Retirement Myths And Other Terrible Ways To Think About Retirement Planning

 

A common theme for people that write about finance (whether it be frugality, investing, or early retirement) is that when they peek out from their own writing platforms and enter the world of Yahoo, MSN Money, and Marketwatch, they are immediately met with scorn, disbelief, jeering, and personal accusations.

Pete from the website www.mrmoneymustache.com, whom I have written about previously here, recently ventured out of Money Mustache land to conduct an interview with Andrea Coombes from Marketwatch, which you can read here.

Of the 300+ comments that currently follow the article, it seems that at least nine out of ten were critical of MMM’s retirement strategy, citing its impossibility to their personal circumstances. My reaction to most of it was along the lines of “if you are going to say that something can’t be done, get out of the way of the people who are actually doing it.”

But there were three deep flaws in the logic of a lot of the negative responses that I wanted to point out to you:

(1)    Most of the commenters focused on explaining why they couldn’t replicate Mr. Money Mustache’s strategy exactly, often pointing to student loan debt, a high mortgage, a divorce, or something else that was occupying a large slice of their current income. Exact replication is the wrong way to look at things. When someone shares their strategy with you, the point isn’t to think “How can I do this exactly?” and then dismiss the ideas presented in entirety if you cannot copy them exactly. Instead, you should read and study with this kind of orientation, “Is there even one little nugget of wisdom in this piece of advice that I could apply to my own life to make it better?” The point isn’t perfection—it’s to be better tomorrow than we are today and continue a march of forward progress, and we should have our eyes peeled for absolutely information that will help us move in that direction.

(2)    A lot of people seem to think that retirement consists of sitting around with cats and watching Judge Judy. Because he runs a blog and still does side construction projects, hearty side debates broke out arguing that Mr. Money Mustache wasn’t truly “retired.” Those kinds of labels miss the point of what wealth-building is about. The end game of financial independence isn’t to do nothing. The point is that what you do is on your terms.

 Take the Money Mustache blog, for instance. If Pete had to rely on that income to pay his bills or face homelessness, then he would wake up every day feeling a pressure to write something. But because he is financially independent, he can say, “It’s a great day today. I’m going to go for a long bike ride and do my own thing. I’ll write something when inspiration strikes me later.” Financial independence isn’t about doing nothing, but rather, the shift from being forced to do things to get the bills paid and choosing to do things because you want to do them.

Although this is rarely discussed, being financially independent can actually make you a better, more productive employee. Because there is no stress that he “has” to write, Money Mustache doesn’t have to churn out mindless, meaningless content to keep the advertising dollars flowing. He can write when he finds inspiration, and this likely leads to better posts overall, more traffic, and a higher income base. Financial independence is fertile soil for creating two things: freedom and boldness. When you possess those two character traits simultaneously, you can achieve mind-bogglingly impressive things when you set your sights on a particular work project.

(3)    A lot of the commenters didn’t seem to understand the nature of stock market growth. I don’t remember the particulars of how MMM invests his egg, but I seem to recall thinking that he is one of the few people that realizes the Willshire 5000 is more representative of the market than the S&P 500, and puts his money in a total stock index fund at Vanguard. If you adopt that strategy, even if you spend all of your dividend checks (which he doesn’t do), you are still set for at least 6% long-term growth at a minimum. Even if he cashed and spent every dividend check that hit his account, he’d still see annual income growth that roughly doubled the inflation rate in most years over the very long term.

A lot of the criticism facing Mr. Money Mustache was noise, and I wish that people reading his interview did it with the spirit of “This guy is clearly successful, what can I learn from his life to apply to mine to become more successful?” If people read his Marketwatch interview with that article, they’d leave thinking about the fact that “retirement” means doing productive things because they excite you rather than because you have to do them, and the implicit take home lesson for those that read between the lines would be this: the money you set aside in stock funds will give you business ownership interests that grow at least doubled the rate of inflation in most typical years. The price of the stock may not reflect the business performance at any given moment, and that’s why you get dividends to say “Hey, thanks for sticking around” during the moments when stocks are irrationally priced. Internalizing those two lessons will make you better, and at some point, change your life in ways that you can tangibly observe.   

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14 thoughts on “Retirement Myths And Other Terrible Ways To Think About Retirement Planning

  1. BigIslandBum says:

    Tim,

    Well said.  I really enjoyed the interview with Money Mustache and found the number of negative comments disheartening.  I can only assume it is due to the human condition of being adverse to change.  As one who crossed over the financially independent threshold last year, I can attest to the unbelievable feeling of freedom that comes with it.   I still work but only because I enjoy funding my investing activities and have virtually no stress since I can walk away at any time.

