Here is the full transcript of Jeremy Jacobson’s talk titled “Reimagine Retirement” at TEDxFolsom 2023 conference.
Listen to the audio version here:
TRANSCRIPT:
To any outside observer, my family’s life is indistinguishable from that of our neighbors. We live here in Folsom, just a few minutes from this theater up by the lake. For those not familiar with the area, our neighborhood is largely four-bedroom houses, three-car garages, backyard swimming pools. We have two kids, ages seven and two.
We do all the normal kid things, school, summer camp, I coach their sports teams, we vacation in Hawaii, we sail, we ski, we’ll go to TED Talks. We live a fairly comfortable middle-class, maybe even upper-middle-class lifestyle. The only real difference between us and our neighbors is that I retired over ten years ago while still in my thirties. Since then, I’ve helped thousands of people work towards a similar goal of financial independence and early retirement, and I hope to make that hundreds of thousands, if not millions more.
Redefining Retirement
Perhaps you’ll be one of them. For most people, retirement is something that you plan for after the age of 65. We exchange the briefcase or the tool belt for a set of golf clubs or a porch suite. Life’s focus shifts from labor to leisure.
I view retirement through a completely different lens. Retirement is what enables people to pursue their passions, whatever that may be, completely independent of the need to earn a living, and best when done with the health and energy of youth. How many hopes, dreams, goals, aspirations have been put on hold or cast aside entirely simply because of the need to make ends meet? How much better could the world be if more people were able to pursue the things they truly loved?
The Awakening
This leads us to the question of how. How do I, a normal person from a normal family with a normal job and income, how do I accumulate enough money to fund my desired lifestyle without work for a lifetime? When you say it that way, it kind of sounds like a big deal. I started asking myself these questions, related questions, when I took my first real vacation as an adult at the age of 28.
After years of putting every penny I could towards them, I’d finally paid off my student loans and I thought, “Seems like a good time to reward myself.” So there I am, sitting on the beach, eating shrimp the size of my head, and thinking about work.
Then I had to ask, “Is this all there is? Eat, sleep, work, take a few weeks of vacation each year where you think about work, never have enough time to fully decompress or do all the other things that I loved, and who was it anyway that decided, once we finished school and became adults, that we’d no longer have to suck us off?”
The Plan: Save, Invest, Relax
So I took my engineering degree, the one that the responsible adults in my life had steered me towards rather than allowing me to pursue my dream of becoming a cowboy, and I applied it to this financial challenge. And the answers and opportunities are what I’d like to share with you today because it’s simple and repeatable, albeit flying in the face of all conventional wisdom.
So even if retirement is not something on your radar, this may still pique your curiosity. So what I did is I came up with a simple three-part plan that I called Save, Invest, Relax.
First step is saving. There are really only three things that determine how much money we might have in a future nest egg, time, rate of return, and contributions, how much we save. And it’s that last one, the savings, that’s really the only thing we have any sort of direct control over. So that is where I focused.
Now standard advice says something like, “Save 10% of your after-tax income towards retirement, maybe more during your peak earning years in your 40s and 50s.” But if we’re saving 10%, that means we’re spending 90%. It’s going to take us nine years of effort to build up enough cash to be able to fund our lifestyle for a single year. If we can boost our savings rate to something like 50%, we now have a year’s worth of cash after just one year of work.
And if we can get to something admittedly a little crazy perhaps, 75% savings rate, we’re now able to take three years off for every year we’ve worked. Now who can save 50% of their income? Not me, not most people. It’s maybe a little ridiculous.
So to do it, we had to completely reinvent ourselves. People do this all the time. It’s not that outlandish. We started a new job in a new city. We get married. We have kids. We just reinvented ourselves. Our goal number one was securing our financial freedom.
Lifestyle Design, Not Budgeting
So with the goal of saving 50%, we had to make some changes. But nothing ineffective and ridiculous like budgeting. I hate budgeting. Everything, you’ve got to question every expense. Every month is different. Something’s always coming up. The more effective solution is to design your life such that saving is the automatic and inevitable outcome. You can’t spend more without active effort.
This is what that looks like in practice. So Department of Labor Consumer Expenditure Survey, they looked at where do people spend their money. And the average household spends something like 70% to 80% of the household budget on three things and three things only: housing, transportation, and food. So it’s not skipping the occasional latte. It’s focusing on these three things, engineering approach, 80-20 rule, Pareto principle. We’re going to get the biggest bang for the buck by looking here. So let’s look at each of these in turn. Transportation.
Transportation: The Bicycle
According to the data, the average household spends something like $10,000 a year on transportation.
It’s typically cars, so depreciation, interest, maintenance, et cetera. My main transportation for several years was a bicycle that I bought on Craigslist for $50. I rode that thing everywhere, and so it doubled as my gym membership.
When I was eventually done with it and ready to move on, I sold it for $60. So your average household is spending $10,000 a year, me, making a profit. Now, we’ll talk a little bit more about investing in a second, but a one-time contribution, historical investment returns, we might expect $10,000 to grow to $20,000 in 10 years, $100,000 in 30 years, and a million in 60. Riding a bicycle for a single year instead of riding a car makes future millionaires.
The bicycle is truly one of the greatest wealth creation machines ever invented, and we’re not going to do it just for one year, we’ll do it year after year. Now I know a lot of people are thinking, “But I can’t do that where I live. Bicycle is not an effective transportation solution,” and you’re right. I totally agree.
