MMM Reader Case Study: The Man who didn’t Realize he was already Rich

This week, Mr. Money Mustache was honored to answer more calls for help from his readers. There was one in particular who had an interesting situation, and was generous enough to let me share it with you (anonymously of course) after we were finished the email discussion. We’ll call the reader SAM – short for Surprisingly Advanced Mustache.

Check this out and see if any of it sounds similar your own situation:

Age: 41.
Family: 2 parents and one young kid.
Desire: To enjoy some form of Mustachian early retirement.
Fear: He did not feel he would be able to accomplish this until at least age 65 based on his current situation.

Current Spending Situation:
Salary: $70,000 annual (one worker, one stay-at-home parent)
Living Expenses: $2351 including mortgage at $1250
Remaining Mortgage Amount: 140,000

Current Saving Situation:
Retirement Account Balance (401k/IRA): $300,000
Emergency Fund or Rainy Day savings: $80,000
Annual Savings Rate: About $28,000 including 401k, IRA,  and additions to the Rainy Day Fund

What do you think? Is Sam almost ready to for Early Retirement, or still 25 years away as he fears? Let’s find out right now!

What I am quickly realizing is that MMM readers are all in rather different situations.
For people with high incomes and low savings, the solution is getting people motivated to find interesting ways to streamline their lifestyle.

But many of the self-selected crowd  who read an Early Retirement blog like this are already quite frugal. The situation above, for example, describes someone spending even less than we do in the MMM household, for a family of the same size. For these people, the solution might be a bit of financial wizardry. It is at this point that Mr. Money Mustache fires up the Turntable on the right – the one with Ulysses S. Grant from the $50 bill instead of just the $1 Washington platter.

1: Let’s look at Sam’s retirement balance*.  It’s $300,000 right now, which is actually a fairly sizable ‘Stash. But lest the younger folks get discouraged, this is the amount you end up with if you just let your 401K run with auto-deductions of $1000/month from age 25 to 40 and it compounds at 7%**.

If Sam stops contributing right now, this balance will automatically grow to about a Million Bucks by the time he is 60, even after adjusting for inflation. So it is already on-track to be much more than he needs to live on from age 60, for an unlimited time, living only off of the passive income it gains. And not even counting some eventual Social Security income! ***

2: We’ve established that Sam is DONE saving for old-age retirement. Now he just has to get enough money to get from his current age until age 60 when the Million Dollar Retirement kicks in. How much does he need to do this?

His family is living on $2351 per month right now – $28,000 per year. To generate that much income with no work, he would need another $403,000 working at 7%. With $80k in the bank right now and a $28k annual savings rate, he is already less than eight years away from a full retirement if he continually invests the early retirement money as he goes along.

It’s actually even better than this – because the assumption above assumes that he uses none of the $403,000 principal to live on, only the investment gains it and dividends it generates. And it assumes he never makes another cent after he retires – I believe most people who retire well under 60 will find they WANT to do some paid work occasionally to keep their minds sharp and to have challenging interactions with other adults.

So here was the final MMM prescription for Sam:

1 – Immediately put your $80,000 rainy day fund into a mixed 60% stock/40% bond fund (adding the bond component makes the return far less volatile – this is important since you will be starting to use this money in less than 10 years and need lower risk). If you simply buy the Vanguard balanced fund (VBINX), this whole step is done with just a few clicks.

You can set up a line of credit on your house, which you won’t actually use, for small rainy days, and of course you can always sell shares of VBINX whenever you want if there is more rain.

2 – Pay off your Mortgage over the next 5 years or so using your $28,000 per year savings rate. Then you are done with mortgages forever. This technically earns less return than just investing the extra money, but if you are conservative like me, you like to be out of debt earlier. If not, just invest extra and pay the mortgage slower.
At this point, you can subtract about $900/month from your monthly budget (the P+I part of your mortgage payment.. you still have to pay property taxes of course).
Your new annual living cost will be about $22,000. 