    All the best,
    BigIslandBum

  2. ThePonziHater says:

    I agree totally. I don't understand what it is about the internet that makes every single person so mean and angry. It's a lion's den over there!! On a positive note Tim, i just finished reading your ebook and wanted to thank you for all the hard work  and helpfulness that clearly went into it. great job, young man!!!

  3. rmdcltch says:

    Maybe there would be less criticism if MMM wasn't so condescending.  Or if he wasn't so sure that he had the right lifestyle and everyone else did not — i.e., he did not judge.  (I am not supporting criticism for the heck of it)

    See, e.g., MMM comment "Wow! $150 a month at restaurants! I guess if you’re really well-off financially, that wouldn’t hurt."  1) He's divorced from reality because people who are not at all well off financially can do this.  2) If someone enjoys a meal out, they should not be chastised for it.

    Seems to me like MMM has some soul searching to do (which by the way is free).  Maybe after that his blog will seem like of a brag blog chastising others and will be something more people can extract some information from.

  4. Elle_Navorski says:

    I think is a delightful escape from gosh-awful,
    reliably unethical, corporate-cliche-speak and keeping up with the Jones's. The blog is
    like an updated edition of _The Millionaire Next Door_; It speaks not only of living within one's means to achieve
    wealth but of how things far beyond money bring folks happiness. Money troubles being a leading cause of divorce, I bet divorce rates
    are low for couples like this. Pete is a wonderful writer, too. As an aside, I wonder how
    much money Pete and his wife make from the blog. Tim, thanks for suggesting this.

  5. Elle_Navorski says:

    Hi Stock Stooge, MMM's blog of October 28, 2013 notes, "[T]his year we will have a
    household income above $80,000… Higher-than-forecast investment and … returns, rental house, carpentry, and real estate income plus this blog have all contributed to this." He is doing a lot of physical labor to maximize his freedom. I think he's now 40 years old. So I wonder if this labor he does will take a toll on his health, as I have observed in the 50+ year old do-it-yourself crowd. The Lending Club investment is a hoot but a bit scary from where I am sitting. The guy strikes me as quite intelligent but the Lending Club is one choice I think is kind of reckless. Still overall I think he's living the dream —  a dream few people are even capable of  imagining, interestingly, because they are so trained by custom to think they need this and that for happiness.

  6. Kefia says:

    No issue with the MMM blog as I find it pretty inspirational. The main disconnect for me is the reported blog income reflected in which shows MMM earning ~$1,500 per DAY, $44,000 per month. Is that legit? And if it is, where is that discussed in their blog or reflected in their numbers??

  7. says:

    Kefia A couple things to think about: I think MMM is moving in the direction of keeping his blog income private (which is probably advisable as his audience has grown substantially)–at the very least, I do not believe he has chosen to publicly reveal his earnings figures recently. I do believe he treats his business income different from his personal income. In the most recent post on his site, for instance, he alluded to charitable deductions that are funded by his blogging efforts, which aren't publicized.

    Also, no one knows what his blog makes but him (and wife, etc.). Any third-party that guesses about blogging income is taking access to page views through Alexa and using an industry standard average multiplier to arrive at a figure. Some of the websites I own and run anonymously aren't even close to the third-party estimates–so there is the need for a "grain of salt" attitude. For example, MMM has a forum without much (if anything) in the way of advertising on his site. That likely inflates the page views and predictions of income that third-parties guess. 

    But I don't sweat it too much because it's not really my business how much money he makes. I don't go into the corner office and start poking about people's salaries, so I don't know why it would be more appropriate to do so with online writers. 

    In short, third-party estimates are subject to huge inaccuracies because there is a huge range of effectiveness in terms of monetization with websites. Secondly, it's likely that the estimates are inflated due to the page views caused by the forum on his site, which is not set up currently to rake in the dough. And thirdly, the dude spends $25,000 or so with a family of three. That is the take-home message, and it doesn't matter to me whether he brings in $26,000 per year or $26,000 per month while he does his thing.

