Dropping Out, In Comfort (early retirement)
Republished in VDARE.com – September 28, 2003
The Times (London) – August 6 1988
New York—While still
students in England, my brother and I decided that in
order to convert two useless literary intellectuals into
something useful, or at least marketable, we should go
to an American business school and become Masters of
Business Administration. We chose Stanford University in
California, basically because it was nice enough to give
us scholarships and not at all because we foresaw that
in the next few years it would become the top-rated
business school according to polls of its academic peers
(for what that`s worth).
In my brother`s case the graft
took. He became a genuine financial person, currently
the director of research for a Wall Street brokerage
house. In my case the results were more mixed. I
regressed into the ambiguous trade of financial
Journalism, of course, can hardly
be counted as real work. I have always felt rather
guilty about retreating from the rat race which was
already in full scrabble in Stanford`s classrooms.
Recently, however, I think I discovered an antidote.
With my wife, also an MBA, I had lunch in New York with
Paul Terhorst, a former Stanford classmate and fellow
racing rat. Terhorst raced to such effect that he became
an accountant and eventually a partner in one of the
major accounting firms. Then he
retired, at 35.
Terhorst doesn`t feel guilty at
all. In fact he has just written a book (Cashing
In On The American Dream: How To Retire At 35,
Bantam $16.95) to pass on the good word.
The key economic point Terhorst
makes is that people actually need much less to live on
than they think. But they are caught in a vicious circle
of expense trapped, for example, in high-cost cities
because that`s where they work. Most of their effort is
directed towards supporting assets houses, cars rather
than having their assets support them. His prescription,
worked out with great ingenuity, detail and force:
liquidate assets, simplify infrastructure, cut expenses,
move somewhere cheap and nice (and nice and cheap),
substitute leisure for income.
Terhorst thinks his proposal is
particularly suited to Americans because their
relatively low tax rates and the long boom since the
Second World War have meant that for the first time a
younger generation has emerged with sufficient capital,
if carefully deployed, to finance a modest middle-class
life style without working. He estimates that a
remarkable 4 million Americans below 55 have a net worth
(assets minus liabilities) of $400,000 or so (£230,000)
which, properly invested, could produce the necessary
$40,000 (£23,000) a year.
But Terhorst`s strategy could
probably be employed wherever there has been a big rise
in house prices hence the stories of Londoners selling
up, buying the equivalent house in the North and living
on the difference. Indeed, budget retirement is in some
ways easier in welfare states such as Britain and Canada
where people can benefit from the big redistribution of
income implicit in state medicine and education while
not earning enough to worry about taxes.
What probably is true is that it
helps if you like to travel. When I saw Terhorst, he and
his wife were just back from several months in
South-East Asia, where they eschewed air-conditioned
Hiltons and stayed in native hostelries for a few
dollars a day. Their permanent base is now in Argentina,
where he says that after one devaluation he once bought
a dozen eggs, bread, milk and butter for 85 cents (50p).
The Terhorsts don`t mind heat, so a favourite ploy is to
live in places like Mexico in the sizzling summer low
This was all my wife, a raging
traveloholic, needed to hear. She set off back downtown
to Wall Street, where she works, full of calculations
about how much we could get for our Manhattan apartment.
In response to my tentative teasing, she retorted that
she has always enjoyed shopping for bargains anyway.
I began to feel uneasy. Terhorst
devotes a lot of his book to psychoanalysing people who
think they need to work, and I was reluctant to be
pinned down by his interlocking enfilades. Moreover, I
found it difficult to make the arguments about
irresponsibility and Debts To Society that I felt sure
would be a common response. But still ..
You could argue that Terhorst is
not retired in the real sense of the word. He works hard
at improving his saxophone playing and has written an
unpublished thriller (`the best novel ever written by an
accountant` his agent`s rejection letter).
To the extent that he represents
what those of us in magazine journalism call a trend, it
is the emergence of an American social group that seems
likely to be comparable to the traditional English
gentry, modestly comfortable and quietly cultivated.
Another implication is that raising income tax rates for
the upper brackets might have an unexpectedly negative
supply-side effect. A lot of asset-rich high earners
might be tipped in Terhorst`s direction.
It is a matter of simple arithmetic
that as the per capita gross national product of the
industrialized countries continues to rise, more people
will accumulate enough capital to finance the secure
income that they could formerly achieve only by 40 years
enslaved to the prospect of a pension. How rewarding,
actually, do most people find their work? How attractive
is the example of Gauguin, who showed that you can
change your life?
We parted, after Terhorst nobly
offered to pay a New York restaurant bill, despite his
book`s explicit prohibition of such largesse, especially
in the company of someone with a regular salary. He went
off to row on the lake in Central Park. I went back to
the office, thoughtfully.
The author is a senior editor of
Forbes Magazine in New York.