts Schwab is currently managing. Then I would consider taking a chunk of our “emergency fund” money and getting a little more active with REITs and/or value/dividend stocks.
        
        Reply
        
        Rob September 10, 2012, 10:46 am
        
        Not sure if you’ll ever come back to read this but for me I own only stocks with a history of increasing dividend payments, over time your dividends will equal your income, capital gains, I actually like when stocks go down, I get umm cheaper.
        
        You can be well diversified with about 15 stocks, the key is to stick to wel known companies.
        
        Rob
      - Jane October 31, 2011, 2:37 pm
        
        I know over the long term the market corrects itself and provides a pretty steady rate of return. But I am still discouraged, I have a 401K, Roth IRA, and a mutual fund. It’s not that they aren’t making as much as I had hoped, it’s that all three have LOST money for a good 2 years running. It’s frustrating to understand how your savings can snowball when you are actually watching it melt instead. I know very little about investing and it’s very possible I could make better choices, but currently it seems my money is diversified and invested in a moderate-conservative way, which seems smart…
        
        Reply
        
        Rob September 10, 2012, 10:51 am
        
        See my above comment
      - Trinitee January 15, 2014, 11:10 am
        
        I’m new to all this, but at this point I’m confused. I understood pretty much everything in your post and the comments until this. I don’t know if you are still replying to these comments, but are you saying rather than making 7% returns for the last decade, you’ve made 2% only from dividends? (I’m a total newbie, I had to look up the definition of capital gains.)
        
        If so, I take this to me an that someone diligently saving and investing for the past decade (2002-2012) with the goal of retiring, say in 2013, would not have been able to do so due to the market instability of the past decade? If you could clarify this point, I’d really appreciate it.
        
        Reply
        
        Mr. Money Mustache January 15, 2014, 6:57 pm
        
        Hi Trinitee,
        
        This is a very old article, and when I wrote that comment, the stock index happened to have recovered only partially from the big 2008 crash. Even so, the 2% per year dividends were there for investors. Since this post, however, the stock market has been on a tear and risen another 30% or more, bringing back a lot of the historical returns.
        
        The main lesson: don’t measure over short periods like 10 years – think more of expected behavior over a lifetime.
        
        The other lesson: read “towards rational exuberance”, and you’ll get a great understanding of the stock market.
        
        Entropy July 6, 2014, 8:02 pm
        
        It’s taken us a little over 30 years, but that 2% compounded starts to really add up. On average, dividends increase 5-6% a year. It’s hardly noticeable at first, but after decades, math is an amazing ally. If you can live on the dividends, it really doesn’t matter if the market goes up or down. There are many companies that pay, increasing each year, in good times and bad. The increase counters inflation. We’re not exactly frugal so it’s taken us 30+ not 9. The key is early then let math take it from there. . . Pulling the plug end-o-the-year. Rock on!
    - Lamont Cranston August 20, 2014, 1:33 pm
      
      Amazing how a couple of years changes thangs. The nasdaq is up 87% since your letter and the S&P is up about 73%.
      That’s over 22% a year, in an index fund.
      
      Reply
Matt G September 17, 2011, 9:55 pm

You could also look at it using percentages and ask yourself this question:

If I live off of X% of my salary and invest the rest, how many years will it take to retire?

Assuming the following:
2% inflation
8% return on investments
living off of 4% of your investments (that leaves a 2% buffer for taxes, etc.)
You have $0 in retirement today

90% = 50 years
80% = 36 years
70% = 28 years
60% = 22 years
50% = 17 years
40% = 13 years
30% = 9 years
20% = 6 years
10% = 3 years

Reply
- MMM September 17, 2011, 10:50 pm
  
  That is a much more efficient way to express the early retirement formula! Sort of the Linux System Administrator’s all-in-one-command-line version. Thanks for sharing it. In this case, I typed it out slowly and year-by-year to help those who are less mathematically inclined have a more detailed and guttural appreciation of the Truly Awesome Power of saving. I mean, just look at those later years, where your savings are EXPANDING by thirty thousand dollars all by themselves!! The idea of your dollar bills breeding themselves and multiplying automatically, like so many rabbits left together in a warren, is fantastic, almost too good to be true!!
  
  Reply
- Marcia @Frugal Healthy Simple September 18, 2011, 11:25 am
  
  I like this explanation. THen again, total geek here.
  
  Reply
- ph0rque September 19, 2011, 3:55 pm
  
  Could you provide a formula for calculating this?
  
  Reply
  - ph0rque September 19, 2011, 3:56 pm
    
    (with a variable for interest rates)
    
    Reply
    - Early Retirement Extreme September 20, 2011, 12:03 pm
      
      There’s one in the ERE book ;-)
      
      Reply
      - ph0rque September 20, 2011, 5:36 pm
        
        Thanks ERE. Trying to be frugal here… can you send me just the formula for free, or post it here? ;)
        
        Reply
      - MMM September 20, 2011, 8:49 pm
        
        I finally now own this book! I bought the Kindle Edition for only Ten Employees.. I’m sure it will be a profitable investment for me.
        
        http://www.amazon.com/Early-Retirement-Extreme-philosophical-ebook/dp/B0046LU7H0/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1316573366&sr=1-1
        
        I will do a book review here on this site when I finish reading it. Thus, I purchased it using revenues from this blog and it is a business expense :-)
        
        Reply
Chris September 17, 2011, 9:59 pm

MMM-

Dude, I like it! You’ve inspired me with the simplicity of simple investing and patience. I think that will be my next step, to invest my emergency fund and get it growing faster and working for me! Keep spittin’ the truth bro!

BTW-you made any sweet jumps on your bike lately??

Reply
- MMM September 17, 2011, 10:54 pm
  
  No! But thanks for reminding me. The only flying I have done lately is off of curbs on my harsh-ridin’ non-suspension city bike. I will take my full suspension mountain bike out to the foothills this week and do some real flying on the downhill portions, thanks to your recommendation.
  
  Reply
Yabusame September 18, 2011, 4:06 am

I love it when things are laid out simply and Matt G’s example with percentages was great. I was thinking about calculating the same thing myself but he’s saved me the bother. I love the idea that I can simply repeat the mantra ‘Live on 10% and retire in 3 years’ or whatever percent I can afford of course.

Reply
steveinFL September 18, 2011, 7:52 am

Dear MMM,

I’m finding your advise very helpful and motivating. This blog and ERE have become my go to places for inspiration and guidance.

In my situation, I have a 250K mortgage on a house that could sell for ~220K and an income that varies between 120-150K annually. Based on current expenditures, I can payoff my mortgage in about 5 years which would eliminate the mortgage and the 6% interest rate. That’s the good part

On paper, this means a return of 6%. It seems like a no brainer to apply everything but my emergency fund $ to payoff the mortgage.

The bad part:
The only bummer is I will own an asset worth less than I paid for it that may take decades to recover due to the upside down market in South Florida.

At the end of 5 years I have a non-liquid asset, likely to be worth less than I paid with no income generation from this asset.

I live in South Florida we’re still seeing a glut of foreclosures and empty homes someday to be foreclosures.

The house is too big for my family, and too expensive to maintain if I ever intend to save upwards of 50% of my income so I want to sell it and move to a smaller place that is close enough to bike to work.

The good part
I’ll own a house with no mortgage. Even if it is too big, I’ll eliminate at least 20K in annual mortgage expenses. And if I sell the house, whatever I get, is all MINE MINE MINE vs. having to pay some of this to the bank (well actually OURS OURS OURS)

The Working on it part
My wife doesn’t follow Mustachian principals. She’s a “spend now, we could die tomorrow disciple”. However, she’s abdicated most of the bill paying and all of the income generation to me, so I’ve been able to focus on debt repayment (nothing left but the mortgage) and savings (nice emergency fund built up). I’d love to see a post on how to get your partner on board with the Mustache plan. You’re fortunate with Mrs. MM — some of us could use some help in that area.

Keep up the great work!

Reply
- Mr. Frugal Toque September 19, 2011, 7:46 am
  
  I had to look way back, but I found the post you’re looking for:
  
  Having “The Talk” with a Current or Potential Mate
  
  http://www.mrmoneymustache.com/2011/04/25/having-the-talk-with-a-current-or-potential-mate/
  
  I was fortunate enough to have chosen a frugal mate before I even realized how important it was, so I can’t tell you how well this strategy works, but it seems to be based on getting your mate to pick something that’s more important than having more junk right now.
  
  Reply
- Gypsy Geek September 19, 2011, 8:04 am
  
  I think everyone on the Mustachian boat (except the truly lucky) have run into spouses that don’t share our zealous fervor for MMM’s principles, but there can be a middle ground. Most important, you gotta get it into your head that you can’t change the other person just because *YOU* think early retirement is best for both of you. I had to struggle through this myself, because even though my spouse is fairly frugal, she wasn’t willing to be as extreme as I was. There are different levels of bad-assness when it comes to financial frugality.
  
  The time line for both of you may not be the same, and that’s ok. As long as the other spouse is not a complete consumerist, there is hope. Each having spending money to do as you please goes a long ways. Agreeing on a basic savings figure is also good.
  
  In our particular case, she’s agreed to save quite a bit of our income, but I’ve agreed not to bitch at using money for what truly makes us happy. This includes: 1. frequent vacations– even if frugal– or even if they involve airfare! 2. Going out to eat ANY time we have friends over and the group agrees to go out. etc etc.
  
  On the other hand, we have an understanding that I will probably retire first, and she is free to work (full or part-time??) as long as she wants and is happy, especially if our 4% investment income is not enough to fill her wants. So, say we agree on a full and gracious retirement with $2,000/month. If the non-retired spouse can’t live on this amount, she is free to work as much as she wants to cover any needs and wants. I, on the other hand, agree to live on 65% of this amount ($1300, because two can live cheaper than one).
  