  8. Elle_Navorski says:

    Tim wrote: "[I]t doesn't matter to me whether he brings in $26,000 per year or $26,000 per month while he does his thing." Are you sure? It seems to me that the MMM site's premise is that Pete's family lives quite happily on some $80,000 per year, spending some $25,000 of this. If the family has an income well beyond this, then his family and he are relieved of quite a bit of worry about anything. Hypothetically, his income from the site then derives from lying to readers. Furthermore saying he's investing with the likes of The Lending Club while possibly hiding that he has the security of significantly more income from whatever sources leads people to think they too can gamble with the Lending Club, despite having far less financial security. If there are signs that Pete is making far more than he is reporting, then a reasonable reader or journalist would ask for an explanation. Pete can then either answer or refuse to answer and be judged. Fortunately and like the quiz shows of the 1950s rigged to maximize advertising income, in the unlikely event there is fiction being foisted on Pete's readers, he will lose only his MMM reputation and advertising dollars. Just saying: I think it's a fair question.

  9. Elle_Navorski says:

    Pete MMM posted on January 15, 2014: "I don’t share the family’s exact
    income on the blog these days, but it is several times more than the
    spending." See … and ….
    It appears from these two articles that Pete and his wife have set up
    MMM as a business and now pay themselves a small salary from its
    revenue. I think Pete tries to be honest. Still claiming the site has
    the same premise as its early days does not seem factual to me. At this
    point, I think Pete should feature the extra financial security the
    family has. It does enable much riskier spending and choices.

  10. Lancelot12 says:

    Great stuff! Tim, I enjoy reading your site, I just bought and have started reading your book, andit was a delight to stumble upon your recent editorial in the WSJ.

    Best regards!!

    -Lance

  11. scchan_2009 says:

    Point 1: Investment is not a fight. It should not be beating the market (every year or a specific year) or beating another person. The goal is to get satisfiable return over a long period of time. In fact benchmarking is one of the greatest problem in modern finance and banking; managers that can't hit the benchmark get pink slipped.

    Point 2: Really, do people care what others do after they retired unless that person go out to shoot and rob others?

    Point 3: Most people are poorly informed. In fact, the one who gets thing right (not just finance; arts, science, business, sports) are minority. Just because many people doing some thing, it does not make something right.

    I think Internet being a place for noise is a well understood thing for people who think. It gotten so bad that I can amuse myself reading user comments in CNN or Huffington for work procrastination (laugh).

  12. RossMacintosh says:

    Elle_Navorski — I find your concerns very odd. I've been reading Pete's blog for a few weeks and have little doubt he is a millionaire. His investments, rental properties, blog and miscellaneous income provide him far more than he needs. His goal was to be financially independent and he has done that. He certainly doesn't hide that — it is the whole point! He lives on about $26,000 without budgeting or worries about money. If he wanted a new BMW he'd just go out & pay cash for it. Instead he just keeps adding to his investments because he doesn't need to spend any more as he & his family are happy with what they already have. The big stash of excess money provides freedom from ever needing to worry about money. He isn't obsessed with saving more & more to increase his net worth and he doesn't see his lifestyle as sacrificing anything. If it would take spending $100,000 per year to make themselves happy I'm sure he'd do that without hesitation. They don't only because they find it isn't necessary.

    I found many that commented on the WSJ site seemed to think Pete was saying his INCOME was $25,000 per year – when that is just the spending. He has at his disposal far more and with that comes significant freedom. He can get by on $25,000 because he has no mortgage, car payments or debts; and, he can justify having health, car, and home insurance with very large deductibles that result in low premiums. Furthermore he doesn't need to save for his kid's education because he is wealthy enough to be able to cover any future education costs. Same if he had a health emergency — he has the freedom to not need to worry about bills. Likewise he and his wife have no need for life insurance since their resources will provide the surviving spouse with far more than they need. Together these factors allow them to live quite well on just $25,000 per year. Clearly, without the big nest-egg they could not. He notes that originally building the initial nest-egg took sacrifice but now having achieved financial independence his family does not sacrifice.

    That freedom is something others can have too. His blog is there to help others reach that same freedom —- the motivation for the blog isn't to use it to earn money because he doesn't need more money. His site has very little advertising and I'm sure the amount it does have is focused on having the blog be self-supporting. Even if the blog did earn big bucks – so what? His readers don't care. The help & encouragement he provides is not diminished by his success – rather it is proof that the philosophy he shares can work.

    Good luck to everyone in their efforts towards financial freedom.

  13. EricRasbold says:

    The most salient point here is: Financial independence is not the freedom from doing anything, it is the freedom from HAVING to do anything.. Major difference. You will find your proper place in the Pyramid of Ability must faster when you WANT to be there.

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