It’s Not As Risky As You Might Think

Slicing Through Money

Like you, I’ve been inspired by the teachings of the ONIG Financial Blog for some time now. I enjoy his constantly bullish take on life, his flame-breathing enthusiasm for hard work, and his interesting tales involving of money and rental properties.

But there’s one place we seem to disagree, and that is in the area of Early Retirement (I actually agree, just not by 30). For those that don’t know me, I’m a big proponent of that lifestyle, and I write about it frequently on my own blog. Mrs Money Mustache and I quit our own cushy corporate jobs over six years ago in order to raise our little kid, and we haven’t looked back since then.

Sam, on the other hand, occasionally likes to poke fun at the idea of early retirement. I’ve collected a few quotes from him on the matter.

Let’s be honest, writing about retiring in your 20’s and 30’s is a gimmick.

Apparently, there are people in this world who actually work 40 hours a week or less and complain why they can’t get ahead!

I love to work and the ideal amount is 2 to 4 hours a day. I think if everybody were able to work less hours a day, they’d probably love their jobs that much more and last that much longer too. 


On top of that, I’ve seen Sam speculate that several million dollars in net worth would be required to retire, and I’ve read case studies on this site suggesting that people might not want to walk away from their $250k jobs, even after they’ve been working them for 16 years.

That’s cool“, I always say, “To each his own“. The MMM family is still happy with our own early retirement and the party goes on.

But recently there have been some challenges thrown down between our two camps. ONIG Financial Blog has been popping up around the web, saying things like ,”Mr. Money Mustache should be a hedge fund manager for being able to show investment gains during the 2008 downturn!”  (My main area of curiosity.  Making money during the downturn would be an incredible feat.)

I know a friendly ribbing when I see it, and I think the Samurai is really challenging me to answer this question: “How can you retire at age 30, with a family, on less than a million bucks, and still live a good life and even survive gigantic financial turmoil like we’ve seen?“.

Here’s The Answer: Very easily! Let me tell you a little story.

I didn’t know much about retirement when I set out to become financially independent. I was only 21 years old when I got started, and I hadn’t yet learned about retirement planning, savings rates, or even the basics of stock investing. The only things I understood were how to earn more money (working hard at my job), and how to spend less than I earned (buying less stuff than my friends did).

As time went on, I learned more things. I read about a hundred books on economics, finance, and investing over the years. I learned how to renovate my own house and take care of my own cars. I even read about health and fitness, nutrition and cooking. I got married and my wife learned a bunch of skills too. In addition to her main job in software project management, she got her real estate license and became a badass web developer. We moved to the US together and learned about the new culture in this great and business-friendly country. Most importantly, we had plenty of fun and met lots of people in our new hometown – people with many additional skills that were happy to share them.

As the years passed, the habit of stashing away cash and the new skills started to mix in interesting ways. I was able to move from my first house, which I had renovated from a 1978 junkpile into something trendy and modern, and rent it out at a profit. This paid our mortgage on a second house, which I also renovated. The hobbies of fitness and biking paid off in the form of being able to share one older car instead of two newer ones, saving thousands per year. These savings could then be profitably invested in stocks due to the better investment knowledge. Weird synergies like these continued.

Eventually, we realized we had built up enough passive income from stock dividends and rental houses to sustain our low-cost lifestyle, so we quit our office jobs and had a baby.

But just like Sam, we both still love to get things done occasionally. We took up part-time jobs doing things we enjoyed, from home. She would occasionally help a friend buy a house and earn a real estate commission, and I would occasionally do some carpentry in my garage or around the neighborhood. At other times, when family duties or long vacations called, we would not work.

Things didn’t always go smoothly.  The Great Financial crisis hit in 2008, and caused the worst recession since the Great Depression. The value of my retirement savings in stocks was sliced in half. I was also stuck with an extra house I couldn’t sell. We had been blindsided by something we never could have predicted a few years earlier.

Were Our Early Retirement Dreams Shattered?

Amazingly enough, they barely took a hit! Most US companies continued to make their dividend payments at a barely-reduced level throughout 2008 and 2009 (many US companies cut their dividend payments to preserve cash eg financials, consumers, tech which made up 60%+ of the S&P500). The rental market remained strong enough to keep properties from sitting vacant. Sure, the stock prices were down, but who cares about stock prices when you’re not selling them?