  So yeah… if your spouse wants to spend more, she can always work longer. There’s nothing wrong with that. Not everyone is lucky to have a perfectly aligned spouse when it comes to finances– or anything else :-).
  
  Reply
- MMM September 19, 2011, 9:55 pm
  
  Hey Steve!
  
  I get questions like that a lot. Could I use that comment as the basis of an entire article?
  
  Reply
poorplayer September 18, 2011, 8:05 am

It’s not that I don’t believe the math, nor that I don’t believe the principles involved. Let me assure you I do. The greatness of this blog lies in how well MMM makes the principles simple, and how conservative he is in terms of finances. And I love the lifestyle he lives, one not consumed with consumerism. That, to me, is the heart of this blog, and it’s most important message! “Don’t fuck yourself by being a stupid consumer” should be the byline under the masthead title.

But life has a funny way of intervening while you’re doing the math (i.e. shit happens). If the $51/40K is the median, then it already means that half of all the teachers in the US can’t make the math work because they’re below the median. And it could be that those teachers earning higher salaries also live in areas requiring higher expenses (taxes, housing, food, etc.). Are they saving at all to send Junior to college so she/he can start life debt-free? What are their health care expenses? Child care costs (since they both work, but which get reduced because they have summers free)? Can you guarantee even that 5% return given market volatility in this day and age? Do they have an emergency cash fund built up? And any one single disaster can seriously effect this plan.

And I agree with the commenter who mentioned that practically nobody starts at those salaries in education. I’ve been in the education game since I was 22, and in my experience those numbers are unrealistic for the vast majority of teachers to attain quickly. They may be statistically accurate, but statistics, as we all well know, can skew reality. It took me 16 years before I could crack the $20K barrier in 1988, which in 2010 dollars would be $36,378.

My point, really, is not to shoot holes in the argument. The teacher example is good because it puts a clear goal in front of you, something to shoot for, and teaching represents a fairly modest profession. But I think it’s also important simply to keep people aware that there is a clear difference between theory and practice. The reason I believe this example is extreme is because, for it to actually work, every single aspect of the math involved has to go right for 13 years. If it doesn’t, you’re fucked. I think total success with this math is extremely rare, and someone who could make it work is extremely lucky. I guess when you come right down to it, I am not so much an advocate of ERE as much as I am an advocate of reasonable retirement, accelerated whenever and wherever possible by avoiding getting sucked into the absurd consumer mentality so rampant in this country.

Reply
- poorplayer September 18, 2011, 8:06 am
  
  God, I’m a long-winded old prick! :-)
  
  Reply
  - m741 September 18, 2011, 9:13 am
    
    I don’t think it’s so unreasonable. First of all $34k/year is relatively high in the expense category. You can fudge the numbers up and down a bit and it shouldn’t make too much difference – ie, a net income of $80k for the household but $30k/year of expenses would work out to roughly the same timeline. I think in most areas of the country it’s possible to live well for $1k/month, single. There’s an economy of scale living with another person, but if we build in a margin of safety, that still means people can live reasonably well for $25k/year.
    
    Second, this assumes both people in the household are teachers, which is a relatively low paid profession – and all teachers ought to know this by now before they choose that profession. If one of them was an engineer, programmer, or other skilled profession with a higher pay scale (but not one that required extensive schooling, such as medicine/law), things would go faster as well.
    
    The one case I can think of where things would not go as fast is if there was a major medical emergency in the household, if extended family required care, or if someone got into a crazy legal situation, such as hitting someone else with a car. But in each of those cases, the best action to take is to save up beforehand – that is, the action that is already being taken to save for retirement.
    
    Reply
    - MMM September 18, 2011, 10:22 am
      
      WOLF, YOU WIN THE MOST MUSTACHIAN COMMENT AWARD!!!!!
      
      Reply
- MMM September 18, 2011, 10:15 am
  
  Poorplayer, you are a high-ranking Mustachian! What’s with all this running around with scissors you’re doing this week, snipping at Mr. Money’s ‘Stash??
  
  Thank you very much for celebrating and reinforcing the basic anti-consumerism message I am promoting. But when you say this,
  
  “The reason I believe this example is extreme is because, for it to actually work, every single aspect of the math involved has to go right for 13 years. If it doesn’t, you’re fucked.”
  
  I am afraid to say that even in your high wisdom, you are just plain wrong. No, perhaps even wrongity-wrong! Here’s why:
  
  It’s because both my example, and we ourselves as Badass Humans, have plenty of safety margin built-in. Lots of the math can change, and the Wise Mustachian Teachers can adapt. They can choose to spend less. In fact, some folks live in an RV specifically to have housing costs of $5k per year. The teachers could work during the summers or have a side-income like a blog or weekend carpentry or landlording.
  
  And of course most obviously, they could choose to work longer!
  
  Our hypothetical teachers would not be Fucked even by realizing at the end of 13 years that they only had $500,000 instead of $800,000! They would still be overjoyed, and decades ahead of 99% of their peers! Unless perhaps they had signed a deal with “The Devil” stating that their Immortal Souls would be Sacrificed if they did not achieve exactly $35,000 of annual passive income by the year 2024!
  
  “Fucked” is a state of mind, not a thing that can actually happen to a True Mustachian in life – REGARDLESS OF CIRCUMSTANCES, EVEN DISEASE OR DEATH!!
  
  The goal isn’t REALLY early retirement, so don’t get caught up in my promotion of this aspect. Early retirement is just the Golden Carrot which makes people excited to Save the Shit out of their money. They want to be free, like the Money Mustache Family!
  
  Once they get here, they will undoubtedly be full of even more energy than they had when they were working full-time. So they’re not going to actually retire and do nothing. They will just do things that are more fun and rewarding, and end up contributing more to society!
  
  So, while you will not be winning the Most Mustachian Comment award for this article, I have high hopes for you as a future repeat winner as we move forwards :-)
  
  Reply
  - David Baillieul September 19, 2011, 8:21 am
    
    Exactly. The goal is really Financial Independence. Early Retirement is just one of the many things you could after you achieve FI.
    
    Reply
- Kimberly V January 14, 2013, 9:05 am
  
  Although I’m not currently in the position to obtain those numbers I don’t think his earnings figures are all that unreasonable. One thing to note though would be that in our local district all teachers get paid from the same salary schedule which is easily viewable by the public, so I don’t really understand the seperate salary notations for High School vs Elementary. Pay in teaching is all about years served and education obtains (steps and columns). I just looked at the current salary schedule for my local district (in the CA bay area) and a first year teacher with no education beyond Bachelors and not having “cleared” their credential yet starts at $39,000+. Granted, if you are insuring more than one person it will cost you something every month and the more people you insure the more it will cost you, a factor not taken into account in the example. I also know that Glassdoor.com rumors that to work for the nearby Virtual school starts at 30,000, so of course the numbers vary. However, if I were to stop doing daycare and obtain a new teaching position (as a third year teacher with a clear credential and 30 credits beyond my Bachelor’s) I would be making $46,000!
  As a single mom working hard to make the ends meet the last few years with home daycare and managing on less than 30,000 that number is sure starting to make me drool! However, I’ve finally built up this business to where I’m not holding my breath while paying the bills each month I’m not ready to go back to having a boss!
  
  Reply
Bakari Kafele September 18, 2011, 6:45 pm

I am generally 100% with MMM on just about everything, but the naysayers in these comments have a major fact on their side (even though no one seems to have realized it):
Teachers are actually very HIGHLY paid! They may be paid low for someone with a Master’s degree but most people don’t have Master’s degrees.

The median US household income is only about 50k a year. Making the 80K in the original example a good bit over 50% more than what the average American actually makes. Which means the majority of households don’t make 80K.

Even if a family somehow had expenses of $5000 a year, they could not save 46K a year on a 45k combined salary.

What I have taken away from these last two posts is that I need to find a way to make A WHOLE LOT more money if I ever want to be able to stop working!

Reply
- MMM September 18, 2011, 10:14 pm
  
  Good points, Bakari. But you’ve got some low living costs too. How are you looking when you plug things into the Matt G equation above?
  
  Reply
  - Bakari Kafele September 18, 2011, 10:35 pm
    
    I do indeed have very low costs, which helps a bunch.
    
    ts hard to say, since early retirement (and saving money) has only been in my vocabulary less than a year (and I accidentally erased 6 months worth of data!!!!!!!) so I can only go off of the last 6 months, but it looks like I am spending about 1/2 of what I make.
    So, 17 years by Matt G’s equation – which would make me 48. Still early compared to 65 I suppose – but then, if I ever buy a house, that’s going to set me back a nice chunk (even if I buy improved land, and get a 400 square foot trailer, thereby avoiding any property taxes, as is my plan).
    
    I’m not saying making less makes it impossible, but I bet it would be more convincing to a large part of the population to see a similar post to this, but with numbers more achievable by the working class.
    And that I need to start working more :)
    
    Reply
  - Bakari Kafele September 19, 2011, 9:10 am
    
    Indeed, very low living costs, which definitely helps a lot – though I probably won’t want to raise a kid in the RV, so I’m thinking of buying something someday, which will change my equation dramatically.
    
    Its hard to say how I’m doing, because I’ve only had “saving for retirement” introduced into my vocabulary about a year ago – and I accidentally deleted about 6 months of data! Assuming the last 6 months are representative, then I’m saving roughly 50% of my income (17 years puts me at 48 – assuming no additional housing costs in the future – which is still earlier than 60, but… eww)
    
    I’m not just thinking of myself though; of course I can (and have) crunch(ed) my own numbers. I’m thinking more of all the people I have sent here, people who are new to the idea of savings, interested, but still on the fence. Young folk with incomes in the 20-35k range, or people with higher incomes, but who are already middle aged before discovering the concept (or, as in my case, both).
    