Housing: Renting Small
I couldn’t do it where I lived either. So I sold my house, and I moved into a room I rented near the office. When my wife and I got married, we moved into a small student apartment near the university, and I just had a little bit longer bicycle commute. We were able to cut our housing expenses overall by about 80%, and best of all, we never accidentally remodeled a kitchen.
Speaking of which, item number three on the list is food. We did all of the normal things here, reduced eating out, brown bag lunch, but the real breakthrough came by focusing on building our culinary skills, or specifically my wife’s culinary skills, because she won’t let me in the kitchen. But what happened is our kitchen became the best restaurant in town. Eating out lost its appeal.
So we recently celebrated our 12-year wedding anniversary, and we went out for a very nice dinner at one of those high-end restaurants, you know, the type where they’ll sell you a $10 cut of meat for $100. And it was amazing. It was beautiful. Great ambiance, great company, but we agreed that the meal itself was nowhere as good as what regularly comes out of our own kitchen.
This is the base on which early retirement is built. By optimizing these big three expenses, we guaranteed we couldn’t spend more than 50% of our income.
Not Living in Poverty
And then over time, as our income grew, we grew our savings rate rather than grow our lifestyle. Now you may be thinking, “Hold on a second, you want me to live like I’m poor?” I grew up on the edge of poverty, and I’ll say deprivation is never healthy in any way whatsoever. I’m simply saying that if you are willing to live a slightly less affluent lifestyle in one of the wealthiest countries on the planet for a short period of time, you could reduce your working years by 20, 30, 40 years. Seems like a reasonable tradeoff, I don’t know.
If there’s a non-glamorous way to describe our story, we did nothing more than live like college students for a few years longer than is socially acceptable.
Living Larger After Financial Goals
And it’s only after we hit our financial goals that we allowed our lifestyle to grow, to live larger. We now spend probably 5 to 6x what we did during our peak savings year, but we can only do this now, because we didn’t do it then. So this brings us to step two of the Save, Invest, Relax plan. We have our savings in autopilot, but we can’t just take these fat stacks of cash that we’re building and put them under a mattress.
Investing in the Stock Market
We need our money to make money, and so we’re going to put it to work in the stock market. Now, the stock market is easily the second greatest wealth creation machine ever invented, second only to the bicycle. And the longer that we can let the compound interest of the stock market work for us, the wealthier we’ll be. And the numbers I shared earlier, 10K becomes 20K in 10 years, 100K in 30, a million in 60, that’s all from historic returns of the U.S. market.
Now, the odds are quite good that you’ve heard of Warren Buffett. He’s sometimes called “the greatest investor who ever lived,” or “the Michael Jordan of investing.” And we’re going to do the exact same thing.
Emulating Warren Buffett
So what he does, simple in concept, he finds profitable businesses that are run by passionate, intelligent people, and then he buys the entire business. And as those businesses grow, his wealth grows. We’re going to do the exact same thing, just on a smaller scale, and without Warren Buffett’s intelligence or connections or skills or experience.
And so what we’re going to do is, through every paycheck, we’re going to take those big chunks of money we’re saving, and we’re going to throw them at the stock market, broad-based market index funds.
And there are two reasons for this. One, they represent the most profitable corporations on the planet that are working to grow their profits year after year. And two, for everybody who hears this speech who says, “That’s not for me, I love my job, I never want to retire, I would do this job for free.” That’s where they work. And we want them working to grow our future wealth. I consider it win-win.
So now, savings on autopilot, investing on autopilot. The third step is actually my favorite, relax. Because now all we need to do is live. Life isn’t really any different just because we’re aggressively saving. Enjoy it. And we’re going to do this until our total net worth, our total portfolio grows to a size that will sustain our lifestyle forever.
Now there’s a study done by a trio of professors at Trinity University, and they looked at this question. How big does your portfolio need to be to sustain your cost of living for the long term? And the numbers they came to, looking at the worst periods in economic history, was about 25 years worth of savings.
And so for a household who’s saving 50% of their income, that’s going to be a 10-15 year journey. 10-15% of a lifetime. 50% of the portfolio will come from our direct contributions or savings, and the other 50% will come from stock market returns. My entire post-college career was less than 16 years. That is the Save, Invest, Relax plan.
Recap and Final Thoughts
Save, invest, relax. Let’s recap. This is not your grandparent’s retirement. This is a focused effort of aggressive savings in order to gain an extra 40, 60, 80 hours a week for the rest of our lives so we can do whatever we want without the emotional or psychological burden of earning a living.
We’re not going to save 10%. We’re going to save 50%. If that still seems a little extreme, let’s think of it this way. In a household, we’re going to live off of one income and save the other. We’re not going to save more in our peak earning years, 40s and 50s. We’re going to save early, and we’re going to save hard. I’m not even 50 years old, and just during our retirement years, our portfolios earned more than we did in every job we ever worked since the age of 14. That’s the normal outcome.
We’re not going to budget. We’re going to lifestyle design. We’re going to hyper-optimize the big three expenses of housing, transportation, and food. It’s not an used car to save money. It’s a bicycle. We can buy a car later. I drove here today in our new EV. We’re not going to buy a starter house. We’re not going to buy the smallest house in the best neighborhood. We’re going to rent, and we’re going to rent small. We can pay cash for a house later.
We’re going to focus on skill building that enhances our lives while reducing expenses. For example, becoming the best restaurant in town. And then, we’re going to enjoy the journey. Life is good. What would you do if you never had to work again? How would you spend your time? Would you spend more time with family? Would you volunteer in your community? Run for office? Throw yourself into your art? This is the path we took to early retirement, financial independence. It’s simple. It’s repeatable. What happens next is up to you. Thank you.