Mr. Money Mustache answers early-retirement doubters


Yes, Mr. Money Mustache has health insurance. No, he doesn’t deprive himself. And yes, he says, you can retire early too. (istockphoto)
May 24, 2013

You might remember Mr. Money Mustache, the man who retired at 30. No, he hadn’t won Powerball or lucked into a big inheritance. He and his wife simply socked away more than half the money they made from middle-income jobs until they had an ample nest egg. Then they retired and had a son. Today they live a good and happy life on about $25,000 a year. We had a chat a few weeks back, and hoo-boy, did the Internet ever light up. Many, many people were eager to know more. Some balked. Not possible! they said. Or, quit judging us! The most common response: What about health insurance? So I circled back with Pete (just Pete, for the sake of his family’s privacy) to get a few more answers. They’ve been edited for length and clarity.

What about health insurance?

We’ve got it. At $237 a month for the family for a standard high-deductible United plan, it’s not as expensive as most people assume. I also got quotes for higher ages (we’re 38 at the moment) and found that the premiums did not increase drastically for older people.

While the situation is still not ideal because we overpay for health care in general, I like to promote the idea that it is not scary to purchase your own insurance these days. Many of my entrepreneur friends are in the same boat. In fact, I have heard from many readers who were able to opt out of a small employer-sponsored program and find a better one on the open market, pocketing the difference.

But your insurance plan has a $10,000 deductible! What do you do if someone gets really sick?

When you have early-retirement-level savings (say, $1 million), taking a $10,000 hit is only 1 percent of your wealth. You could do it year after year, for over 30 years, and you’d still have $700,000 sitting around. In my mind, that is still more secure than the typical situation of having a job, spending most of what you earn and having lower-deductible health insurance. Meanwhile, as a saver hit with unexpected bills, you could decide to go out and earn more money, or scale down your lifestyle by moving to a less expensive house or even move to another country where health care is much cheaper.

What about a college education for your kid(s)? You could never pay for that on $25,000 a year!

This comes down to the savings issue again. People often read these interviews and fixate on the fact that we only spend $25,000 per year. But we actually earn more than that in retirement income. Even if we didn’t, as an early retiree you have a heap of invested money that you can cash out and use for anything you like.

Teaching your kids how to live efficiently, choose the right university and earn money on their own will really help, too, since the same education can vary in cost by a factor of 10, depending on how you go about getting it.

I also hope to teach my son how to start a small business in high school so he feels in control of his own earnings from early in life. Thanks to the Internet, it is drastically easier for a young person to do something like software development or selling things online. As a side benefit, being an entrepreneur ends up being more educational than the formal education itself.

You’re a prosperity anomaly: You made money in the stock market and the housing market. That’s all luck.

Unfortunately, we have no unusual luck or investing prowess. By owning mostly index funds, we’ve matched the market’s appreciation and dividend yield for those stock holdings, which were built up mostly since 2000. Measured from peak to peak, this hasn’t been a great time for stock appreciation. But stocks are still reliable wealth generators over the longer term, and they provide annual dividends that are not counted in that headline index price.

I did make some money on my first house, but that was mostly due to renovating it using my own weekends. To balance this out, shortly after retiring I lost a bunch by starting a small house-building company one year before the housing crash.

The real “secret” of how my wife and I saved our first $800,000 over nine years of work was simply living on about 35 percent of our take-home pay. Saving at that rate added up to financial independence in nine years. The bottom line is if you can live on 50 percent of your income and invest the difference, you will be wealthy enough to retire in 17 years. Saving more gets you there even faster. No magic or unusual luck required.

But I don’t want to be frugal — I want to live and travel and . . . !!

First of all, this family is not all that frugal. We lead a pretty spendy life these days, live in a luxury house in a good neighborhood and travel at least three months of the year. I’m ashamed to admit that I probably own almost as much fancy stuff as you do. And if we wanted to spend even more, we would. But by focusing on happiness instead of shopping, and working to make the spending we do more efficient, the annual total just ends up being lower.

I’m way too late for early retirement. What approach can a late starter like me take?

Exactly the same approach as an early starter! Spend less than you earn. The math here is equal opportunity: It does not care how old you are. Older people often have the advantage of higher salaries or things they can sell to get a head start. But even if you don’t have any of that, you still have your wisdom. And there is nothing to lose and everything to gain from starting now to improve your financial situation.

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