    I’m not saying it can’t still be done, or isn’t still worth it – just that these numbers are unrealistic for the majority of the population. Of course, if one doesn’t make 50-100k a year, it becomes even more important not to waste money, but I know a lot of people will see the income in the example, conclude attaining wealth is impossible, and therefor not worth even trying for.
    
    Reply
B September 18, 2011, 10:00 pm

MMM, I think your example is great. My wife is a teacher and her base his more than 51K. Once you add in summer jobs and tutoring she can blow that away if she wants. For reference she has 8 years experience and masters and we live in Boulder County, Colorado.

I have really enjoyed your last couple of posts. In future post I would be interested in you asset allocation. Not in terms of your stocks but in terms of real estate, retirement accounts, cash, and no retirement stock accounts. I am wondering because we save most of our savings in retirement account. At some point I know I need to switch some of that savings but I don’t really know when.

Reply
- MMM September 18, 2011, 10:16 pm
  
  Good question – let’s make an article called “how much is too much money in your 401(k)? Coming soon!
  
  Reply
  - rjack September 19, 2011, 6:04 am
    
    I think tax rule 72t comes into play here.
    
    Reply
  - Gypsy Geek September 19, 2011, 7:18 am
    
    The wife and I are in an accelerated path to retirement, but the reason the math works well for us is because one of us is an independent contractor, getting paid with a 1099. As such, we can have a solo 401k and are able to sock away $49.5k a year, in addition to the other spouse’s traditional 401k with their employer (total 401k is close to 70k/year: 49.5k + 16.5k + employer match).
    
    401k’s are very attractive (being in a high tax bracket) but at the same time, sometimes I think we may screw ourselves over because of the restrictions on 401k’s.
    
    I am counting on the 72t exception as rjack mentions (we’re in our early/mid 30s), but 72t has the caveat that once you start tapping it, you can’t stop. I.e., if you get a well paying job later, you will still be forced to take out money out of the 401k, even if you adhere to Mustachian principles.
    
    So yes, I would love a post on how much money is too much in a 401k.
    
    Reply
  - Pachipress September 19, 2011, 4:11 pm
    
    And don’t forget us Canadians-using our canadian terms ie 401 plans versus RRSP’s(I think that is the equivalent??) and the difference in cost of living in US versus Canda.
    
    Reply
  - Jennifer November 29, 2018, 7:25 pm
    
    MMM,
    
    Apologies in advance for the delayed response to this article, I’m new to the site!
    
    How about an article on “stash cash” or payoff your mortgage?
    
    I thought it was interesting that the plan was to stash enough $$ to cover living expenses which included mortgage costs vs allocate extra money to get the house paid, once paid then reallocate those funds to stash a significant amount of cash.
    
    I personally feel like I would have a lot more financial independence with a free and clear house so I’m curious if I’m missing something in the plan you’ve outlined.
    
    Really enjoying the content on the blog so far!
    
    Reply
Gypsy Geek September 19, 2011, 7:39 am

I’ve been expounding Mustachian principles for the past 3-5 years, and I’ve mostly run into negative feedback, such as the ones in the thread above. People complain that they don’t make enough money to save, or that they can’t possibly live on less. Just because you can’t save 500k in 10 years, doesn’t mean it’s not worth saving at the pace of 500k in 12, 13 or 15 years. Maybe you can’t retire at age 30, but perhaps 40? That can’t be too bad!

Ironically, all of our friends who criticized us 3-4 years ago, even while they had higher salaries, are still in the same boat– close to broke with no end of work in sight, while we have retirement at arm’s length. Just because they couldn’t save 500k, now they have 0.

Surely, even 70% of MMM’s figures is better than 0%? Besides, MMM’s math is not nearly as extreme as Jacob at Extreme Early Retirement. So you can surely retire on much less income.

Reply
- Dancedancekj September 19, 2011, 12:52 pm
  
  Agreed GG. Suppose you can’t retire until 40? That’s still pretty awesome. I am looking at early retirement as a side benefit, while the low cost of living, swearing off consumerism, and the changing of priorities are the real goals. Yes, all the goals are with the intent of early retirement and a huge Stash, but even if your Stash isn’t all that big or your retirement takes you a while longer – you’re still probably better off than a lot of folks (financially speaking).
  
  Reply
- Matt July 11, 2016, 1:36 pm
  
  I’m a little late to the rodeo, but I’m excited as hell to save as much money as possible and try to retire in six years by the ripe age of 50, haha. We are already at $135,000.00 in Roths, 401Ks, precious metals and cash, and have about $130,000.00 equity in our home, which will be paid off in two years or less. I’m a Special Ed teacher, and my wife is high up the chain in Maverik country stores; together we net about $90,000.00 yearly. We have the ability to save at least half that. I would like to save more, but we tithe to our church (ouch), which comes to about 8 – 10 grand per year. I figure it’s good “fire” insurance, lol. And my wife grows weary of my Mustachian proclamations that I spew throughout the house . . . I need to have “the Talk” with her. Maybe a compromise? “You can keep paying tithing as long as I get to take a machete to our budget every month”, lol.
  
  Incidentally, I’ve been teaching for 11 years, and am currently grossing $53,248.92, but I recently changed lanes, so that will go up to about $54,700.00.00, which is closer to what my wife makes.
  
  Anyway, 50 years old is my target. And isn’t 50 the new 40? :)
  
  MMM, you have truly inspired the hell out of me. And I’m eternally grateful to you.
  
  Reply
  - Matt July 11, 2016, 1:41 pm
    
    Oh, and I teach in the Washington County school district in Utah, which is notorious for low teacher wages. However, that being said, the district ponies up over $2,600.00 a month towards insurance and retirement (2% of gross income for 401K, and pension). Not bad, considering.
    
    Reply
Rebecca September 19, 2011, 9:38 am

Hi MMM! I’ve been following your blog since your guest post on ERE, and I adore this site. But, I still have a question about this math that I hope you’ll answer…

I’ve been trying to start saving my own ‘stash. I have about 30K student loans, but no credit card debt. So, based on Andrew Hallam’s estimate of 7% return for indexes, or even your more modest 5%, I thought it would make more sense to put some of my savings into indexes early to give them a chance to grown rather than putting 100% into paying off my 4.5% student loans.

I opened a Vanguard account and put in 10K into a Roth IRA (for 2010 and 2011) right around tax time in April. These i divided between stocks, bonds, and international stocks. Soon after that, I opened a non-retirement index account account with 3K and recently added another $250. Unfortunately, April was when many stocks were at their peak, so I suffered from that. So, I’ve invested $13,250 into my indexes this year, but I currently have a $12,394.50 balance.

Anyway, I know that the common wisdom is to not worry about short-term losses since this is all about long-term retirement. But how on earth can I expect to retire early if every year my accounts end up with less money than they started with? When will my magic 5% interest come to make your scenario work? Sorry if this sounds like whining, I really do mean to ask a legitimate question. I’m trying to learn investing, but it feels a lot like luck, not like a 5% you can bet your future on.

Another side-note, my great-aunt left me a 5K investment when she passed away about ten years ago, and it immediately dropped to 2.5K based on a crash right after. So, ten years later, based on 5% annual returns, it should be over 8K, but instead it has taken over a decade just to return up to the original 5k. So I guess I’m pre-disposed not to trust in investment gains since I’ve never personally seen any.

Please prove me wrong, I want to grow a nice fluffy ‘stash like the rest of you masters!

Reply
- Momof4 September 19, 2011, 10:46 am
  
  I’d be interested in an answer to this question too! None of my retirement accounts ‘perform’. I’m beginning to think I should have left the money sitting in a bank account making minimal interest. Real estate is looking very attractive…
  
  Reply
- Matt G September 19, 2011, 12:21 pm
  
  I’d save up 6 months worth of expenses in a cash emergency fund and then pay off my 4.5% student loans. The 4.5% interest is guaranteed, the 5-7% you hope to get from the market isn’t. Also, once they are paid off, it lowers the minimum amount it costs you to live per month so you can save even more for retirement.
  
  Reply
- Matt Faus September 19, 2011, 4:43 pm
  
  Investing is a difficult game that takes a lot of work to get even modest returns. Your biggest wins are from saving, learning new skills, and continuing to work until you have an amount of savings invested with an amount of risk you are willing to take on.
  
  Outlooks on the future can range from bleak (in which case you will need a self-sustaining farm and ammunition to survive the apocalypse) to irrationally exuberant (in which case 10% every year in the S&P500 will have you drinking wine in a yacht in no time at all). You’ve got to figure out what you think and plan accordingly. Your outlook on the future will determine how you allocate your portfolio.
  
  But you’ve got to really study to learn how to spread your investments. Here are some books I have either read or plan to read:
  
  1. The Little Book That Beats the Market
  2. The Intelligent Investor (haven’t read)
  3. Irrational Exuberance (dispels the myth of “guaranteed returns”)
  4. The Dhandho Investor (recommended by Jacob@ERE)
  
  If you don’t want to learn, you’ll have to pay someone else to implement a strategy for you in a mutual fund. A lot of people at ERE like the Permanent Portfolio funds (Bing it!) as a safe approach that should appreciate modestly regardless of how the economy is doing.
  
  Reply
  - MMM September 19, 2011, 10:35 pm
    
    I agree that saving and skills are the biggest winners!
    