Your VBINX fund will have compounded to about 100k by this point. You can safely withdraw $10,000 per year from that and it will only run out right as your million-dollar 401k fund kicks in. So now you only need about 12k of annual income.
Option 1 – You could drop down to about quarter-time employment, just enough for free health insurance and a thousand or two dollars of easy income per month. Then you’ll still be saving a bit each month and you can increase your lifestyle/vacation/college savings budget. (This is sort of my own path, since I still actually like to work occasionally).
Option 2 – You could work 3 more years, ‘Stashing all that now-unneeded mortgage payoff money to really build up the VBINX early retirement fund and quit entirely.
Congratulations Sam! – you are not 25 years from retirement after all – you’ll be sitting on the front porch thoughtfully grooming your Money Mustache on a weekday morning before your young child starts the second grade!
There are two lessons in this story:
Lesson One: You can retire a lot earlier than most people if you have moderate living expenses. Even without a million dollars in investments.
Lesson Two: It is really fun to stay just a teensy bit engaged in some sort of business even after you retire. It doesn’t have to be in your original work field. But it does have to be fun. This also gives you reassurance that if you ever DO want extra money besides what you have saved, you can always turn it on with a switch.
The Footnotes:
* (for Canadians: 401K and IRA are just synonyms to RRSP). But one key difference is that in the US, these accounts tend to discourage early retirement: you pay a 10% penalty PLUS any applicable income taxes if you withdraw from them before age 59.5. In Canada, the RRSP is open for withdrawals any time – you just have to pay the deferred taxes.

**  Since the past 15 years happened to span both a crazy boom and a crazy bust which we’re just coming out of, how are the 40-year-olds of today doing? Well, as of May 2011, a $1000/month investor would have STILL averaged just about 7% compounded including the dividends, which have have averaged 1.84% per year. That is the magic of Dollar Cost Averaging to help smooth out price fluctuations in the long term.  But  but this is an unusual result so hang in there. The stock market has already recovered most of the losses it made during the Great Recession.

*** Social Security: contrary to popular belief among grumpy people with limited training in macroeconomics, the Social Security fund is absolutely NOT going bankrupt, it will simply adjust to a modestly lower level of payouts than currently scheduled. More on that in a future article.

  • Anita May 18, 2011, 9:44 am

    I am very envious of this person! I wish I I was in this situation.

    • Leda May 19, 2017, 2:56 pm

      Everyone needs to start somewhere!

  • Steve May 19, 2011, 1:03 pm

    Here are some steps I’ve been taking to prepare for my early retirement.

    1. Emptied my money market that was paying .05%
    2. Emptied my savings account paying .025%
    3. Purchased iBond at TreasuriesDirect and requested paperwork to be able to buy another via post. This will allow me to double dip and bypass the 5K limit and obtain a 4.6% rate on rainy day funds.
    4. Opened a brokerage account and purchased IWB. I chose IWB because it offers a comparable fee to Vanguard and I can turn it into cash immediately with no problems and no roundtrip bs to deal with. I will be dollar cost averaging into IWB this summer to even out any market fluctuations and keep my wife from freaking out if the market caves next week.
    5. Keeping an extra month expenses in checking for bills and summer vacation
    6. Printed a spreadsheet for my predicted goals so I can keep motivated and compare to actual progress.

  • newbie May 25, 2011, 8:25 am

    So the family profiled is spending approx. $1100/month, not including their mortgage expense? I don’t want to sound like a hater, but holy cow! How are they pulling that off???

    I’d like to think we’re conscious about our spending, but were are twice that amount each month with no mortgage/rent payment of any type.

    Tell me how it’s done! Inquiring minds want to know!

  • Acorn May 26, 2011, 7:35 am

    $1100/month for a family of 3 – where do they live?!

    • Gerard July 27, 2012, 3:09 pm

      I dunno, that doesn’t seem too difficult… I did grad school in an expensive city (Ottawa), and we brought up two young kids on less than that. About $400 a month for food, $75 for transit, $120 for diapers and kid clothes, $150 for grownup clothes and beauty and stuff, $100 for phone/internet, $50 for incidentals, $120 for heat and electric. Of course, our entertainment budget was near nil.

      • Mick Marrs January 4, 2016, 7:47 am

        Living in Ottawa and commercial entertainment near nil? Wow you are disciplined, the temptations are high there :-).

  • Diane May 26, 2011, 11:33 pm

    “You could drop down to about quarter-time employment, just enough for free health insurance and a thousand or two dollars of easy income per month.”

    -Seriously? I’d love to see a list of companies that provide free health insurance to quarter-(or even half-) time employees. Inquiring savers want to know.

    • MMM May 27, 2011, 9:29 am

      Hi Diane – excellent point that I’m sure other readers have wondered too. We’ll definitely explore that more in upcoming articles and hear from others who are actually doing it (including my wife).

      Part of the magic of becoming more financially independent over time is that you realize it is YOU that gets to set the rules of how life works, not a particular employing company. To an employer, health insurance is just a monthly bill, just like your paycheck and your payroll taxes. When you negotiate a part-time position for yourself, everything is up in the air and negotiable. What work you will do, your hours and work location, your benefits, and your pay.

