Retire in 20 Years or Less
June 14, 2007 by Greg
Last weekend I was at a dinner party with the richest people I know. We were chatting about working, salaries, and retirement when one of my friends scurried off to the den to produce a copy of The 4 Hour Work Week. We discussed it for a while, talked about it’s apparent financial miscalculations, and decided that, in the end, regardless, it’s definitely worth a try.
However, I just got an email from him highlighting an alternative article with the quote:
It’s stuff like this that makes me thing that the whole 4 hr work week is much more risky than it needs to be.
The article attached answers a reader’s question as to how long it takes to save for retirement.
Right now, I’m twenty years old. I am willing to take a large percentage off the top of my salary for the rest of my working life in order to be able to retire very young and live off of the proceeds of my investments and do volunteer work. How many years would I have to work if I saved 20% of my income?
The answer:
If you were to take 20% of your annual income starting at age 20 and put it in a S&P 500 index fund, that index fund continues to grow at the long-term historical rate (12%), and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary, or quit at 43 and be able to give yourself a 4% “raise” each year from the interest, which is probably the better plan because it combats inflation. Raise the amount to 25% and you’re done at age 38 and able to live in perpetuity at age 40.
The article continues to explain a few specifics as well as a few tips to reaching this goal. One of my favorite parts of this article is one of the comments.
Still, I think he should probably examine just what exactly his goal means. Does he ever want a wife? Children? What about his own home or an education? Retiring at 40, or earlier, sounds very glamorous until you start examining just what you have to give up to reach that goal. All the financial independence in the world may not mean much if you have to live alone as a miser for the next 60-70 years.
Alone? Now we all know that doesn’t have to be true…
Read the full article at The Simple Dollar.
Ugh; you still have to put in 20 years of work? Most likely 40 hours a week?
That just sucks.
I definitely agree on the fact that there’s no reason why someone should have to be alone if they don’t choose to though.
there’s tons of great free advice over on http://fool.com and there even a pretty cheap newsletter (greenlight) for 50$ for 12 issues for helping to take control of your finances.
and if you’re not doing at least as much at you can possibly do at your place of work with 401k matching by your company then you’re crazy for throwing away free money.
drips(dividend reinvestment programs) are another fun tool.
the fact that ING now allows you to write checks electronically if you can storing your money that you need onhand in a checking account that pays 3.8% interest sounds good to me..
What I like about the saving approach is that it’s nearly gaurenteed, or as close to a gaurentee that you can reach. Barring another massive financial depression where americans lose nearly all faith in the market you’re going to succed if you follow the saving plan. If interest rates take a hit and and struggle for years and years and those years happen to overlap the critial years needed for intrest growth for your savings then you might not have as extravagant retirement or you may want to put in for a couple more years. Granted, no depression like I talking about has actually hit the US since the 30s but I’m talking worst case senario.
The 4hr work week is exciting and Ferriss writes a nice salespitch. I found that while reading it it was easy to get caught up in his retoric and pitch. I’d get really excited running the excersies and see it all coming together.
Still I’m a cynic at heart, and despite rarely being able to keep track of my keys and forgetting what day of the week it is I’m not too terrible at math. Ferriss glosses over a great deal of the risk involved in following his approach. He dosen’t present any examples of bad or faulty reasoning when planning your internet based business. The PPC strategies that he outlines involve less than a couple of weeks of research/planning. What if your product has great seasonal potential and you do your research in a non seasonal time? Or what if your product is easily copied or outpaced? What if the leads that you have are the result of your product simply being new rather than good? This might be seen as overt pessimism, but in a world where businesses with less than 20 employees have only a 37% chance to surive past 4 years an a 9% chance to survive past 10 years I think it pays to do more planning if you’re going to take a riskier approach.