    I don’t think that investing has to be a lot of work. If you want zero work, just buy a Vanguard Life-cycle fund with a target date of when you want it to start paying out to you. By sticking to Vanguard exclusively, you eliminate most pitfalls, since it is an honest company which refuses to offer anything other than great funds.
    
    Your book list is a good one for anyone inclined to learn more about investing! I read 1 and 3, and a counterpart to 3 called “Towards Rational Exuberance”. Another great one is A Random Walk Down Wall Street, which will make you into a nice grumpy and analytical long-term investor who can see through the bubbles and refuse to get caught up in fads. But you will still be optimistic enough to invest. Also, read every word Warren Buffett has ever spoken or written for a nice grounding in the big, historical picture.
    
    Reply
- MMM September 19, 2011, 10:57 pm
  
  Rebecca – I also agree with these other masters – it wouldn’t hurt to pay off your loans first, since 4.5% is not bad from a guaranteed perspective.
  
  In investing, whether it is stock or home ownership, you need to have a perspective of decades rather than months or years.
  
  When I buy stocks nowadays, they are destined to be sold by the future Old Man Mustache version of me sometime after the year 2040. Or, I choose stocks or funds that pay a high dividend rate (3% or above), which gets paid to you quarterly, regardless of the actual share price, providing immediate income while the principal stays untouched.
  
  Reply
  - Rebecca September 20, 2011, 9:12 am
    
    Thank you MMM and other masters! I appreciate the book list, and the other tips. Time to go back to aggressively paying off the loan (which, I must admit, is kinda fun, I love seeing it shrink every month :-))
    
    And I definitely need to learn more about dividends, thanks for that.
    
    So much to learn!!! Good thing learning is fun :-)
    
    Reply
Pachipress September 19, 2011, 3:21 pm

What I see missing at times in your budget is the car replacements and the house maintenance ie. old windows that need replacing and siding done etc. Is a $34k a year really this when you have to factor in these exta expenses down the road. I used to have the minset when my children were really young that children don’t cost much and they didn’t back then. But now as I have teenagers(AND I am still pretty frugal with them) they are costing me much more ie. activities etc. Also, even thouugh we don’t pay for their university education, I do like to help them out from time to time with maybe gift cards for extra clothing allowance since they are paying the whole shot for university. Kind of rambling here but just thought I would add my two cents.

Reply
- Joe Average April 21, 2015, 8:50 am
  
  Kids have been expensive for us at different times.
  
  Way back when they cost $425 per month in daycare. That’s $50K to get both to kindergarten using daycare. Fortunately one entered school about the same time the second one arrived on scene. Then we had several years of low cost kids. We have never pursued expensive kid past times like video game consoles with $50 games. Instead they share a used computer that we were given for parts that cost me two small repairs initially and a fair variety of used PC games for $5 and $10 each. New to them and still impressive games. We have done Scouts and soccer. Very worthwhile to us. Now the eldest is in high school and we are working out what having a teenage driver will cost. For one a 3.0+ GPA cuts the additional cost of insurance in half. Will allow the eldest to borrow one of our very used cars occasionally but ultimately he will need to buy his own cheap car plus insure and fuel it as a lesson in responsibility. We’ll help a little here and there. Don’t want him working long hours (vs school & being a kid) to fund a car he doesn’t yet NEED.
  
  IMHO the car as a trophy and “identity accessory” can be a big part of “consumerism indoctrination” for some folks just like clothing and jewelry can be for other people. “Look at me – look at my cool car!!!” Want him to focus on things besides owning “cool stuff” in life. DO “cool stuff” more than own “cool stuff”.
  
  I love cars and own several including two antique aircooled VWs but there is more to me than my cars. I prefer to wear out cheap daily driver cars at this point in my life and save the nice cars (the antiques) for occasional fair weather use.
  
  Reply
RPMcL73 September 19, 2011, 3:54 pm

I’ve read this entire blog since inception with great intrigue. Most of the advice here is rock solid and offered free of charge or obligation to act on it in any way. What could be better than that?

That said, these last two posts have lost me a bit. I am 38 years old and have never made more than $50K in any year of my “career”. I take full responsibility for not becoming a software engineer during the late 90s, moving to a high income area of the country or investing in the market from 1996 to 2000. In spite of these and other strategic oversights like 2 kids and a stay at home spouse, my net worth is around 300k, half of which is tied up in a liability I call my “paid off” house. From my experience, saving 50%-80% of a sub-median salary is daunting and requires lifestyle decisions that unfortunately my wife and I were not completely mature enough to make in our 20s (living in an RV and eating beans comes to mind here…). According to my spreadsheets, not “getting it” early enough has resulted in a net savings potential loss of about 200K and a guarantee of “un-retirement” for years to come. Oops.

Even with my unrealized savings, however, the real truth peeking out from these articles is that I really needed to make a lot more money and have passively invested it when a Vanguard SP500 index fund would have guaranteed 5% a year over inflation. Certainly I don’t begrudge anyone for having done this, but it may be possible that the window has closed on this approach. I know I’m having trouble finding 2% above inflation in any investment that will allow me to sleep at night. Can we see a future article on exactly how to invest today to get there? I would benefit immensely from this.

It appears that the intended blog audience here consists of relatively high achievers who lived through extraordinary times with really bad financial habits. I am not among this crowd. If I can start to squeeze $100K + annually out of the current economy, I promise to be retired in just a few more years : ).

I still admire what MMM has done. Recognizing and seizing opportunity is what it is all about. I can’t help but be just a wee bit discouraged after seeing numbers which have no real relevance to my own. I’ll get over it though : ).

Thanks for the great site!

Ryan

Reply
- MMM September 19, 2011, 10:07 pm
  
  Hey Ryan,
  
  You are doing great! A paid off house as part of 300k in assets at age 38? You are way ahead of the game!
  
  I personally still feel great about putting any amount of money into stocks via index funds over the next few years (VFINX, VISVX, or a life-cycle fund).. as long as the market doesn’t take a big 10%-or-more jump and become more overpriced before the economy actually starts getting healthy.
  
  It sounds like you are discouraged by Math Itself – YES, I retired earlier than most, even with a nice house, because I earned more than average. But financial independence in your 40s or 50s, through frugality and working to earn more, is still putting you way ahead of where you would have otherwise been. That is a reason to be encouraged, not discouraged!
  
  If you want faster results, you have to be willing to take the steps for them. For me, it was choosing engineering over teaching and moving to a new country, as well as many smaller choices after that. Especially refusing to car-commute. For you, it could also mean moving, or getting yourself set up with a growing string of rental properties, or training up to a higher-paying career or side-business.
  
  I think I am going to have to get a little bit more Ramit Sethi on all of your asses, since I see there are people who DO need to increase their incomes! (I had mistakenly assumed earlier that all readers were also big earners, since those people made most of the comments on earlier articles).
  
  Reply
  - RPMcl73 September 20, 2011, 8:18 am
    
    LOL…blame ERE for some of us little guys finding your blog! Thanks for the words of encouragement.
    
    I’m definitely all ears on the Ramit Sethi school of income generation! I did start an architecture firm with a partner last year, does that count? I’ve done carpentry, house painting, model airplane building, auto restoration and many, many things the current Central Florida economy does not favor. I’ve always worked hard, just not smart! That’s where you come in…
    
    As a philosophical exercise, it might be interesting to see what smaller numbers can do. For example, our plan requires only $650/month in income generation to keep food on the table, the lights on and the taxes paid. I will be FI when my assets generate that number reliably. I did not include our transportation (1949 Mercury Pickup Truck) or my sailboat (we live in Florida!) in my asset total but both are appreciating nicely, just not completely liquid. I could sell them but what kind of life would that be??
    
    So my challenge is the following: Generate $650/month in passive income without losing my principle…ever. How much do I need and more importantly what do I invest in to get there today? Thoughts?
    
    Ryan
    
    Reply
    - MMM September 20, 2011, 8:44 am
      
      Hmm.. $650 per month – how about 5262 shares of this? http://www.google.com/finance?q=SNH
      Surely a little risky to put it all into one place like that, but perhaps a broader portfolio of high-dividend stocks?
      
      Reply
      - RPMcL73 September 20, 2011, 9:37 am
        
        Brilliant…never considered nursing homes. Demographics certainly favor this one and I can swing 5262 shares right now.
        
        Was thinking a bit in this:
        
        http://www.google.com/finance?q=cvy
        
        and this too:
        
        http://www.google.com/finance?q=tip
        
        for balance.
        
        These are the kinds of specifics that makes this site a “go to” destination for me.
        
        Thanks!
        
        Ryan
        
        Reply
        
        MMM September 20, 2011, 10:18 am
        
        Those look like fun balancing dividend funds. Do you know the management expense ratio on CVY and TIP?
        
        A note about SNH – if you really want to maximize its dividends and are not in a rush, take a look at the 1-year price history. It was on sale as low as 21 bucks a share during the big sale on stocks around August 9th. I can’t pretend to predict the future direction of the market, but I do know that investors tend to get irrationally fussy at times and sell off shares for no reason. Especially in the last few years (volatility has statistically been way higher than usual). Those are the times I really like to buy.
      - Personal Finance Source September 22, 2011, 1:48 pm
        
        You might be interested in dividend growth investing. You can find many articles over at Seeking Alpha discussing this strategy. One of the best I’ve found is http://seekingalpha.com/article/290289-retirement-s-4-rule-why-mr-mrs-income-don-t-need-it-part-1
        
        The idea is investing in blue chip stocks paying a decent dividend that in past has outpaced inflation. It does require a little research and monitoring of your portfolio.
        
        Reply
      - Jeremy September 28, 2011, 6:55 am
        
        Really? That’s a terrible investment. If you look at the FCF, you’ll see they’re only keeping the lights on at the business through issuing stock and debt. The yield cannot hold.
        
