Learning From Literature

Retire Before Mom And Dad by Rob Berger

Cover of Retire Before Mom And Dad

Retire Before Mom and Dad: The Simple Numbers Behind A Lifetime of Financial Freedom by Rob Berger is a personal finance book published in 2019.

One of the main objectives in life for most people is to appreciate retirement. We don’t want to work until the day we die; we want to enjoy life! Unfortunately, the average American aged 60-64 only has about $221,451 in retirement savings. If this total is uninvested when you retire and live for 30 more years, you can only spend about $7,381 per year. THAT IS $20.22 A DAY!!

In addition, planning for retirement can be a giant, intimidating monster. Calculating future expenses and how much you need to save can get complicated. Thankfully, Berger explains how to achieve financial freedom in easy-to-understand language. He shows that everybody can retire with enough money to live comfortably for the rest of their years, no matter their income level.

The Five Big Lies (And Corresponding Truths)

  • Financial freedom requires a big salary
    • You can retire as a multimillionaire on a $50,000 salary 
  • Financial freedom takes 40 years (or longer) to achieve
    • Financial freedom is a journey and you can reap the benefits early on
  • Happiness is expensive
    • You don’t have to spend a lot of money to be happy
  • Investing is complicated
    • You can invest at any age / income with very low time and effort
  • Debt is a fact of life
    • Not everybody has debt and it is not necessary

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Enjoy!

Table of Contents

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In The Time Of The Revolution by Alan Axelrod

Part One – Your Superpower

What Is The Money Multiplier?
  • Compounding (what the author calls the “money multiplier”) is when you earn money on both your original investment AND on money you gained previously
  • The Richest Man In Babylon describes it in simple terms — “Every gold piece you save is a slave to work for you. Every copper it earns is its child that can also earn for you.”
  • Allows you to “multiply” your wealth with no extra effort
  • Hypothetical:
    • $50,000 salary
    • 45 years (from age 22 to 67)
    • 5% savings (~$208 a month)
    • 9.3% return (historical average of diversified portfolio since 1926)
    • Results
      • Without investing → $112,320
      • Investing → $1,708,072
How Does The It Work? — The 3 Components
  • Time
    • One penny with a 9.3% return for 225 years → $4,892,563 compounded annually or $11 million+ compounded monthly
    • Using the original $50,000 hypothetical, if you started _____ :
      • 1 year later → $153,504 less
      • 5 years later → $643,197 less
      • 10 years later → $1,047,937 less
      • 20 years later → $1,462,889 less
  • Amount
    • You don’t need a large amount to get large gains
    • Using the original $50,000 hypothetical, if you change monthly savings from _____ :
      • $208 to $200 → $65,695 less
      • $208 to $225 → $139,602 more
    • Take a weekly expense and multiply it by 857 (answer = worth after 10 years)
      • Coffee ($12) → $10,284
      • Eating out ($30) → $25,710
      • Cable TV ($25) → $21,425
    • Take a weekly expense and multiply it by 36,036 (answer = worth after 45 years)
      • Coffee → $432,432
      • Eating out → $1,081,080
      • Cable TV → $900,900
  • Return
    • 1926 – 2017 — return of 70% stock / 30% bond index by Vanguard = 9.3%
    • Using the original $50,000 hypothetical, if your return is _____ :
      • 9.3% → $1,708,072
      • 9% → $1,540,214

