How to Retire at 35

Back 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 a $500,000 retirement fund. He has traveled the world with his wife during his retirement and seems to be living an amazing life. Yes, I’m jealous! 🙂

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.”

From my paper-route days at the age of 13 until my late 30s, I was fascinated by people who built incredible wealth. I’ve studied just about every extraordinarily wealthy person I could find throughout the years trying to see what I could learn and apply in my life. This book, and two others, seemed to completely change my thinking and focus. In fact, after reading this book, I did an about-face and started studying people who actually walked away from wealth. I became fascinated by people who valued time over money. Paul is one of these amazing people.

When Paul retired back in 1988, he sold all of his assets, including his house, and 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. He used this income to travel around the world. 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 early 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 in their mid 30s AND continue saving each month. His net worth actually increased each year in retirement. Most retirees are very 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 future retirement income EACH year in retirement. This was because he was actually reinvesting $1,500 of his retirement income each month.

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 annual retirement income.

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

We are extremely lucky here in 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 were $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.”

This book, and the basic idea of retiring early, is why you don’t see me hosting webinars sellinars, creating info-product after info product, building another real estate company, or offering any special high-level coaching programs. I’m not very interested in EARNED income. I am very interested in UNEARNED investment income.

What is the point of all of this?

I guess the point is to really stop and think about how you want to live your life. Do you really want to accumulate a significant net worth? Do you really want to work 60 to 70 hours a week? Do you really want to miss your children growing up? Do you really want a McMansion?

Is trading your life away for money really a good trade?

For me, it isn’t a good trade. For others, it may be. The cool part is we get to decide for ourselves.

If you’re into retiring early, you should definitely track down Paul’s book. You should be able to find older used copies on Amazon fairly easily. If you want to see my updated version of this plan and what I’m doing, download my short book in this post.