Early Retirement Dude retired at 36 after a thirteen-year career. He decided that the birth-school-work-death cycle wasn’t for him so he made money and put it to work so he doesn’t have to. Tune in and find out how you can too!
Chris Pratt: We have an awesome guest today. He has been retired since the age of 36. His net worth is $3.6 million. And he’s been mentioned on New York Times, Wall Street Journal and the Washington post among other places. He goes by the name ER Dude, but we’ll call him Ed. Welcome to the show Ed.
Ed: Hey, thanks for having me, man. It’s an honor to be here.
Chris Pratt: Yeah. Thanks for coming on. So you have like this really amazing and interesting story, kind of just being an advocate for all of these different, uh, kind of financial independence, uh, methods. We’ll talk a little bit about that later, but I wanted to hear more about your story and about how you grew your net worth to $3.6 million over your lifetime. So where does your financial story begin
Ed: I was in College, and the job market was terrible when I graduated. So I went on to MBA school for a degree in finance and happened into a job in radio and was getting some journalism work. So I was just getting, you know, my toe dipped into the music industry and I loved it, man. It was just so much fun rock and roll lifestyle, you know, getting recognized, all that good stuff, but being an MBA school, you know, the thing you do, you drink the Koolaid that you’ve got to get a “good” job. And so after I got my MBA, I immediately hung up all that music work I was getting in, went straight into corporate America and was immediately miserable.
Chris Pratt: So what made you decide to get an MBA in the first place ?
Ed: Well I was never much of a math guy, which is odd for somebody who wanted to find it, but, uh, yeah, engineering, uh, you know, it didn’t really appeal to me. I’m I guess, more of a creative type. And uh, since, you know, in MBA school, I think, uh, to a great degree, you were encouraged to make a lot of stuff up that seemed, that seemed to suit me. And yeah. So
Chris Pratt: Why even go to grad school, uh, in the first place? Why was that on your mind?
Ed: I pretty much found myself painted into the corner of either going to, uh, continuing my college education or joining the military. So I pursued both and I happened to get offered a full fellowship to an MBA school. So I went that way with him.
Chris Pratt: So then you go to MBA school, you get your MBA, you get this miserable corporate job. And then what happens?
Ed: The crystallizing moment for me came very shortly after I took that job just a few weeks after I took it. It’s a beautiful summer day, I’m on my way to an all day meeting and I’m wearing a suit and, you know, I happen to walk by these big plate glass windows. And I mean, again, it’s a gorgeous day and I’m just imagining all my friends out at the Lake and whitewater kayaking and drinking beer and all this. And just immediately, I knew that I had to get out of there. So I went back to my, you know, after the meeting was over, I went back to my cubicle and started crunching numbers about how much money I would have to save and what return I would have to earn to be able to, uh, get out and be self sufficient without working a corporate job, came up with a number based on some very naive assumptions, but continue to refine those. Uh, as I progressed in my career and, you know, got a little more financially sophisticated, um, all with respect to investing and, uh, yeah, crafted a plan and followed it, stuck to it. And 13 years later, uh, I was able to get out.
Chris Pratt: Yeah. And when you say a number, what number are you talking about? You know, number of dollars you’re saving in your paycheck or what numbers where you, where you coming up with?
Ed: Well, it’s all numbers and then you’ll hear a lot of conversation and what’s, what’s the magic number? How much do you need to retire? And from that, you have to back up into all kinds of forecasting and the forecasting requires researching and, you know, accepting or not current assumptions, incorporating those into a model that perhaps you craft or, you know, a model that you believe that somebody else has crafted, like the 4% rule, which, uh, which people will have heard of.
Chris Pratt: I’m guessing you’re very analytical. And, and you were very particular about the numbers. It sounds like when you were, you were crafting this plan, is that a fair assumption?
Ed: Oh, yes. Yeah.
Chris Pratt: So I’m curious for the benefit of the people listening, how do you even start to craft those numbers? Right. So like, let’s say I graduate, I get a nice corporate job. I’m making, I don’t know, $2,000 per paycheck or $3,000 per paycheck would have you pick a number. And I have a 401k, I have an IRA that I can invest in. I have all of these different ways I can invest. I could just invest in a taxable account. Where did you start? Like specifically, did you start investing in a 401k? Did you start by just putting money in a savings account or like, how did you actually start?
Ed: The very, very, very first thing that you have to do is get your spreadsheet skills up to speed. Um, because if you don’t know how to model these numbers and work around these numbers, you can, there’s no point in even pulling them in the first place. So with that said, I entered the workforce in 1993, just when 401ks were beginning to proliferate and to kill off, you know, the old school defined benefit pension. The thing about that was that we had financial advisors coming around and I think most people did, uh, had financial advisors coming around to our offices, trying to sell us on why 401k’s are the greatest thing ever. And you are going to make a lot more money from a 401k participating in the stock market than you ever went from a traditional pension. It was easy for a lot of us to go back to our cubicles and start crunching those numbers. So yeah, a 401k was what I got into initially, everybody was in the 401k and happened to be getting into them just as the tech bubble was beginning to take off. And so we were all making money. It was just about impossible not to make money in the stock market in the late nineties. They were just shoveling it out. So yeah.