      Early retirees tend to be a pretty confident bunch with some very useful self-management skills. Exactly the type of people who can get real work done, and thus the type of people many company owners would like to hire as contractors. So there are a surprising amount of work opportunities that pop up. I think many of these people also have some entrepreneurial spirit and tend to start their own small businesses, so negotiating for “free” health insurance might be as simple as asking themselves for it over a few beers ;-)

      • Leda May 19, 2017, 2:59 pm

        Hello MMM,

        I am wondering if you have any good resources for dual US-Canadian citizens. I am an expat technically because of an American mother. I haven’t lived in the US. I have become pretty well versed in American tax law through my own independent study to file my taxes myself, yet there is much to learn! Cheers, Leda

  • Dan May 28, 2011, 12:03 pm

    How do you figure that a 7% withdrawal rate is “safe”? Most literature suggests no more than 3.5% for early retirees; are you forgetting inflation?

  • DMac June 1, 2011, 3:03 pm

    I am curious as well about your 7% withdrawal rate. Will this persons expenses ever rise with inflation? Seems to me that utilities and food expenses go up every year a little bit therefore they will need more income each year which if they pull out of savings will draw down thier nest egg.

  • DMac June 1, 2011, 3:10 pm

    Also, what about market volatility? What happens if the year he retires we see a market correction of 10%? His 403K goes down to 362,700 minus the 28k he needs to withdrawal for living expenses so all the way down to 334,700 after only one year of early retirement. Couple bad years early on could wipe out his dreams of early retirement.

    • MMM June 1, 2011, 3:31 pm

      You Doubters have inspired me to do some more articles on the Safe Withdrawal rate and the various probabilities of success.

      But for now, think about this quick answer: I told the reader he needed the four hundred thousand JUST TO GET FROM AGE 45 OR SO TO AGE 60. So that chunk of cash only has to last 15 years. After that, he switches to using the million-dollar 401K fund.

      For a 15 year withdrawal period, the historically safe withdrawal rate is actually more like 8-9%, rather than the 7% suggested. So I was being CONSERVATIVE rather than optimistic.

      Mr. Money Mustache is always Optimistic about the awesome power of people to work hard and spend less money, and Conservative about his assumptions about passive investment gains.

      You can start your reading here while I write more of the fancy article: http://www.bogleheads.org/wiki/Safe_Withdrawal_Rates

  • Turtle November 9, 2011, 10:41 am

    Is it wise to put VBINX in a taxable account while still working as the bond yields are taxed as ordinary income? Depending on his effective tax rate, wouldn’t he be better off with the tax-managed balanced fund (VTMFX) or buying a combo of Total stock market (VTSMX) and something like the intermidiate term tax exempt fund (VWITX)?

    • Bryan October 10, 2018, 4:00 am

      I thought the same thing. I use VTMFX instead of VBINX. Even though it is a 50/50 mix and not 60/40 the rate of return after taxes and sale of fund shares since inception are almost identical. Would like MMM thoughts on this but I know I’m responding 7 years later :-)

  • Paul Wylie December 10, 2011, 2:36 pm

    Wonder is there are UK comparisons for US savings accounts.

    I currently have
    ISAs (cash or equity – max c£11k a year)after tax savings but income is tax free.
    SIPP (pension – cash goes in gross – max £50K)
    Company pension (cash goes in gross – shares same £50K 6% from me gets 12% free from my employer but everyones situation is different)

    Interesting example you used – very similar to my own situation

    • Paul Wylie December 11, 2011, 11:07 pm

      Just found a UK tilted spreadsheet elsewhere on your website that suggests I am able to retires at 51 – I am 44 just now.

      Alas in the UK I cant touch my pension pot until I am 55.

  • Trina October 24, 2012, 8:24 am

    MMM — I realize this post is quite old, but I just discovered your site and I love it! I am trying to understand one small point in the article. You state:

    Your VBINX fund will have compounded to about 100k by this point. You can safely withdraw $10,000 per year from that and it will only run out right as your million-dollar 401k fund kicks in.

    If only five years have passed, he’s still only 46, right? And if his million-dollar 401k fund won’t be ready until he’s 60, doesn’t he have four more years to cover in between?

    Thanks so much!

    • Mr. Money Mustache October 24, 2012, 9:08 am

      Remember that the $100k will still take ten years to deplete as you use it up, and the remaining balance will still be in there working for you. So after a year, you’ll still have 90k in there at work, and so on.

      • Trina October 25, 2012, 9:49 am

        Thanks for the follow-up!

  • Tom December 3, 2012, 6:48 pm

    Or, you could retire in about 6 months.