        Reply
        
        MMM September 28, 2011, 9:00 am
        
        I appreciate your cautionary tale! I don’t own any SNH shares myself and haven’t really researched them, but I just looked at the financial statements for 2010/2011 and couldn’t see anything amiss. They issued more stock and debt, but it seemed to go entirely into buying more properties in the assets column. However, I admit I am a beginner at studying financial statements and would like to gain more advanced skills in that area. Do you have any links to share for further research?
        
        If you like, send me an email through the contact button and we can take this into a whole new article, since it could be interesting.
- Jan in MN September 21, 2011, 7:14 am
  
  Ryan – I echo MMM’s comments that you are already way ahead of the game. Continued patience and hard work will definitely get you there. Your kids are so lucky to have a SAHS and to live in a place that’s paid for. Did I mention you are way ahead? :-)
  
  Reply
- von Aufdenboden April 26, 2015, 11:06 am
  
  Ryan,
  
  most probably you will not read this anymore but if you do, I have to pull my hat (its a German saying for admire somebody). All my friends are earning about what you do per year and none of them are even close to your successfull numbers. They don`t even know what a bond or a stock is. Most of them are having a net worth of +/- zero, some of them a huge mortgage to pay off or are divorced and don`t even live in their house they are paying off. And the sad thing is they are all between 40 and 45 years old and they don’t realize where they are heading too. I always try to convince them, but they do not do enough but talking. In other words an absolut desaster! I have realized with 38, seven years ago, that getting control over financials is an absolut must. This was just after I took on a mortgage of 500,000 CHF to built a house (the financials troubles after that “stupid move” “forced me” to do that, which I consider as the non quantifyable gross margin of having it done). I live in Europe and the system is a bit different than in US, but the principles MMM’s blog is about of course still apply. I have read this blog since one week (almost non-stop) and it is extremely well written and I learned a lot more. However, even without that guidance and now after 7 years we (my wife and my two kids) have at least 433k Euros net worth and end 2018 we will have 911k Euros net worth (we can already save 130k Euros per year). Than we can do what we really want to do and we might even get some money paid for that. An absolute dream will become reality. I hope you kept on working hard on your goals and you are now, 4 1/2 years later, closer to it. Good luck, von Aufdenboden!
  
  Reply
RPMcL73 September 20, 2011, 10:48 am

CVY: .40%, TIP: .20%

I’m in no rush and am kind of hoping for a good entry point this fall. My guess is that it will come but I want to be prepared when it does. Up until now, I’ve just built savings around CDs and such, but that door is closed now. I think I would sleep well investing in senior citizens…sure are a lot of them around Florida!

Ryan

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- Laura October 5, 2013, 8:38 pm
  
  Ryan, if you don’t mind, can you share how you live on $650 a month? That is inspirational.
  
  Reply
Katie September 22, 2011, 12:33 pm

Nice post. I really think that the majority of Americans could benefit from reading it. In this day and age we are too caught up in having the latest clothes/cars/gadgets/etc. While I do think that the majority of posters have brought up some interesting issues with the math, I think the general concept is sound. Nice job!

Of course, there’s the other frustrated/jealous part of me that realizes it will be years before my 30 year old self can start on this path. My husband and I, with our advanced degrees (and the mortgage-like debt that they required taking on) still don’t make that median salary point and we’re still in training positions not eligible for retirement accounts or matching. There will be no retirement before age 40 in our household! Don’t get me wrong, we’re still living frugally and trying to sock money away, but it’s considerably slower than in your example above.

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Brave New Life September 23, 2011, 4:33 pm

I think the real lesson here is that it’s less about what you make, and more about what you spend. Almost every profession makes far more than we need to save at a 70-80% savings rate – which is a fast path to retirement. People that refute that simply don’t want to believe that they’ve been on the wrong path for years.

Call me crazy, but I’d rather find out late than never at all. I guess it depends on whether you would take the blue pill or the red pill.

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Gregorius September 29, 2011, 5:02 am

IDon’t believe 8% return is common in Europe.
I experience 2 to 3% return – before inflation! – so that boils down to about no real return.

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Laura October 12, 2011, 9:05 pm

I don’t understand how the calculator arrived at it’s take-home amount. My husband and I make $96k gross and our take-home pay is $75k if we have no medical or retirement taken from our checks. We live in TX, which does not have a state income tax. Do I have a bad accountant? We usually get or owe about $100 after filing income taxes so our tax amount each month is okay…or so i thought. Does the article’s take-home pay seem right to you guys? If so, any suggestions for looking into why we are paying double that amount or so?

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- Confused as Well June 1, 2014, 11:05 am
  
  I’m wondering the same thing. I think the eFile calculator only takes Federal Income Tax into account – no SS Tax, Medicare, State Tax, City Tax, etc. This is misleading.
  
  I would like to see the breakdown for how this works out..
  
  Reply
WordPress Developer October 23, 2011, 5:06 am

I think you were/are in a fortunate position in terms of (joint) salary – Im not sure may others could claim to be reaching those heights.

However, I think the biggest (and most embarrassing) thing that this article (and the former Brief History http://bit.ly/pppnME) have shown me, is the way I’ve been thinking about my own retirement pot has been all wrong.

Until now, I’ve seen it as something I’ll dip into and eventually deplete as I reach old age. Bizarrely it’s never occurred to me that should I be able to build up a fund that can deliver dividend/interest payments great than or equal to my current expenditure then effectively I’ve reached that “retirement” goal.

Honestly this has come as something of a revelation and so making my money “work hardest” is now definitely at the top fo my to-do.

Cheers Mustache!

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Mark December 17, 2011, 4:54 pm

MMM

Many thanks for your pragmatic and wonderfully inspiring solution to the retirement ‘problem’.

I’ll be there in 2 years, and having a lot of fun being ‘almost retired’ (and hedonistically & stoicly frugal) while we get there!

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Justin November 28, 2012, 4:06 pm

Question for you on your formula. I am in the process of trying to plan out how this would work for my wife and I. We could easily save $41K a year times the 5%. But in your illustration about the teachers I can’t seem to see where you came up with the numbers for the investment gains from year 3 forward. What numbers were you using? My wife and I are 32 and 31 and want to retire about the time that my daughter graduates in 10 years if not sooner. So we want to get started on this within the next month. If you could tell me the formula or the numbers you used so that I can put them in my spreadsheet for a goal I would appreciate it. I love this idea and wish they would have taught this to me while I was in school. Keep up the great work. Thanks.

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- Mr. Money Mustache November 28, 2012, 4:53 pm
  
  Hey Justin.. I think I just calculated the gains by multiplying the existing savings, plus half a year’s additional savings, by 5% (to average the effect of a linear savings increase throughout the year). But the math is even simpler if you just look at this more recent article: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
  
  Reply
Robert January 6, 2013, 12:38 pm

Given my low spending habits, I am currently stashing away over 50% of my income into traditional retirement accounts (401ks, TSP, and a roth IRA). Given my distaste for trinkets, I could easily retire on a nest-egg of $600,000; living entirely off the passive income it generates.

I am a bit perplexed at what percentage of my savings should be placed into a retirement account (accessible only after I hit 65 or thereabouts) and a general brokerage account (which can be accessed anytime). Now, at age thirty, only 12% of my savings is invested in accounts I can access today without penalty. Given my status in the air national guard, I do anticipate changing civilian employers as my skill-set improves, which will include relocation also. I also can’t wait for my first deployment (the first of many during my career), in which nearly all of my income will be banked into my TSP. Still, regardless of my employment status and location, I am not a spender. My income today is very low as an E3 while living on an army base; I cannot predict what my income will be when I return to my home unit and can work in the civilian secter once again later this year. I just am not sure how much of my hefty savings should be in liquid assets and the rest in retirement-specific accounts – 50/50? Should I direct more of my current income towards my brokerage account until the balance matches that which is already in my 401k, TSP, and roth IRA? Any thoughts would be most appreciated.

Thank you.

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frank July 24, 2013, 9:53 am

Here is the real problem best shared by example.

My niece was over for lunch a while back she was 15 years old at the time.. we we’re sitting on the deck of our two bedroomed house on 5 acres (that we built with our own bare hands.. Having picked her up from her Mom’s place in our 1994 Mazda compact with most of the clearcoat peeled off). Across our field is a 5000sq ft monster house with a great view (across our land..hmm). My niece proclaims… at the house… “WOW THEY MUST BE RICH!”

Wait a minute… do you know what a mortgage is?…. no!.. Ok, now Mom’s living paycheck to paycheck and barely making it.. but of course has a NEW monster Suburban.

So I probed a bit more… “So when your Mom pulls up alongside a nice new car do you think the occupant is wealthy?”… Of course the answer is Yes! Do you know how your Mom pays for her new “car”.. No idea!

It suddenly hit me in the face that is kid assumes that her Aunt and Uncle are POOR because we drive two POS’s and live in a small house. We have no external appearance of wealth (I’m excluding the 200mph cruise airplane I built in this case.. Which is up for sale so I can save the $3500 a year in fixed cost).

Thats really the issue isn’t it? These kids are freaking cluless and assume that its normal to buy all the pretty toys on credit because to do otherwise means your poor.. Why would anyone do that?

A very sad reflection on our society IMHO.

Frank

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- Miniwing May 20, 2016, 7:29 am
  
  A few years late to the game Frank, but that sounds like a perfect teaching opportunity for you. I just attempted to explain to a six year old the idea of money being employees and making them work. She doesn’t get it yet, but she also hasn’t spent the $5 she has. A 15 year old should be capable of comprehending the point you want to make and you could help set her up for huge success. Man if I had MMM advice or mentality when I was 18 I’d be rich already.
  