Chris Pratt: Got it. You have a background in finance and I talked to a lot of folks who have a background in finance, and I think that, you know, anyone who is in a particular field kind of has an easier time with, with some of these different investment vehicles having learned about it in school and having practiced it one way or another in your actual profession. And one of the biggest things that my listeners deal with is kind of just the anxiety of having to learn what all of these things are like, what is a 401k, what is an IRA? What is a pension, and then deciding which one to invest in and which one to do. And I find that for them, it’s less about the numbers and the models, and it’s more about just doing it in the first place. So that’s why I was asking, like, where did you start?
What did you start with before we get into the, the kind of nitty gritty of how to actually do it? Right? Because the, to me, the biggest barrier is getting started. And then after that, obviously you want to grow and you want to optimize and plan for specifics of, of whatever your goals are. So that’s kind of the perspective that I’m coming from. When, I ask a question like that, and I think that for listeners, that’s the something that tends to be really, really big is that they’re just like, I don’t know how to start, or they come up with a bunch of excuses for why they shouldn’t start investing or saving right away. I’m guessing you just knew that this was a good thing to do. It was a good idea to start investing as soon as you could.
Ed: Yeah. Because I wasn’t particularly materialistic, Yeah. But I mean, use the word anxiety. Hopefully I can dispel a little bit of that anxiety with what I’m about to say, this stuff is not that complicated. I didn’t have to go to MBA school to learn this stuff. Anyone with an internet connection can figure out how to get on a sound financial footing by themselves and just a few hours of study. And it’s, it’s really straightforward. You know, you need to take advantage of the retirement program that your employer gives you because, and that is generally going to be a 401k because they will subsidize your savings. And then once that’s done, you know, once you put as much money there as you can, you need to have a household budget that includes a healthy savings component. You need to put that money to work in a very simple way.
The conventional wisdom in the, in the FIRE community is that that is a low management fee index fund that tracks the broadest stock market index. Um, that’s popular, it’s the S&P 500. And, you know, the company that most people go with, uh, for that vehicle is Vanguard. You know, so it’s, uh, yeah, you can, you can just go out and look up a few simple things online. Uh, how do I put together a budget and stick to it? You can ask your employer, how to, you know, how do I participate in my 401k? And you can figure out for yourself, how much can I save, based on my budget and, uh, is the best place to put that a low cost index fund. Yeah. And just a few hours. So I don’t want your listeners to be anxious by the thought that you have to engage in really sophisticated analysis and be Warren Buffet to make any money in the stock market at all. And, and conversely, I don’t want them thinking that making money is easy on the stock market, either by picking individual stocks, people get that impression that your boy, if I only knew what to do, it would be super easy to make money. And quite frankly, a little editorializing companies like Robin Hood or out there preying on that. Yeah. So, I would caution people against day trading, but yeah, it’s really not that complicated. It’s really not. You’re smart enough to know how to do it if you’ll just go out and study a little bit.
Chris Pratt: Right. Yeah. And that’s one of the things that we try to do with this show. So you actually packed a lot in there in those few sentences that you just shared that a lot of people don’t know. And I think that those words are where the anxiety comes from. So one of the things you mentioned was FIRE financial independence and retire early. It’s a common, and I don’t know, hip phrase these days. And another thing you mentioned was low cost index funds, and you talked about Vanguard and about the S&P 500. So before we get into actual investing in what you should invest in, I’d like to talk a little bit more about your FIRE journey. And so could you explain what fire is? And then could you also explain how that shaped your retirement goals and, and led you to retiring at 36,
Ed: The acronym, financial independence and retire early. They’re two different concepts. And, uh, the, the number one thing to know here is that you need to work towards having something to sell besides your time. Okay. That might be real estate. That might be an amount of money that you can invest that will give you back a return. That’s equal to the amount you need to live comfortably. That might be any number of things, but it’s so financial independence is the idea that you’ve amassed the amount of money that lets you do that. Okay. Uh, it’s it replaces your need to earn a salary. Retirement is a little bit more slippery because depending on who you ask, that might be 50 years old and it might be 20, but the traditional retirement age is becoming the upper sixties as more and more people get thrown back on social security as their main income source. Right. And, uh, yeah, so I, there’s a lot of room in there, you know, 36 I think is generally considered to be pretty young, but I mean, that’s a, there’s a lot of
Chris Pratt: Yeah. By, by most people’s standards. That’s very young.