We dialed back our spending for a year or two, continued to rent out the un-sellable house, and I even made a point of doing some extra work so I could afford to buy some of the stocks that had been beaten down to bargain levels.

Eventually, the economy recovered. Stocks rebounded, my rental income went up and I started working less again. Meanwhile, my little boy has made it to six years old now, and hanging out and learning with him continues to be my biggest job by far, just as it has been since he was born.

What does all this look like on a graph? I put my best estimate of the numbers into the chart below for your review:

This chart is based on the numbers from an old article on my own blog called “A Brief History Of The ‘Stash” (an excellent chronology). The key thing to note is that while stock prices and real estate values fluctuate wildly, dividend and rental income barely changes with a recession.

Addendum from MMM: Their after tax monthly expenses for a family of three is ~$2,000 and monthly after tax income from dividends, rental income, and part-time income ranges from $2,500-$3,000.   “Dividend X 10″ means the real annual figure is the amount divided by 10 eg $90,000 div income in chart = $9000 a year in real dividend income.

That’s a long story, but it’s supposed to be a lesson too. I am trying to show my more fearful friends that Early Retirement is not a risky or scary proposition. It’s pretty much just the same as a regular working life, except you have much more flexibility. This flexibility lets you adapt to any changes that might happen – financial, health, or otherwise, and continue to lead a good and happy life. The more flexible you are, the greater your chance of being happy, wherever your life takes you.

Overconsumption Habits Are Risky

A big part of this flexibility comes from having a bunch of complimentary skills. Imagine a workaholic double-career family who are so busy earning (and spending) $300k per year that they don’t even have time to clean their own house or cook their own dinner. These people feel “security” from their high-income jobs, but they are also locked into two expensive cars that they depend on even to get to the grocery store 2 miles away, a gigantic mortgage, $900 per month in extracurricular activities for their kids on top of the $3,000 in childcare or private school tuition expenses, and the list goes on…

This family is secure only as long as they both maintain their high-income jobs. Even a few months of job loss would leave them deep underwater with no hope of rescue. If an industry evolves and their skills become obsolete, they could be stuck forever, with bills they can never pay. If their roof leaks or the car breaks or the lawn needs mowing, these people don’t have the skills to solve their own problems without spending a ton of money. So they will always be dependent on earning ton after ton of money.

Let’s contrast that to the early retirees. With the mortgage paid off and no debt of any sort, these people have very minimal monthly bills (mine are only about $2,000 per month, and that includes raising a young child and living in a rather large house). They have savings equal to at  least 25 years of living expenses, which are invested to provide enough cashflow for the expenses, with plenty held back to keep up with inflation. They have the ability to cut their spending much further if hard times ever hit. Plus they have skills and personal connections that would allow them to earn income if it were ever needed. On top of that, they actually do earn occasional income, and save 100% of it, further growing the nest egg.

Where’s The Risk?

When you really think about the two lifestyles, does it really seem that early retirement is risky at all? I feel safer now than I ever have in my life. And the freedom is useful in motivating me to try things that I wouldn’t otherwise have time to do – like starting some low-key businesses in areas that interest me, and of course, a blog about early retirement!

So for those pondering early retirement, I’d like to offer some advice: if you do the hard work required to save for it, chances are you’ll automatically develop the skills to thrive once you are there. You don’t have to worry about what it will be like – just start the journey and let your life skills grow even as your cash does.


Mr. Money Mustache

Sam’s Notes:  Thanks MMM for sharing your story and congratulations to you both for retiring early!  I’m glad you helped clarify what happened in 2008-2009.  I think one of the key points about early retirement is that it’s different for everybody. One can work on their own things while retired, and consider themselves retired, for example.

America, Australia, Europe, and Canada are such easy countries to live in that it doesn’t take much to retire or survive. We’ve got a social safety net, decent unemployment benefits, good public infrastructure, freedom, and many ways to make money other than through a traditional 9-to-5 job.

Check out: The Fear Of Running Out Of Money In Retirement Is Overblown

Start An Online Business Like MMM

MMM has millions of readers a month and makes hundreds of thousands a year if not millions teaching his followers how to be frugal and retire early. It’s been 10 years since I started ONIG Financial Blog in 2009 and I cannot feel more blessed.

I never thought I’d be able to quit my job in 2012 just three years after starting ONIG Financial Blog. If you enjoy writing, creating, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog like MMM in under 30 minutes. Starting a website is the best lifestyle move I’ve ever made, and it could be for you too!

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