  Reply
Zalo August 7, 2013, 1:24 am

34k a year on living expenses? Jesus, what the hell are they spending it all on!?

I like the 7k proposed by Jacob, 27k+ is much more cozy in the bank. Well, in investment accounts. :3

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MoStashLessProbsMoHappe January 25, 2014, 11:13 am

Helooooooo,

That was my stash talking (he has a little British accent for some reason) and tends to blurt out words of excitement and glee when read here. I can’t hold him down, he’s just happe.

First, MMM I love your blog and wish I’d only found it sooner. It’s the only blog I’ve ever followed and I really enjoy your writing style and overall badassness. Your teachings are awesome and make me feel like I’m on the right path.

I have a question about the savings that I don’t think has been asked in the comments (and my lack of understanding may just be because I’m such a newbie). In the example above we say the couple has 0 equity in the home (and I’m assuming the annual expenses don’t cover payments on it either). How is it that we’re assuming a 5% compounding interest rate on the entire savings value inclusive of the equity? I thought the only soldiers we’re supposed to count are the ones that are freed up for investing? Otherwise, and please correct me if i’m wrong, the total value of the stash including equity wouldn’t really generate the returns highlighted above as the portions of it coming from equity would only be realized when you sell the home.

Maybe that was a confusing way to put it so here’s another. If I’m looking to plan for early retirement and I want to know how much of a stash I need do I include equity as part of the stash (and therefore not include it in my expense #) and if so how does it actually payout unless I sell it? Or how are equity soldiers working for me the same way my investment soldiers are out in the stock/bond/index market?

Appreciate your response & looking forward to catching up on the rest of the articles (I started from the beginning of time this week).

Best,
-Jorge & Stash

ps. How do I upload a picture on here?

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Fuchsy44 January 31, 2014, 11:38 am

Hey MMM,
I’m a little confused. You categorize mortgage principle payments as savings and mortgage interest as an expense. In your example, $46,000 a year in savings (including principle payments) plus your gains gets you your year 1 ‘Stach. As the years go by, your mortgage gets paid down but you haven’t “physically” saved that money to produce retirement income after year 13. The $839.085 number is more of a net worth statement not savings is it not? Wouldn’t have to look at your invested amount to know how much you need to surpass your expenses? What am I missing?

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- Mr. Money Mustache January 31, 2014, 1:25 pm
  
  I look at net worth and savings as the same thing. In this example, the family’s living expenses are $24k, or $34k with mortgage interest. Once the investment returns exceed $34k, you can live without working even if you never pay off the mortgage. But since in reality it will get paid off, the surplus is even greater. So I don’t think you’re missing anything, as long as you continue to think of principal payoff as savings, and interest as an expense.
  
  Reply
  - May August 26, 2015, 12:50 am
    
    MMM,
    
    Forgive my ignorance, but does this mean that, on your Early Retirment Calculator, even if I don’t have any actual “savings” or “investments”, but do have a large amount of equity in my house, I enter the total equity in my house in the “current portfolio value”? I am a bit confused about this because, although the equity is adding to my net worth, it is not for available for me to spend and is not generating any passive income that I can be used to pay for food, transport, utility bills, etc.
    
    Reply
    - Miniwing May 20, 2016, 7:35 am
      
      Well May, One of the early articles talked about how keeping an emergency fund in Cash is not a good idea since you have employees standing around doing nothing. So MMM proposed using the equity in your home to maintain a line of credit at the bank. Similar to a credit card but not and then when an EMERGENCY happens you can use the equity/line of credit immediately while you recall some cash employees from investments to pay it off. Essentially the equity in your home is an investment because if you sell you should be able to claim it all in cash.
      
      Reply
  - Becky o'Brien June 24, 2016, 10:50 am
    
    Sorry, but I’m still confused. Money spent on paying down the mortgage does not have investment returns. You don’t get the snowballing effect of compounding interest. The saying is “a penny saved is a penny earned.” But a penny saved is just a penny earned, it wasn’t a penny invested somewhere earning interest that could later provide passive income. Sorry for not getting it!
    
    Reply
    - Mr. Money Mustache June 24, 2016, 3:56 pm
      
      Ahh, but you DO get the snowballing effect with mortgage principal payments. $1000 put in right now will save you $40 of interest in the first year, which means your mortgage will be $1040 lower in a year’s time than it would have otherwise been. In two years, the difference will be $1040, plus the interest saved on $1040 (another 41.60 of interest) for a total of $1081.60.
      
      This is the beginning of a compound interest snowball, which starts to look interesting if you make larger, consistent payments over a longer period of time (like an extra $1000 every month for the life of the mortgage).
      
      Reply
Mouse June 19, 2014, 8:18 pm

Hey there, I am a little confused about something. You said that they might live for 24K a year like you guys do – and that with no equity on their home they pay 10K in interest per year… but what about their mortgage payments as well? I am just an undergraduate student, alone in the world! haha, I don’t know much about mortgages but don’t they cost as much as rent? So wouldn’t that be like 12K/year plus interest?

Reply
- Mr. Money Mustache June 19, 2014, 10:14 pm
  
  Hi Mouse,
  
  Early in a mortgage, the interest is the majority of the payment, and the principal is a couple hundred bucks. The principal portion of a mortgage payment is a form of savings, since you are building your equity in the house. So only the $10k in interest shows up as an expense.
  
  Reply
Michael July 4, 2014, 5:25 am

I love reading your articles, and I find them pretty inspiring. I’m curious though, have you ever worked these numbers for someone who is single with no kids? I make 43k and average a 2.5 raise a year… so I would fall slightly on the low end of your scenario… but there is no second income! That seems to throw off my calculations both in terms of how much I should be saving by your model, and what I should be aiming for with expenses too.

I imagine some things that just make sense when you are married with two incomes and kids (say home ownership?) might not make as much sense with one income by myself. Maybe i’m off base here, but I tend to feel that even a relatively affordable home (you can get a nice house for 120k by me) might be wasteful considering the fact that with only one salary that means twice as long to pay it off?

Anyway im rambling a bit. But I guess my point would be that, if you ever had the time/inclination, I would personally find a ‘low/median’ income version of this for a *single* person highly useful! Both because the total income is different, and the expenses probably look pretty different (expenses would be lower for a single guy, but I bet not proportionately lower since there are some static expenses that stay the same regardless of how many people in the family)

Do you feel your plan is still feasible/realistic for someone in my situation?

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- Kira August 1, 2014, 2:13 pm
  
  Michael, home ownership doesn’t necessarily translate to single family home (3+ bedroom, 2+ baths). You could just as easily pursue home ownership with roommates or a smaller “home” — townhome. condo, trailer, etc. Some of the older posts mention this, but what you lack for in second income you can easily make up by being more extreme in the areas you are comfortable sacrificing (home thermostat temperature, food, entertainment, etc.). MMM is simply providing everyone with the details of how he made the plan work for him; it’s up to you to creatively figure out a similar (albeit different) plan with the same end-goal — financial independence (FI).
  
  Reply
Patrick Bergkamp July 7, 2014, 2:40 pm

Are you not including the portion of your mortgage payment that goes to principal because that is part of investing?

Do you recommend paying off a mortgage as quickly as possible as part of your plan. For example, we have about 8 percent of our income going to 401k, and are using the rest of savings to aggressively pay off our 30 year mortgage in about 7 years.

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Mike Reiche entry MMM August 9, 2014, 4:08 pm

So, just curious because I am looking through Vangaurd website and trying to figure this all out myself. You previously touched on your non 401k savings… what spread did you have when you retired? How much in 401k vs IRA? I want to try to maximize my ability to draw early, but also have a ‘stash for when I am over 60… (my income reflects the example in this post almost exactly, once I get rid of my *gulp* 2013 honda cr-v I will be in the 35k yearly spending) Did you put in 20k to 401k each year and the rest in IRA?

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Tim September 15, 2014, 8:23 am

This article is completely unrealistic for the current y generation. Let me explain…

The economic world is so incredibly different now than it was when my father started his career 40 years ago. Many of the entry-level jobs that would have been available to a 20-something back then have now been outsourced to other countries or replaced with robotics. I have a college degree, my father doesn’t — but so does almost every other 20-something looking for jobs right now, which puts me (and them) in a position of having thousands of dollars of debt right out of the gate, but faced with tons of similarly-credentialed competitors for a limited pool of jobs. At the same time, those jobs are slowly dismantling the benefits packages that my parents are accustomed to — fewer of my potential employers offer retirement plans or health benefits.

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- Mr. Money Mustache September 15, 2014, 8:19 pm
  
  Welcome, Tim – new reader I presume?
  
  I think things are better than ever for the current generation (many of whom are sitting right beside you reading this blog). I sure wouldn’t want to trade places with my own Dad 40 years ago, and my own son (8.5 right now) has one of the brightest futures I can imagine. I think it’s all about perspective, though: there ARE plenty of great jobs out there right now, going unfilled (see the tech industries, for example). And non-college jobs (permanent shortage of carpenters, plumbers, general contractors and electricians).
  
  There is just a surplus of people worrying about the lack of jobs.
  
  I think you need to read every article on this blog. But for one fun place to start: http://www.mrmoneymustache.com/2013/07/25/50-jobs-over-50000-without-a-degree-part-1/
  
  Reply
- Kira September 18, 2014, 7:33 am
  
  I’m a fellow member of Generation Y, and I have to disagree with you, Tim. As a college graduate I don’t think you’d have a hard time getting an entry-level position of a large company. Find a recruiter who works with companies in your area of expertise (or even outside your area of expertise if that’s what it takes to get benefits); even if you take a job that pays lower than what you’d prefer, it can still work if you plan everything else effectively (short commute, get roommates, meal plan, etc.). Even internships designed for recent college graduates may be an option — in my experience, paid internships have led to many great opportunities for me (and others I know).
  