Ferriss is also either pretty damn bad at math or at least at showing his work. He does have some nice calculators on his site, but his book makes some pretty crazy claims. He claims that if you were to recieve $1,000,000 today and have to live off that for the rest of your life you’d be broke in far less than 30 years. Which would be true if you touched the principal. Still at a modest 7% interest that’s 70K a year which I feel most people can feel comfortable living within without ever touching the prinicipal. Cut a thrid off that ammount to reinvest so that your principal contiunes to grow so that inflation or depression never cause your income to drop below your comfort zone and you’re set for life, so are your kids if they’re frugal.
One of his case studies features a someone who wants to create and sell a Yoga DVD for Rock Climbers included in the DVD is a spiral bound 20 page bookelet as well, these are too be sold for $80 each. After a quick 2 weeks of PPC research she creates a finished product using her friend’s Mac and a borrowed camcorder. (There is no refrence as to how the booklets are created) She sells 10 of these which generates her 750 in profit. (This translates to a 93.75% profit margin. On the same page he talks about selling a $50 dollar DVD at a 75% profit. Printing and distributing DVDs with 20 page spiral bound booklets isn’t free. Unless you own a DVD burner, printer, binder, copier and at least an exacto knife (so that the pages fit within the DVD case). You’ll need someone else to do this for you. This is fine it’s all in the spirt of the 4hr work week, just outsource it. Dmax DVD will print, package, and shrink wrap 500 DVDs (best rate at this ammount) for $2275. 500 20 page spiral bound B+W will run 2475 from printing for less. Still working in bluk and we’re down to 9.50 cents to print package all of our materials. This is an 87% profit margin not bad, but not quite 93.75%. Still it’s a healthy profit assuming we can move all the product. If we only move 68 though we’ve broken even.
This is all fantastic and it’s a great model, however it doesn’t come out of Ferriss’ book or his web links, he dosen’t account for any up front expenses in the production of the product, he takes the cash that comes in from the first 10 sales and accounts it to immediate profit.
As cirtical as I am in this entry I want to stress that there’s a TON of great stuff in his book but he does gloss over the risk. Ferriss makes many claims that if you just take the leap things will sort themselves out. My own experience in life tells me that while failure isn’t often costly it isn’t free either. I used to work as a Project Manager for a web design firm. I managed ~20 or so different sites that were drop ship companies or start up new product sellers. Of the 16 that I worked on 3 are still live. These people paid ~2-8K for a site and typically had a monthly budget of 400 for PPC. Assuming they lasted only 18 months that’s still a total minimum spend of $9200 not including any costs related to product devlopment. The same 9200 saved over the same 18 months would generate 966 dollars of interest at a modest 7% yearly growth.
There is risk involved in Ferriss’ approach but it’s not one to be completely discounted either.
For those that would rather trade time for less risk socking away 20% is pretty well proven and a surer bet than a start up drop ship company.
Eric; you make some good points and I don’t think even Ferriss himself would argue that it’s *absolutely* safer to invest your money than to start your own company.
The time trade off though *is* significant, and one thing I found helpful in the book was how much it highlighted most people’s drudgery in the working world. I think a lot of people settle into a boring, unfulfilling job simply because it pays the bills, not for a moment considering there may be alternatives. If you’re miserable 8 hours a day for 20 years, taking the $500-$1000 Tim recommends to try out an alternate (or additional) income stream might not be such a bad idea.
I’m kind of curious as to the $2-8,000 cost of building the sites you describe above? Were these companies that were handling the drop shipping itself (where the high cost would make sense for the additional complexity involved), or someone doing what Tim describes (marketing a product via a website, which is then drop shipped by someone else)? If the latter, I can’t imagine an $8,000 cost to create a site that would simply take a payment from the customer and forward order details to a fulfillment agency.
As the book points out, a Yahoo store type site could handle the technical element of this piece, and can be had for $40/month plus a small percentage of each transaction.
Goat; I completely agree about the 401K piece, and you’re right on about the ING account too.
Those are some good points Cash. While Ferriss does highlight the day to day drudgery of work (he spends a very large part of the book doing this), he makes it sounds like all you need to do is just begin his approach. He makes nearly no mention of risk in the book and there no mention of the possibility of failure. That’s what really rubs me the wrong way. I’m all for rushing into things, and taking risks as long as the risks are understood, with Ferriss the risks are even mentioned.
