# Early Retirement Can’t Work, Or I’d Have Heard Of It Before!

## By Mr. Money Mustache

## Sun, 08 Jul 2012 22:40:02 +0000

Little MM and I marveled at the fanciness of this toy, then went back to digging in the sand with sticks.

Today we’ve got a guest post from the esteemed Mustachian known as Arebelspy, who is also a Moderator over on the Money Mustache Forum. Since we’re both passionate about this particular idea, the article became a bit of a collaboration between Arebelspy and MMM.

#### Mustachianism Can’t Work, Or I’d Have Heard Of It Before!

There’s a fairly common doubt about the idea of Financial Independence and Early Retirement that MMM and others espouse. Because it’s such a prevalent idea that one must work until they’re 65, people often doubt that retiring so much earlier than that could even work. The skepticism essentially boils down to this:

> “If early retirement is that easy, why haven’t I heard of it before? It must not actually be possible.”

MMM has already shown the mechanics behind the idea, in the post The Shockingly Simple Math Behind Early Retirement.

I’m here to explain why most people have never heard of it before.

Today we have a unique opportunity to hit financial independence after only 10 or 15 years of work. Retiring in one’s mid-30s sounds crazy, but it is the unprecedented times we live in that makes it possible.

You see, 300 years ago, I’d likely be a toiling peasant. There’s no way I could save enough to retire. I’d need to be frugal just to get by.

100 years ago, the situation had improved for some of us, but overall it was still difficult to save much. A frugal worker might be able to save 10, 15, or maybe even 20% of his income, but probably not much more.

The difficulty of saving in the past continues to influence our thinking today: common wisdom suggests that you should be shooting to save those small percentages, because that’s what you could save, historically. This makes the 40-90% savings rates suggested by Mr. Money Mustache and his acolytes seem crazy.

But there’s a big difference between the economic situation of the average person 100 years ago and today. Compared to our incomes, the basic “cost of living” items have gotten much, much cheaper.

“But wait!”, I can hear the complainypants saying. “I hear stories (or remember) when soda was a nickel and a house cost only $5,000!* How can you claim goods are cheaper?”

The actual fact is, due to productivity and technology improvements, wages have risen faster than the cost of goods in real (inflation-adjusted) terms. According to information from the U.S. Bureau of Labor Statistics, real compensation per hour rose from 42 to 108 over the second half of the 20th century (normalized such that the compensation in 1992 = 100).**

This rising standard of living (made possible mainly by productivity improvements through technology) is the reason a Mustachian family can live on barely over $20k per year, even while the US median household income is about double that, and many in-demand jobs pay a single worker several times this amount.

This article from MIT gives a shocking fact that is key to why you can save so much to hit FI quickly. It says that “an average worker needs to work a mere 11 hours per week to produce as much as one working 40 hours per week in 1950.”

That means that in theory, the proceeds of the other 29 hours they’re working could be saved.

So here’s a scenario. Your grandparents, in 1950, could work and save 10% of their income after working 40 hour weeks, and the other 90% of their pay was spent on basic consumer goods. You should be able to do the same, but it’ll only take you 11 hours (and you should be able to save 10% of that, like they did, so really only 10 hours) to cover your basic needs. That leaves you with 30 of your 40 hours EXTRA cash that you don’t need to be spending on basic cost of living items.

In the 1950s they had TVs, cars, dishwashers, and more. At the time, they thought they were living at the peak of modern convenience with all of the new luxuries – even with a single wage earner.

So what have we done with our over-100% increase in disposable income since then? We’ve bought even more things. Consumerism.

As a society, we go out to restaurants far more often than our grandparents did. Our houses are more than twice the size, and in expensive cities we’ve bid up land prices to the sky using cheap credit, negating much of our income gains. We have more cars, we drive them more, and they’re packed with more luxuries (imagine going back to 1950 and insisting on a 16-speaker 550-watt audio system in your Chevy!). We also have more shoes, about ten times the amount of clothing (if closet sizes are any indication), and we do much more interstate and even international travel. We tend to buy things before we have the money, adding the significant cost of interest payments to our monthly expenditures. And don’t even get me started on the topic of big-screen television sets.

We’re flush with more disposable cash than we’ve ever had in history, but we don’t even realize it. The rise of the dual-income household should have made us even wealthier. But instead it just gave rise to the lament, “Nowadays you need two incomes just to get by!”

We should be laughing as we have cashball fights in rooms full of $100 bills. Instead, all we hear is about the ever-increasing cost of living.

The MMM way is to simply roll back the luxury train just a few years, then take all that extra disposable income and save and invest it.

> “But we need all the extra luxury, to compensate for the ever-increasing demands of our work lives!”

Wrong again – even while increasing our income, we’ve also tripled our leisure time in the last 100 years***. People actually used to spend much more time working, because their work was toiling in fields and factories without the benefits of standardized workweeks, overtime pay, or even weekends in some cases.

So you can work an easy week, still have a good standard of living, still save the vast majority of your paycheck, and hit FI in a resonable number of years.

You haven’t heard of this idea because it wasn’t possible even 50 years ago. It’s still not possible in many parts of the world today. And it may never be possible if you continue to follow the same path as most of your neighbors, who think that a $30,000 car is a reasonable part of a middle-class lifestyle.

But if you live in a first world country****, you’re in a unique situation never before seen in history: you can easily hit FI very quickly by saving all that disposable income.

Hopefully this post has explained why you’re able to do so.

* No comments about current day Detroit.
**http://groups.csail.mit.edu/mac/users/rauch/worktime/output_per_hour.pdf
*** http://eh.net/encyclopedia/article/whaples.work.hours.us
**** Germany’s another example:
http://gooddaytolive.wordpress.com/2012/05/01/may-1st-the-day-of-work-is-a-good-day-to-think-about-how-to-work-less/