  Reply
  - Joleran December 10, 2014, 6:27 pm
    
    I have to agree with both of you. If you’re the sort of generally smart, talented, go-getter that wants to embrace MMM’s ideology, you can probably open the doors you need to be making plenty of money in a job you like before you’re 30. If you’re just average or worse, things can be pretty tough still. As a technical interviewer for software engineers, I can tell you that I barely glance at resumes; I want to know if you can solve problems when put to the test.
    
    Reply
Joe Foster March 16, 2015, 12:01 pm

This is very do-able for an engineer or compsci degree in today’s market. Our new hires are making (with a masters) close to 100K depending on school and grades. This is not in CA. As MMM preaches, it’s about your life style and willingness to not be part of keep up with the Jones.

One cannot underestimate the how much real estate investment (REI) has done for MMM and me. I am a strong advocate in REI. The benefits are huge, it can be more work that plop’in $$$ in to a mutual fund, IMHO the returns are so much better not even considering the tax benefit. For example, my ROIs for my 6 properties average 24% before tax benefits and mortgage paydown.

Not in my 30’s but been able to retire for “years” and don’t, they keep paying me at the JOB and for me (engineering) it’s fun. Getting to the point where your management knows that you do not need to be at work, and you still show up, have a good work ethic get the work done they tend to keep ya happy. Amazingly, my bonus, stock and raises have never been higher since management realized that I don’t need them.

For a paradox, since my retirement is fully funded, kids education funded and we generally spend very little, multiple properties paid off, no CC debt, etc. We have found that our spending is considerably lower than what the nest egg and investments can support. Without mortgage and car payments ya can live pretty cheap. Our expenses are about $35K a year, so we can spend a little more if we need to and when the grand kids come, help them out too.

For me, it will be hard to give up the salary, benefits, bonus, stock knowing it is there, but someday I will.

Money is freedom.

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Joe Average April 21, 2015, 10:00 am

5Acres Frank: I totally get what you are saying. I think alot of us are like your niece at one point. Seeing the “wealth” and not the potential debt. School provided VERY little education on this topic – grade school or college. Family did not provide as much education as they could have I think. Wasn’t a priority when I was growing up anyhow. Should have been.

Meanwhile children enter adulthood with very little understanding of possibly the most important topic of their adult lives – finances and career management. Kids are told debt is okay as long as you can afford the payments. Well, not really. See MMM for articles. ;)

Questions dogged the pre-internet 20-something me like: “What is a person worth in the work place? How does a person find a GOOD job if one doesn’t find you first? How do you advance within your career?” I get not telling your neighbor or coworker how you got ahead in a career. He or she might be the competition. I don’t understand not teaching your children every little nuance of financial and career management you can. Study it together if necessary.

I also don’t understand a parent trying to make their kids feel guilty or stupid for asking questions about the topic as a friend once complained. In my mind that is something close to not wanting your children to be as successful (or more) than you are. Thank goodness for blogs like this and the internet where people with questions can seek solid, objective answers if they search hard enough (to find MMM, and to get past the typical website marketing BS).

We started from nearly zero in every category. Zero knowledge, zero money. We made a few mistakes that delayed savings. Could be worth more today but we didn’t always take the most lucrative choices in life. Could have attended a better school, could have made different choices in our careers, could have been more career aggressive, could have networked more, been more mainstream charismatic. We’re doing fine now but our choices then delayed our successes now.

I think this is why poor kids tend to stay poor. They don’t have elders teaching them how to be successful and how not to fall into the trap of “trophy consumerism”. They aren’t taught about long term goals, just satisfy that short term consumer itch when you have enough money in your pocket. I did a fair amount of that too when I was a teenager and 20-something.

If you can, educate that niece. I know your original post was a while back. I want our kids to enter adulthood with their eyes wide open and make even better choices than we have. I’m confident that each of our children could make what my wife and I make together (low $100K+)

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RL August 24, 2015, 11:50 am

I find your blog about financial independence inspiring, but I worry that your advice doesn’t apply to me. My wife and I live in an expensive city where my payments on a 1 BR apartment are about $3000/month. We live near work and don’t spend lavishly on clothing or lifestyle. We take public transit almost everywhere and bicycles almost everywhere else. All seems well, but I’m looking to have a kid in the next year. Childcare costs each month cost as much as my apartment. If my wife works, we can pay these exorbitant childcare costs and continue to live here (barely saving) but if she doesn’t i will barely be able to cover our expenses.

What do you and the missus recommend for childcare?

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- Lynne January 8, 2016, 6:21 pm
  
  If your salary in Expensive City isn’t high enough to make up for the higher costs of housing + childcare there…you probably need to move somewhere else. Not every profession pays enough of a premium in areas like that to make living there sensible from a financial perspective. It may not be the choice you want to make, but really, your options boil down to: reduce your expenses, make more money, or relocate. If you have to spend $6K/month on rent and childcare alone, and you’re not making ridiculous money where you are, I bet the third option is the best. There are lots of nice places to live that don’t cost an arm and a leg. Or even a finger from your off hand. :)
  
  Reply
Hannah November 11, 2015, 3:39 pm

So how would we factor in this couple buying a $250k house? Would it mean they’d retire later?

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Zinc March 16, 2016, 9:14 am

Hello. Brought here by your vox article. In fact, I fully sport the idea about early retirement etc. But I have some questions.
1. What about the lower class?
2. I think take into account the interest from investment is wrong. I would suggest 0 interest per year since the market wont be increasing forever. And also positive interest from the market cannot be achieved by the majority of the middle class. The interest from bank savings is a better choice although also there could be also doubts about that
3. Many jobs will be lost because of their replacement by robots and automatic machines in general. However of course the wealth will probably be increased, but there is a strong need for a better distribution of it otherwise it will still concetrate at the hands of few people.

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- Josh L. May 7, 2016, 1:12 pm
  
  1. In regards to the lower class (assuming you mean anyone under a 50k annual income), they will still have a benefit from reducing their expenses to the necessities and saving for life’s emergencies. Additionally if they are making below that figure then they should seek a job or skills that pays them what their time is worth. This solution isn’t for everyone as it requires work, hard choices, dedication, and general badassity. I have friends who make higher salaries than me with a lower net worth, as they choose not to make hard choices or put in the extra work to plan and save, but rather spend while the paychecks are coming in.
  
  2. In regards to investment income the stock market reflects our national businesses in conglomerate, if values stop increasing then dividends are a viable option, and if the stock market crashes completely and becomes insolvent, banks would not be safer (in a total stock collapse) and you have bigger issues on your hands with the accompanying inflation and de-valuation of the dollar. If you are highly risk adverse then banks are a perfectly good option for you and you should seek out the highest return you can get. The idea that it cannot be done “and no-one beats the market” are the exact kind of negative thinking that keeps people circling the drain with a 0$ net worth. Historically the stock market over the last 100 + years has grown as our population, accumulated infrastructure, and knowledge have grown. Looking at the long picture is how someone survives a stock recession and if your in the investment stage is a great time to buy devalued stocks. This is the basis behind the 4% withdrawal rate to try and mitigate recession damage to one’s portfolio and retirement. And the stock market is the easiest but not simplest way to invest. Other ideal forms if it’s not one’s cup of tea are real estate, art, personal abilities and skills, business, or any other good or field that you are knowledgeable about, and are competent will make a good return on the investment of your time and money. Warren Buffet started with chewing gum and co-cola reselling it at a young age, he saw a market “his peers” that he could provide a service and profit himself as well and starting his journey to wealth. His first stock purchase and sale, he even admits he made a mistake on patience with. He could just have easily spent his profits on the same consumer goods he sold to others but instead kept and reinvested those funds.
  
  3. Someone will still have to repair those robots when they break down and someone will still need to program those robots to make pretty new things for people to buy that they don’t need. Additionally the service industries such as medical, carpentry, plumbing, electrical, construction, legal, finance, general repair, marketing will always need some form of human labor and input as robotics are most useful in repetitive production roles.
  In regards to income inequality that is certainly a concern and I would not be adverse to raising the higher brackets of income tax as one of the few progressive taxes we have. As a persons salary increases they hypothetically benefit more from the society that creates the situation to pay them such. I’d be okay with being taxed at I believe the 40% for my first million of salary (wouldn’t that be nice) and then 50% for 2nd and so on as I’d still be beating the “jones’s” next door if I cared. Someone will always be wealthier, stronger, “smarter”, and better connected. The choice is whether you complain about it while not advancing your own situation, or complain about it while being financially independent and disappointed in their ethics.
  
  Reply
Alejandro May 12, 2016, 10:52 am

Hi. This reply comes about 5 years later, proving the sustained relevance of the blog content. In general, I believe in the MMM view, which is consistent with one of my favorite books (“The Millionaire Next Door”). A frugal lifestyle, saving and investing can take you to financial independence. However, my wife and I were considering moving to the US as elementary teachers and we found it impossible. We both have Masters degrees, so our salaries would start over $40K in Illinois. Still, the types of rent that you need to pay, the tax and health deductions, the lunch away from home and the transportation costs (I don’t see myself biking in Chicago’s winter) make it very hard to save anything, or even survive. For those of you considering a career switch to teaching, I would add that in order to be hired you need to start a formal program in Education. That means you need to pay anywhere from $15K to $35K in studies to qualify for a $40K salary. Teaching is very tough profession, with decreasing stability and profitability. My calculations may be a little exaggerated, but if a family of four earns less than $80K (brute income) in the US in 2016, I would bet they struggle to make ends meet. That would be a family that doesn’t save more than $1K or $2K per year, despite having a very frugal lifestyle, with little presents for birthdays and christmas, no vacation trips, and no restaurants visited. If anything unexpected happens to them, their budget plans sink.

