We live in a time when any report of “Retirement” is coupled with stories of worry and acquiescence. “Woe is us,” cries the media, who long for the golden age of retirement. They speak with reverence of our parent’s retirement of yesteryear, when defined benefit pensions were part and parcel to the job. The numbers bear this out, as 10% of workers feel as though they’ll never retire, and a full two-thirds feeling they are behind to retire at 65.
Who can possibly afford to retire nowadays? What with college and healthcare costs rising, those blasted gas prices, “whole paycheck” grocery bills, the “economy” (how long can we beat that horse?), and that casino we call a stock market.
And then, there we are. “We” being those folks in the financial independence community. While living seemingly normal lives, we speak confidently of obscenely young and lengthy retirements. How is this possible? Some believe this is simply an idea whose time has come, that there has suddenly been a collective realization to this possibility.
I believe something greater must be afoot, because you can’t tell me that a nary a single person, for the eons preceding the past few years, failed to arrive at this same conclusion. No, something else is happening.
I’m probably one of the lazier people you’ll meet. Sure, I’m good at a few things: writing, drinking Bud Lite, and going to college. But, I’m straight-up lousy at the rest. I procrastinate on almost all home and car maintenance. I barely know how to get dressed. I rarely work out. I can’t wake up on time to save my life. If I were born in 1985 BC, instead of AD, I’d have died at a young age of starvation or lack of pioneering skill. If I were born 80 years ago, I’d most certainly be stuck in a rat race for my whole existence–slowly awaiting my pension to kick in. But fortunately, I was born 30 years ago, so I’m living now, in 2015, when early retirement has never been easier.
The World Is Making This Possible
What do we spend our money on? Food, transport, and housing make up about two-thirds of the average consumer’s expenses. Despite the chorus to the contrary, these necessities of life have never been cheaper. Thanks to advances in production technology, crop yields, availability of information, and manufacturing efficiency, we now need to work fewer hours than ever before to provide for our basic needs. This leaves more money to be saved and invested, all while working the same amount.
Take Average Joe, a production and non-managerial type, living in the U.S. today. According to the BLS, Joe (a median American) makes an hourly income of $21.08 (as of 9/30/2015). If Joe goes to the grocery store, Joe will spend about 1.5 minutes of wages (about 50 cents) on a pound of bananas—the lowest in history. He’ll spend about 4 minutes earning the money to buy a loaf of bread, or 10 minutes for a gallon of milk—both also the lowest in history. In fact, across a basket of goods, most groceries are at the lowest point in history.
The downward trend is not true for every item at the store. Beef and eggs seem to be on a bit of an uptrend, but the average (bold black line) trend is undeniably flat and markedly down from 35 years ago. The statistics are not impacted by inflation, either, as all goods and wages are taken in nominal terms, and expressed as a unit of time needed to work at the prevailing average wage in order to purchase the goods.
But, it doesn’t stop at food. Housing prices, even with their recent run-up, are nearly as cheap as they’ve ever been in the last 25 years. Still using our Joe as an example, he needs to work 4.3 hours for each square foot of housing he buys at the median price-per-square-foot across the U.S. While this is slightly higher than the bottom of the market in 2011, it is still one of the cheapest points in history to buy a home in terms of average wages.
But what about energy costs? Sure, gasoline and natural gas are cheap this year, but they’re sure to rise in the near future as oil prices rebound. Well, that’s gonna take one heckuva rebound (with no associated wage increases along the way) to bring energy back to levels we’ve seen in the last forty years…
Average Joe today needs only to work about 25 seconds to buy a kilowatt hour of electricity—about enough to run your microwave for an hour, and almost the lowest in forty years. A gallon of gas requires Joe sit in an air conditioned office for seven-and-a-half minutes; not quite the lowest in history but not far off. And, thanks in no small part to the fracking boom, natural gas is cheaper than it has ever been in the past forty years. It now takes about 3 minutes to buy one therm, which is very roughly enough natural gas to reheat your 40-gallon hot water heater three times over to a piping 123 degrees. Imagine how long it would have taken Average Joe to heat that water a hundred years ago? Probably more than three minutes.