Part 2 – Financial Freedom

What is Financial Freedom?
  • Financial Freedom = the ability to live off your savings
  • First To A Million describes the importance of financial independence in more depth
7 Levels of Financial Independence
  • Level 1 — 1 Month of Expenses Saved
  • Level 2 — 3 Months of Expenses Saved
  • Level 3 — 6 Months of Expenses Saved
  • Level 4 — 1 Year of Expenses Saved
  • Level 5 -— 5 Years of Expenses Saved
  • Level 6 — 10 Years of Expenses Saved
  • Level 7 — 25 Years of Expenses Saved
  • Levels allow you to monitor progress
  • You are able to reap the benefits early on
    • Even if you are not fully financially independent, it gives you freedom to make decisions you otherwise couldn’t
  • At Level 4, yearly return starts to equal yearly savings
    • Imagine — Save $5,000 / Spend $45,000
    • Return (9.3%) → $4,185
  • Levels 1 – 3 & Levels 5 – 7 take the same amount of time
    • Towards the end, compounding is making big money for you
How Much Should You Save?
  • All about what you spend
  • “Slingshot Effect” — spend less while saving more
    • Exponential growth
  • Slingshot Effect Example
    • Frank
      • Saves $500 / Spends $4,500 – (10% / 90%)
      • Takes him 9 months to save one month of expenses
    • Stephanie
      • Saves $1,000 / Spends $4,000 – (20% / 80%)
      • Takes her 4 months to save one month of expenses
  • How fast you reach financial independence is not about income, but savings rate
    • Ex — Imagine a 10% savings rate
      • $500,000 salary – Save $50,000 / Spend $450,000
      • $50,000 salary – Save $5,000 / Spend $45,000
      • Both would take 9 years to save one year of expenses
Why Is 25 Years Of Expenses The Goal? The 4% Rule
  • 25 years of expenses → Allows for a 4% yearly withdrawal from your portfolio
    • 4% is a widely-accepted withdrawal percentage that ensures your money will last throughout your life
    • Accounts for inflation, stock market declines, more conservative portfolios as you get older, etc
    • Of course, the less you withdrawal, the more likely your money will last
  • Expenses Per Year / 0.04 = Retirement Savings Goal (25 years of expenses)
    • Expenses are $100k / yr → save $2.5 million
    • Expenses are $50k / yr → save $1.25 million
  • These numbers sound unreachable, but remember the Latte Factor + compounding
    • $5 a day / $150 per month for 45 years → $1,231,783

Part 3 – Buying Your Freedom

The Cost Of Happiness
  • Don’t ask how much you need to make to be happy, ask how much you need to spend
    • Plenty of enjoyable things don’t cost much — outdoor activities, reading, exercise, hanging out with friends and family, etc
    • In Smart Couples Finish Rich, David Bach describes a “value planning” method to explicitly define the role of money in your life
  • Save 1st — if you invest whatever is left over, there won’t be any left over
    • Automate investments out of your paycheck
    • Separate accounts – the more defined, the easier to save
The Myth Of Sacrifice, The Money Audit, & The Power Of Habits
  • The Myth Of Sacrifice
    • Most things don’t affect your happiness like you think
    • Experiment for 3 weeks by changing one element of your lifestyle — don’t watch TV, don’t get coffee, make lunch at home, etc
    • After three weeks, review – is it really so bad?
  • Money Audit
    • Write down monthly expenses 
    • Ask:
      • Do I really want / need this?
      • Do I need exactly what I have? (a cheaper alternative?)
      • Can I get what I need for less?
    • Ex — author had a $65 / month Cable TV bill
      • 10 years → worth $12,794
      • 20 years → worth $45,104
      • 30 years → worth $126,702
      • He switched to Youtube TV for way cheaper (and which they like better anyway!)
  • Power Of Habits
    • Most of our spending is really just habits
    • List your financial habits, choose one to revise, and replace it with a better habit 
    • Ex — buying Starbucks everyday → make coffee at home / drink water instead
    • Only works if you invest the money saved

Part 4 – Investing

  • Investing is a simple and effective way to build wealth
  • However, before investing you need a basic foundation or you’ll make serious mistakes
  • The author explains topics in easy-to-understand language, such as:
    • Stocks
    • Bonds
    • Mutual funds & ETFs
    • Different portfolio examples
    • Retirement accounts (IRA, Roth IRA, 401k, etc)

Part 5 – Practical Considerations

The author includes a final section with:

  • Common Obstacles + How To Overcome Them
    • Consumer debt, car loans, student loans, and more
  • Priorities
    • A lot of information was in the book, but which things should we prioritize first?
  • Common Excuses and Answers
    • Too young, too old, not enough to invest, and more

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