Cashing in on the American Dream: How to Retire at 35 by Paul Terhorst is one of the most well-known books on early retirement. I have heard about this book many times, especially on the wonderful Early Retirement forums, but never had chance to read the book until now.
This book was written in 1988 and is out-of-print, so the best way to get a copy is at the library.
Terhorst is a former accountant who retired at 35 in 1985 with a modest amount in savings and still continues to stay retired. He and wife Vicki are probably the best-known early retirees, and maintain a website that they still keep up-to-date with their latest adventures.
Terhorst's book is in many ways reminiscent of the book Your Money or Your Life, published later in 1992, which I have mentioned before. Both books emphasize frugal living, and have a healthy disregard for the traditional corporate work ethic.
Of the two books, Cashing in on the American Dream is more readable and less preachy, and contains more practical advice. Keep in mind, however, that much of the financial advice in this book is quite unconventional, such as not owning a home or cars during retirement. Like Your Money of Your Life, which recommended treasury bonds, this book also advocates risk-free investments for retirement savings. The book recommends building a ladder of 1-year CDs. Terhorst's website says that they have now switched partly to low-cost index funds after CD yields dropped.
This book was especially interesting to me because of its emphasis on retiring abroad. Terhorst and wife initially retired to Argentina and later lived in many low-cost countries during their retirement, including Mexico, Brazil, Spain, Yugoslavia and Thailand.
A nice feature of this book is a summary given at the end of the book, which lists a series of short, memorable "rules" described in more detail in earlier chapters. I have listed some that appealed to me below, with some added commentary.
- Look for meaning in yourself, not in your job. This is probably the most important advice in this book.
- Take the two-year test ("If you had only two more years to live, would you continue to work where you work?")
- Enjoy your career and then move on (or, "Make a clean break" from work when you retire).
- You need $400,000-$500,000 of net worth to retire, including home equity. You need more if you have kids, about $4000 per child per year. Note that these are 1988 figures. (According to the inflation calculator, prices have increased about 75% from 1988 to 2007).
- Turn hard assets into Cash: Convert home equity and other assets to cash.
- Live on $50 a day. This advice is repeated in the book many times. The $50 figure, originally from 1988, is still achievable, according to the website, in many places in the world.
- Cut down your infrastructure: Move to a low-cost area, and sell your vehicles.
- Spend on yourself, not on your assets.
- Go south (where it is cheaper)
- Live where the jobs aren't. This is based on the observation that places with lots of available jobs tend to be expensive to live in.
- Live like a student. This advice will make sense to anyone who, like me, spent many years in grad school with little income.
- Keep calm; you can always return to the United states.
- Live like a resident, not like a tourist.
- Rent, don't buy.
- Choose hotels that offer what you need, and nothing more.
- Manage the change: Avoid too many changes at once.
- Make a to-do list before retiring.
- Avoid major purchases for two years.