The other part of the book that confuses me is how much he stresses that the product should be sold at a premium price. I agree with him on this, since premium products need much less customer service and have a higher profit margin. Yet all the ways he talks about implementing the business are done on the ultra cheap end. Rather than renting a professional camcorder and lights for he Yoga video above the case study says to borrow something and use pre-packaged iMac software. A DVD that’s made with a standard def 1CCD camcorder cut and edited by an amateur is not likely to look that great.
Ferriss is a big fan of lose win guarantee. Where if someone returns your product they benefit from that. Something like “If you’re not satisfied return it and we’ll send you $20.” I think this can be a great tool to increase sales especially when you have a quality product. If you’re cutting nearly every corner in developing and marketing your product this could backfire pretty badly. If I had dropped 80+shipping on a DVD aimed at one of my main hobbies only to find something shot with a handycam and bad editing I’d send it back and look for something done more professionally. That’s not to say that all small production videos are crap, but if you don’t even own your own camera it’s likely you shouldn’t be producing your own DVD. If you felt the idea still had merit you could always hire someone to do the work for you. Since most people aren’t webmaster Ferriss recommends that people use freelance web designers to
He recommends 2-3 hours to get a website up with freelance designers running 75-100 dollars an hour. Yeah this is possible, but I’d say that most designers would tell you that 2-3 hours is enough to get 3-4 pages up with some pre-chosen graphics. If you plan to market to a crowd that can drop $80 on a DVD I’d say you want to look like you know what you’re doing. Yahoo stores have the same fallacy, you can get a simple site up and running but 4 of the companies that I worked for started this approach and saw little sales and came to the company I was at to improve their appearance.
Quotes for a custom website from this company ran like this:
Hourly Rate $125 (This is more than a freelance person but it’s with a company).
800 - Custom Home Page design with 3 iterations. (This was a fixed rate).
750 - 5 Pages (About Us, Products, Contact Us, PPC Landing Page, Product Detail) at 150 a page. (1.2 hours per page).
1000 - 8 hours project management (the minimum) creates the scope of the project manages all resources, sets up DNS, provides consulting on image selection and placement, provides limited copy writing support.
50 - PPC account setup + 10% management fee of the total budget (I think I can’t quite remember what this was as I wasn’t in marketing). 40 per month for a 400 dollar budget.
400 - Shopping Cart setup and integration.
$3100.
Some sites would allow checks and avoid the shopping cart, others had many products (one had ~5000) that required a Content Management System to manage the many products.
Reading over this post and my last post it might looks like I really don’t like Ferriss or his book. It’s quite the opposite, I think it’s a great book with an overwhelmingly postive attitude. It has some great ideas for both personal and business automation and I love the chapters on how to become more efficient so that you can do your job in fewer hours remotely. I just find it worrisome that the riskiest part of his book is one of the areas where he provides the least amount of details. He states over and over throughout his book how wonderful and fantastic life is beyond the working world and how anyone and everyone can get there if they just start up a small company after 2 weeks of research and begin hiring outside resources after 50 products have been sold.
I think it’s important for people to be aware of the risks and then make their own decision on what’s going to work best for them.
Eric;
Your cost break down makes sense for a web newbie.
I guess I take my own skill set for granted. If (when) I try out the product piece from 4HWW I’ll likely go somewhere like
Websitetemplates.com
, pay the $60 or so for a template, and then use Photoshop to create minor variations of the template for the 5 or so total pages needed (Contact us, Faq, etc). Being familiar with how to set up a domain, establish hosting, and set up/implement Google AdWords and AdSense (and more recently, Google Analytics) will make the next step a breeze. As I only plan on offering a single product, no content management system will be needed, therefore the main additional cost will be in the check out / shopping cart system.
From my perspective, anyone with knowledge of / experience with the above topics should be able to test out the system suggested in the book for less than $1000 up front.
You’re absolutely right though; for someone with little to no computer experience it’s a much more costly (and in my opinion, risky) proposition.