All his life, Paul Terhorst wanted to be rich. Even in grade school, he looked forward to having a corporate job, to joining the world of big business. “I didn't just dream about money and power and expense account living — I planned for it.” He grew up and made it happen.
He got his MBA from Stanford. He became a certified public accountant and joined a large accounting firm. At age 30, he became a partner in the company. He had “a huge office, a leather chair, and a view of a polluted river”. He'd achieved everything he'd always dreamed about.
But at age 33, while on a business trip to Europe, he overhead two guys talking about a friend who had retired early. Terhorst was intrigued. “I began toying with the notion that if I could come up with a way to live off what I already had, I'd never have to work again.”
It took him two years to figure everything out. But in 1984, at age 35, Terhorst made the leap. He retired. (And he's been retired ever since.) In 1988 he published Cashing In on the American Dream to share his experience — and the experience of others who made an early exit from worklife to pursue their passions.
“We need to find new opportunities for sharp, hardworking people who leave the corporate structure,” he writes. “Up to now, those outlets have been second careers, the Peace Corps, turning a hobby into a business, and the like. Those outlets give you at least some money to live on. The route I describe in this book offers more freedom.”
It Takes Less Money Than You Think
The first part of Cashing In on the American Dream is devoted to Terhorst's three-part formula for achieving early retirement:
- Do your arithmetic, by which he means crunch the numbers to see how low you can trim your expenses and how much you need to have saved in order to cover your costs.
- Do some soul-searching. Decide if early retirement is right for you. If so, what does it look like? How will you find meaning after work?
- Do what you want. Terhorst advocates a life of “responsible pleasure”: Do what you love, but don't spend a lot of money to make it happen.
It takes less money than you think to retire early. “Millions could retire right now,” Terhorst says. But many folks are bound by “golden handcuffs”. Their high incomes fund lavish lifestyles, which means they remain voluntarily shackled to their jobs.
In 1984, Terhorst believed you needed a net worth of $400,000 to $500,000 — which would be $972,000 to $1,216,000 today — to retire early. With this level of wealth, he thinks you could live well on $50 per day. (According to official government inflation data, $50 in 1984 is equivalent to $121.62 in 2018. That means Terhorst advocates spending roughly $44,000 per year.) If you opt for what he calls “bare-bones retirement” — what we might now call LeanFIRE — you can retire much sooner.