Book review: Cashing in on the American Dream - How to retire at 35

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.

About work
  • 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).
About finances
  • 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.
About retiring in the US
  • 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.
About retiring abroad
  • 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.
About initial retirement years
  • Manage the change: Avoid too many changes at once.
  • Make a to-do list before retiring.
  • Avoid major purchases for two years.
Overall, this book is a delightful, easy read. Terhorst's website says that he has no plans to update the book ("the market for this kind of book is still small"), which is a pity.

4 comments:

Anonymous said...

The inflation statistics here are a bit off. According to the Bureau of Labor Statistics 500,000 dollars in 1984 would be 1,018,000 dollars in 2008. That said, this book inspired my own early retirement and any admirer of it, and the Terhorsts, is a friend of mine. Down with wage slavery!
Regards,
Fred Ormondroyd

Anonymous said...

how can you say the statistics are off? you are quoting different years, the original poster said from 88-07 and you are quoting 84-08.

Anonymous said...

Well the author retired in 1984 and that was when he had only fixed income investments (CDs from banks). He no longer invests that way if you look at his web page. Inflation is the biggest danger for retired people.

stryderman1649 said...

The best book I know of for people wanting to retire or live in other places covers about 60 Countries and is called "Getting Out" by Ehrman and Nelson...2nd edition came out this year - 2013....covers cost of living, tax law basics, medical care or not, visas, gov't style, all the basics...with interviews by expats that are living there now...