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- B November 22, 2021, 4:06 am
  
  Happy middle school teacher here, Alejandro. Until two years ago I never made more than 60k gross. This year it’s 73k. After taxes, mandatory pension, health insurance, I bring home 66% of my gross pay. Of that net pay we are able to live comfortably in Massachusetts and save 45-50% of my take home pay. It’s all about delayed gratification and the fact you can afford anything, just not everything.
  
  Reply
Kevin May 15, 2016, 1:46 am

Hi MMM, you say “whether from paying off the mortgage or saving in index funds” but if they are paying off the mortgage, how will they get investment returns that they can live on in retirement? The home you live in obviously doesn’t earn rent…

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- Mr. Money Mustache May 16, 2016, 10:53 am
  
  Hi Kevin, the two options are really the same thing.
  
  If you pay off a mortgage, you save yourself from monthly interest costs. If you don’t pay it off and invest the money instead, that investment will generate monthly payments which you can use to make your mortgage payments.
  
  With a paid-off house, you require a smaller pool of investments to keep your life afloat.
  
  Reply
Ryan September 30, 2016, 12:57 pm

Seems almost impossible for those of us with a checkered past. Due to a pre-recession home purchase and a 70% reduction in income shortly afterwards, I am not anywhere near those numbers. I have changed jobs, gotten, married and had kids since. Combined income of 60K and no hope for money in the future. I put what I can into retirement but law enforcement and child care are not money making ventures. Suggestions? Already late 30s and need to make moves. Already working 4 additional part time jobs.

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Kristin January 17, 2017, 5:11 am

First of all, I have recently become obsessed with this blog and love the concept that by being more mindful of our actual needs vs. wants, we can free ourselves to do whatever we want much sooner than we think. Such a liberating idea!

I realize this is super old, and I confess that I skimmed through many comments so maybe this has been addressed already…but I am very confused with the take- home pay part of this equation. Full disclosure, my husband and I are both high school teachers in NYC. We make way more than teachers in most of the country. However, with all the various things that are taken out of our paychecks, we are lucky to see 60% of what we technically earn. I make $60,000 per year but I take home about $36,000. Some of what they take out is UFT dues and Medicare and retirement and of course NYC has their own tax for residents, but taking home $80,000 from a gross income of $91,000 seems really high. Are there places in the country where you get to take home almost 90% of what you earn?

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David January 24, 2017, 10:08 pm

Minor point, but their expenses should have increased with inflation too, maybe not the full amount, given they have a mortgage – but that would have put them out an extra year or two.
Great blog by the way. Doing our best to constrain spending and improve savings.

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neeraj nangia February 27, 2017, 12:02 pm

Dear MMM,

I am from India and a regular reader of your posts. I have a question regarding real rate of returns. You have assumed 5 % as Real Return and inflation as 3 %. In India, inflation currently ( and historically) has been around 6-7 %, which drastically reduces the real rate of returns. So to make 5 % real returns, one needs to have 12-13 % returns. What is your take on how does this affect the retirement calculations.

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Dan February 28, 2017, 7:42 am

Not sure I trust the tax calculation… Where I live for example I have federal, social security, medicare, state and county tax. This comes to well over $25K of taxes throughout the year. this is with a ~$78K salary

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- Steph August 3, 2018, 8:21 am
  
  I agree strongly with this. I’m totally in love with this blog overall, but it’s hard for me to work with some of the numbers when the tax assumptions are so dramatically different from my own reality. I’m in Toronto and earn a high gross income (about $95k), but my net post-tax, post-deduction take home is about $53k. Some of what’s deducted is mandatory pension plan contributions, but in the Canadian tax context to take home anything close to what he’s suggesting a high income earner would take home would require an ultra high pre-tax income.
  
  Reply
Mike March 22, 2017, 4:38 am

Hey mate,
Thanks for this article, it is quite good to read a success story however let me give you some insight as to why this won’t work in a city such as Sydney, Australia.
The median house price has just hit over $1mil (AUD) whilst the median salary is just over $80k (package: salary+super). So when house prices are about 12 times the average income, there’s no way in hell people can retire in 10 or even 20 bloody years.. If I could buy a house for about 4x my salary like you propose in the example above, then I’ll sign up for it in a heartbeat!
Sydney’s property market is ridiculous and the rest of Australia isn’t too far off. Perhaps I should come live in the US??

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- Mr. Money Mustache April 3, 2017, 4:50 pm
  
  You got it, Mike! I always suggest that you choose a city that works well with your salary. Sydney is great for people making $500k and up, but if you want a better ratio, there are 200+ countries on Earth to choose from.
  
  If more people fought back against overpriced housing by moving themselves and their businesses, we wouldn’t have this problem in the first place.
  
  http://www.mrmoneymustache.com/2011/09/28/get-rich-with-moving-to-a-better-place/
  
  Reply
Austin August 4, 2017, 6:50 am

Hello!

I’m running my own numbers and I just can’t get anywhere near this example. My wife and I make (together) about 127K. But our real world pay stubs only put us at 82K take home after all mandatory deductions.

Can you clarify what is considered take home? Where do you capture state, SSI, Medicare, Benefits, and other assorted stuff that practically every professional worker has to pay?

I just can’t make this example work. Unless I’m not understanding correctly it seems like you omitted a lot of things that need to be included.

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- Flow focused November 18, 2017, 3:21 pm
  
  I’m sort of in the same boat.
  I make 69,500, but my take home is $51,720. $7,700 in mortgage Interest plus all other expenses leaves my family with about 8,000 to 10,000 a year in savings. I think that’s about $73,278 over 7 years. And that’s at 5% returns which the equity in my house probably won’t grow that much…I could cut another $6,000 and be extra bad-ass frugal, but That would still have me probably 20+ years from early retirement. This is better than retiring at 67 like most people, but I want it faster somehow.
  
  Reply
Troy April 23, 2018, 8:53 pm

It really is funny reading all these comments. You either have people that BELIEVE it is possible, and start doing what he says, with likely great success. Or you have the nay sayers, who start negative and most likely won’t succeed (due entirely almost to their attitude).
If you spend less than you earn, your life will be better off. This basic, basic wisdom enables so much. I’m lucky to have a frugal wife and earn a high income, and am planning on “retiring” by 35. How? Not only have high income and invest well, but MOST important, live efficiently and don’t waste money being a stupid consumer. I struggled with buying a Porsche (which I could easily “afford”), but ultimately I decided I would not purchase that until AFTER I have enough passive income to cover monthly costs and I can pay cash. Funny enough, by the time that happens I probably won’t even want it anymore…

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- Frank April 28, 2018, 1:12 am
  
  Someone who can afford a Porsche telling others that it’s their own negative attitude? Listen dude, I’m a teacher and my wife works in a school. While we live in CA we have very low rent (to the point of buying a house is of questionable benefit at these prices), drive old cars, grow some of our own food, try to do side work, don’t buy too much new stuff,etc.,etc. and I don’t know how on earth this works unless you want to eat Ramen noodles for 20 years and let our daughter run around naked with little life experience or seeing her family that lives out of state. As others note too inflation,etc. are going to hit it all, yet Mr. Money thinks this will be made up by all these other things that a lot of people strapped for time and cash do not have. Seriously, after all deductions are taken into account you are talking about $3,000 take home as a teacher here ( where teachers are paid far better than other places where it is “cheaper” to live). In CA at least, we are also forced into a retirement account that takes out a huge chunk of money we can’t touch until we are older, so it’s pretty much not going to happen. A more realistic figure, as someone posted, about is saving about $20,000/year for a couple which puts you at a realistic retirement age in line with anyone who lives in reality. To tell someone to just go move to a cheaper location is kind of ignorant on many levels, particularly if you have children. So here’s a little secret to “retiring” early. Just be happy where you are at now and with whatever you have. Enjoy your work and time together. No math or money required.
  
  Reply
Ray September 7, 2018, 12:48 pm

Hi, there is a mistake on the third year of your calculations:

Year 3: $99,657 + 46,000 + $6132 investment gains = $151,790

It is $96657 instead of $99657. This $3000 boost brought out inaccurate results.

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J January 27, 2019, 6:52 pm

Hi everyone!

I am new to this site and so appreciate the vast amount of knowledge, as well as etiquette, that exists here.

So sorry to ask such a simplistic question. Everything I am reading sounds so simple that I feel like I am missing something here.

Does the Savings Rate Formula suggest that if one makes $100K, that if they save 100K that year then they can retire after that year? Likewise, if one saves 75% per year of that 100K, then they can retire in 7 years?

Am I reading this right?

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- Mr. Money Mustache January 29, 2019, 7:09 am
  
  Hi J, The quick answer is it’s simple, but not THAT simple :-)
  
  The formula is really powered by your level of ongoing spending: How much can do you need each year, to continue to live a happy life?
  
  So, if you can save 100%, that must mean you can somehow live for free. If this is the case, then yes, you can retire right now :-)
  
  If you save $75k/year and can live on $25k, then after 7 years you’ll have well over $600,000. Then the investment income from that $600k is enough to keep pumping out $25k/year forever.
  
  Happy saving and keep reading!
  
  Reply
jasper January 28, 2019, 2:40 pm

I’m not too sure if I read this because this is an old post.

I feel like an idiot asking this question because the savings rate chart looks so simple, but I just wanna know if I am missing something.

Does this chart suggest that if I invest 85% of my income then I would be able to retire in 4 years?

Reply

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