    $380,000 – $140,000 mortgage = $240,000

    Monthly expenses = $2351 – $1250(mortgage pmt) = $1101

    To retire with the same lifestyle in perpetuity, one needs $1101 x 12 (months) x 20 (inverse of 5% annual passive earning on investments) = $264,240.

    So Sam, pay the mortgage today.

    Invest your time at the margin in learning to manage money instead of engineering or leisure – because your return on a $240k portfolio for skilled money management vs the foolproof idiot way of index funds will far surpass $70k / yr you get as an engineer. Pretty much everyone in an engineering / architecture / doctor / scientist / construction / contractor / entrepreneur role should get >$100k by the time they’re 40. Unless the job is the best possible way you can imagine spending your time, they’re paying you peanuts. Kill the mortgage RIGHT NOW, put in 6 more months at the job, hit your target portfolio size, and do whatever you want for the rest of your life.

    If you insist on remaining financially retarded, then go with the ultra-bulletproof Jacob from Early Retirement Extreme number of 4% annual perpetual savings interest, and your target = $330,300. Still, kill the mortgage RIGHT NOW (why are you paying a bank to borrow money that YOU HAVE), work 12-24 months as an engineer (you’re saving $56,788 per year now that you have no mortgage), and pull the trigger on retirement when you reach a slightly higher target.

  • Bruno June 21, 2013, 10:07 am

    Hi Mr. Money Mustache, what about some follow-ups on those reader case studies?

  • Nate September 19, 2013, 10:45 am

    This is the most encouraging article I’ve read in a long time. I’m 29 and have really similar stats regarding 401k, available cash, and money owed on my mortgage. (I’m a tad low on the 401k, but I’ve got 10 years to catch up). I’ve always figured I would work until I’m 65+ like my parents, but it looks like I could be in a good position when I finally have a family to actually enjoy being a parent. This is great motivation to get my finances under a little tighter control. Being an engineer, I have a feeling there will be lots of opportunities for part time/contracting work if I do elect for early retirement. Thank you!

  • Michelle November 6, 2013, 1:06 pm

    I am confused about the math. By my calculations, he is 11.5 years from retirement:

    #of years to retirement = ((annual expenses/withdrawal rate) minus amount already saved up)/yearly savings

    # of years to retirement = (28212/.07 – 80000)/28000 = 11.5

    How did you end up with 8?

    • Jeff February 25, 2014, 10:12 am

      His savings are earning money between now and his retirement. Therein lies the entire difference.

  • Ginny March 19, 2014, 12:57 pm

    MMM – Cannot thank you enough for your wonderfully funny and inspiring blog! I have reread this reader case study many times to inspire myself because my situation is similar. Just wanted to share a small suggestion about the Vanguard shares. If you are putting in $80,000 (which is over the $10,000 limit for Admiral shares that have lower expense ratios than the regular shares), you should invest in the Admiral shares of the same fund which are VBIAX rather than VBINX. The VBINX has 24 bps expense ratio and the VBIAX only has 10 bps.

  • Derek August 24, 2014, 10:03 pm

    Thanks for the very illustrative post!

    “At this point, you can subtract about $900/month from your monthly budget (the P+I part of your mortgage payment.. you still have to pay property taxes of course).
    Your new annual living cost will be about $22,000.”

    Shouldn’t the new annual living cost be $17,412?
    ($2351 – $900) * 12 = $17,412

  • Tim October 22, 2014, 3:19 pm

    First of all, thanks to MMM for this site. I’ve been living a modified MMM lifestyle without even realizing it. This blog has given me lots of things to think about.

    But I have a very basic question, regarding this sentence:

    “Immediately put your $80,000 rainy day fund into a mixed 60% stock/40% bond fund (adding the bond component makes the return far less volatile.”

    My question is, aren’t there contribution limits? E.g., 17,500 in a 401(k) plus another $5,500 in an IRA (presuming you’re younger than 50? I’m not saying I have $80K to sock away (I don’t), but if I did, where would I go to do it?

    • Mr. Money Mustache October 22, 2014, 5:34 pm

      Hey Tim, welcome!

      I was thinking an standard taxable account rather than a 401(k)/IRA (just go to Vanguard.com or Betterment.com and open an account, then toss in the money). Since we want the funds to be easy to withdraw in the unlikely event of a rainy day, you don’t want them in the retirement side of your finances yet.

      • Tim October 23, 2014, 8:11 am

        Interesting. I didn’t even realize that was a possibility. Not an issue now, but it might be in two years when the mortgage is paid off.

