How to Retire at 35

retireat35Back in 1988, Paul Terhorst wrote a book titled, “Cashing In On The American Dream – How to Retire At 35.” Paul was a partner at a large public accounting firm and decided to retire at the age of 35. When he retired, he only had a net worth of around $500,000.

As I write this today, he still is retired. He has been able to live in retirement for 27 years with just $500,000 saved. He has traveled the world with his wife during his retirement and seems to be living an amazing life.

I’ve read this book several times and thought I would share some of the key points. Paul wrote:

“I wanted a good life, not a good job. In our society it’s considered normal to work during the best years of your life. You work when you’re young, healthy, and vital. You work when your mental powers are sharp, your mind inquisitive. You work when you still have a family at home and your kids need you the most. You give the best years of your life to your career and the last few years to yourself.”

When Paul retired back in 1988, he invested his $500,000 net worth into one year CDs. These CDs paid 8% at the time. His annual retirement income was $40,000 a year, or $3,333 per month. He didn’t consume all of this income and instead Paul and his wife lived on around $50 a day, or $1,500 a month. This plan allowed them to retire early and continue investing each month. This is why Paul is still retired today, 27 years later. Had Paul consumed all of his interest income in retirement, I believe he would have been forced back to work.

One of the reasons most people continue working is because they’re trying to save more for their future retirement. Paul’s plan was genius because it allowed them to retire at 35 AND continue saving each month. His net worth actually increased each year in retirement. Most retirees are extremely concerned about running out of money in retirement. This problem is solved by continuing to invest IN retirement.

If you really think about Paul’s plan, he was actually adding one year of retirement income EACH year in retirement. This was because he was actually reinvesting $1,500 each month of his interest income. Simply amazing.

To adjust Paul’s numbers from 1988 to today’s dollars, someone would need around $80,000 a year of income. This works out to be around $6,666 per month. To follow his plan, this monthly income would be split 50/50 providing $3,333 to live off of and $3,333 to reinvest each month. This plan would increase your net worth each and every year as you’d be reinvesting around $40,000 of your retirement income.

The only part of Paul’s plan we cannot duplicate today is generating a fixed 8% return by investing in CDs, or any other fixed rate investment. This forces us to look for other investing opportunities which provide higher levels of investment income.

We are extremely lucky here in Northeast, Ohio because this $6,666 per month of income could be created through 10 single-family rental homes. This is assuming each home provided around $700 a month of net income after taxes, insurance, and maintenance expenses. If the average purchase price per rental home was $60,000, an investor could retire now with around $600,000. If they would continue investing each month as Paul suggested, their net worth would actually increase each year. They would obviously have to manage 10 single-family rental homes in retirement.

Throughout the book, Paul defined retirement as:

“Living Off Unearned Income”

I love this definition of retirement. He wrote… “The dramatic feature of my plan is that you live the rest of your life without earning another dime. You let your equity sweat for you.”  Sadly, most people seem to value money more than they value time. Paul continues…“I propose a life centered on family, friends, and simple pleasures rather than on owning and consuming. Happiness comes from living the way you want to live, not from spending a lot of money.”

If you’re into retiring early, you should track down this book. You should be able to find older used copies on Amazon fairly easily. If you would like to study my updated version of this plan, download my report on the right side of this website.