I can hear you now….
But Eric, we spend money on way more than just food, housing, gas and energy. There’s miscellaneous stuff, college, healthcare, car and home maintenance, clothing, daycare, the list goes on.
Okay, I appreciate constructive feedback. But, let us be clear, most everything labeled above is definitely a “want” rather than a “need.” However, we still “want” a lot of things about modern life that cost money—good healthcare, secondary education, electronics, home maintenance, and a lot of other nice things.
Even most of that stuff, though, is getting far cheaper.
Take college. We all hear that costs for college are rising super fast. In fact, costs are at an all time high. This really shouldn’t surprise anyone, as prices tend to rise over time. But, dig into the numbers for five minutes, and you’ll see that this isn’t so much a crisis. Why? Do you know what is also at an all time high? Endowments. And the corollary there is that out-of-pocket costs for college (thanks to scholarships and grants) are at some of the lowest levels of the last fifteen years, according to data from The College Board.
I recently experienced this first hand, as my Goddaughter just began school an out-of-state University on a 100% academic scholarship. She’s a great student (although not 4.0) and I love her to death, but I know what she did (i.e. apply for scholarships) didn’t rewrite the book on paying for school. Along with the tax trifecta of the American Opportunity and Lifetime Learning Credits, and the never-going-away tuition and fees deduction, the out-of-pocket cost of college is always going to be far less than the headline number. And let’s not pretend there aren’t a litany of free learning options like Codecademy (for learning to code), Coursera (for college courses), or Khan Academy (for everything), among so many others. You now can be smarter than Socrates without paying a dime.
Then, there’s health care. I’ve discovered that Obamacare will actually decrease our premiums once we exit the workforce. However, for healthy families (God willing), you will never really need health care until far later in life. There’s no magic bullet to health care costs, except to try to avoid it altogether by going to your annual physicals, maintaining a healthy diet, not smoking cigarettes, and exercising routinely. I refuse to believe the rising cost of health care and America’s obesity epidemic are not causal in nature—even if only partly.
We also are living in a society where information is nearly free of charge. Most home maintenance and mechanical work is just a YouTube video away. It used to take a HVAC repairman to change a capacitor on your A/C unit (yes, it’s always the capacitor), now it just takes this video. The same can be said for changing a tire, or a headlight, or your countertops, refinishing your cabinets, installing a fence, building a retaining wall, swapping your spark plugs, tiling your shower, and a million other videos that probably apply to your exact make and model and type of whatever you need.
Let us not forgot about the income side of the retirement equation, either. It’s easier than ever to start a blog (hint: follow this link), or to become an Instacart shopper, or a freelance writer, or a Amazon reseller, or selling your used good free and easily on Craigslist, or to a worldwide market on Amazon or eBay, or your custom kitchy stuff on Etsy. These are all very recent opportunities of just the last decade, and are avenues of easy moneymaking that were never available to prior generations of wannabe early retirees.
The Big Question
Alright, so if everything is all roses and moonbeams, then why are people still struggling mightily to get by, much less retire? Well, your answer is probably in your driveway, or under your feet, or hanging on the wall, or cluttering up your closets and crawlspaces. Lifestyle inflation and consumerism are the evil of today that are causing us to not see the tremendous easiness by which today’s lives can be lived. We willingly now spend $33,560 for a new car—an all time high. We have huge homes, the largest in history and 1,000 square feet larger than 40 years ago, despite the fact that household size (in number of people) is the smallest in history. We now spend more money dining out than we spend on groceries. We buy more TVs, we buy more fun, we buy more phones, we buy more everything all in an effort to fill an unfillable need, to satisfy an insatiable want, and to meet an unreachable level of “enough.”
Once you can understand that you only need so much in life, that only so many “wants” actually bring happiness, you then suddenly realize how easy and affordable it has become to meet those needs and wants. The world is better than ever before, and things are cheaper than ever before. We are swimming in a sea of money, in an abundance of low prices, we only need to plug the holes in our life to realize that the world is with us on this journey to financial independence and early retirement……we just need to hop along for the ride and get out of our own way.
Thanks so much for reading what I write!