        Thanks for everything you’re doing here. I only discovered this place a week or so ago, and you’re already making me reevaluate my plans for the next few decades. Keep it up!

  • Dina January 11, 2015, 10:58 am

    Hi MMM,

    I would classify myself as mature junior (newbie) MMM, living in Canada. My question for you is around RRSP investing. We use an investment advisor to administrate our funds. Would we be better to use Vanguard to mitigate fees? Would this require a lot more care and feeding?


  • Slee July 9, 2015, 7:46 am

    This case study was an exciting read for me. I am nearly identical to the example minus a little less of the cash savings, but with a bit more annual earnings. And this ignores the wife’s stash which is not too far behind mine. Its actually frightening to think we could be very close to real retirement if not already there. Non 401k money and health insurance would probably be my biggest two concerns. I’ll jeep reading and learning! Thank you to the commenters as well, I pick up ideas and tips in this section as well.

  • Rich September 11, 2015, 5:19 am

    MMM, I really like your site, and stumbled on this old article. Unfortunately for this family, the 1MM in future dollars he has at 60 is only going to be worth 600-700k in today’s dollars, based on avg. inflation rates. His expenses if he keeps them the same, will be around 100k in future dollars, so he’ll need to pull around 10% a year out in order to maintain his current lifestyle. He won’t be able to get full social security until his mid-late 60’s, so that needs to be considered. Plus, assuming 7% avg growth rate does not factor in the sequence of returns.. i.e.; we could have a decade of bad returns in stocks OR bonds, which could blow up the whole strategy. A safe strategy is around 5% withdrawal rate as a starting point, which gives him 50k per year, which sounds like a good amount now, but in 15 yrs.. will be worth a lot less. Throw in some out of pocket medical costs, and they could be in a financial hole. (By the way, on a side note, here in the US, you can pull money out of your 401k at 55 with no penalty (just taxes) if you retire. There are also strategies commonly called “72t distributions” in which you can do the same with an IRA.)

    I think the path you alluded to is a good one. Keep working at something you like, at hours you don’t mind working, to earn some money, to take the pressure and stress off your portfolio performance, provide some health benefits, and keep the marriage together! It also removes the pressure of having to “save x dollars by age y” in order to be happy.

    By the way, personally, I’m in my early 50s, been avoiding much of the “entrapments of wealth”, and save 50% of my take-home pay. I work in a career I like, 30-ish hours a week, 45 weeks a year, travel a ton, and can retire today if I want to.

    Keep up the good work! I share your articles with my younger relatives to steer them toward other ways of finding happiness than buying a new boat or truck!

    • Jeff September 11, 2015, 7:00 am

      Rich, see “about a Million Bucks… even after adjusting for inflation” – entire scenario is already in today’s dollars. Even if MMM hadn’t already done it, only one correction factor would have been necessary, but you actually applied it twice by discounting the $1M and inflating the future COL – effectively triple-counting inflation.
      This scenario uses a 4% safe withdrawal rate that accounts for both inflation and market fluctuations. These factors and their relationship to the SWR are not explicitly addressed here but are mentioned in other articles. As far as the 7% growth – obviously, if we have a bad decade, it’ll take longer to retire. That’s a given for anyone in the accumulation phase.
      Good point on 72t/SEPP – this illustrated one way to solve the problem, and that would be another. It might further reduce taxes, but complicates the planning somewhat. Come to the forum and discuss ;)

      • AV November 11, 2015, 4:52 pm

        Hi MMM just joined your blog. While i am elated i’m also sad i only found you now. I’m 44 and a complete illiterate when it comes to investing.Your blog is an eye-opening one and rich with useful info I am devouring. Unfortunately I have been a wild consumer for many years so my stash is only constituted by a 401k but your site gives me hope. I too wish to retire early and the discipline in spending less you predicate might align me to do just that. I am starting with taking care of my credits cards debts. Unfortunately the mortgage is not one debt I will be able to extinguish unless I sell my house but my life style has great margin for improvement. So I have started cutting exorbitant cell phone bills, cable service, and shopping around for new energy providers. Lots to do my friend… lots I tell you.

  • Ravi May 27, 2016, 8:00 am

    What about taxes? Should we be running this calculation to assess how much pre-tax passive income is needed to maintain a similar lifestyle?

  • Bryan October 14, 2019, 4:45 am

    I’m doing the same, but using VTMFX instead of VBIAX. It’s a more conservative 50/50 mix of stocks and bonds but since it’s in a a taxable account it uses municipal bonds and lower dividend stocks than VBIAX. I doubt you’ll see this MMM, since this post is 8 years old but do you have any thoughts on that?

    Thank You,


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