Ed: Yeah. Well, I think so. Uh, I think so, uh, unless you’re in like Silicon Valley, you know, certainly there are, there are people who have been able to get out of the traditional nine to five. They, well, they’ve been able to stop working for wages, uh, and they’ve been able to move on to, you know, to doing other things. But to the sub point here that I think is really a little bit more germaine. Uh, as I said, people have different lifestyle requirements. Some people don’t need to own anything. Let’s look at Cistercian monks, you know, Travis monks, or what have you, a vow of poverty. They don’t, they don’t own a dime, you know, these people. And yet they live very secure and fulfilling lives. A lot of people wouldn’t be comfortable doing that when, you know, they might be more comfortable, quitting, full time work and going to work part time and something that doesn’t pay anywhere near as well.
But, uh, they find much more enjoyable. So, uh, and some people need to have a, you know, a very high amount of savings so that they can afford a very high quality, uh, well, high end quality of life, let’s say, so there’s all kinds of different needs. And I encourage people to take a good, hard look at themselves before they start thinking of a magic number. Like boy, a hundred thousand dollars a year would be comfortable. I’ll shoot for that. When like, you know, I could downsize and live on 35 and I could get out of my job, you know, that makes me miserable 15 years earlier.
Chris Pratt: So you mean, so you mean that, you know, some people might want to make the trade off of, of, I might not be making as much, but I don’t have to work. So it’s okay that I’m not making as much.
Ed: Before I get to work there are things I find to be much more pleasant. Yeah. And this is where we get kind of caught up in the idea of what retirement means and you and I could do, we could talk for nine hours about that. I’d really, there’s a rabbit hole man, but, uh, to your listeners, I would say, please, don’t get caught up in the assumption that being able to retire early requires you to be rich because that may not be the case depending on, uh, depending on the life, your ideal lifestyle. Um, so FIRE is just as much a journey of self discovery as it is of numbers. And that’s important to remember.
Chris Pratt: It sounds like from what you’re saying, you view that the FI part, the financial independence component, more highly, you view that as more important than the RE retire early component, just because of the connotation and stigma that kind of comes with the word retire.
Ed: Well, the beautiful thing about financial independence, uh, is that you could define it as, uh, an amount of money, uh, that enables you to tell anybody in the world of buzz off and get out of your hair. And, uh, so that could be six bucks and it could be 60 million, you know, I don’t know, but is it important again, that depends. There are people who just can’t wait to get out of the workforce and there are people who really enjoy their jobs. And so shooting for financial independence, uh, would probably be a good thing for both simply because your job might go away. You know, whether there’s an economic contraction and you’ll lose it or you just decide, you don’t want it anymore retiring early. It’s not for everybody. It’s not for everybody. If you, if you love your job, I, why would you want to leave it? I’ve never understood that. Yeah.
Chris Pratt: Right. So, and you did not love your job.
Ed: I actually kind of did.
Chris Pratt: Oh, you did?
Ed: Yeah. Isn’t that strange? I was lucky enough to get into a company that treated me really well. And I worked with good people and, uh, I found myself for the last few years in some nice circumstances. And yet I was getting burned out because it was a very high energy job. It took a lot out of you. You worked a lot of hours. And I could tell that if I was going to move on, I needed to, it was just time. I had been working on this plan for a long time. Uh, I knew there were some other things I wanted to do, and I was very sad to leave that job. But, you know, I felt it was best in the long term for me to do it. So what I just said, maybe that’s a little bit hypocritical or a self contradiction or what have you. But, um, but yeah, it was complicated.
Chris Pratt: Yeah. I mean, these things are never as simple as we make them out to be. You can plan all you want, but life kind of takes its twists and turns and does what it wants with you and you kind of replan and you try to redirect yourself and keep yourself going on the righteous path. So I want to switch gears a little bit. Cause I think that you had a couple of really important insights and some really good information about how to actually invest. So let’s say I just graduated college, going back to that example. And I am making, you know, $2,000 a paycheck and I decide that I want to invest 10% of my paycheck. So 200 bucks a paycheck into the stock market, what would you say for a beginner who knows nothing about stocks has no idea what Vanguard is. You know, maybe they’ve seen Robinhood, uh, some friends about with Robinhood on the app store. What should I do with that $200?
Ed: I think it’s most important to play the long game. And the long game is that instead of looking for those home runs that get you a hundred percent return in nine days, that you want to look at a way to get seven and a half percent year over year for the rest of your life, because that compounds and ultimately you’re going to make a lot more money doing that. When you start thinking about where can I get seven and a half percent year over year for the rest of my life, the answer is going to be the stock indices, like the Dow and the S&P the NASDAQ and so forth. And of those, the S&P 500 is the broadest of the indices that are in popularity. I mean, there’s some others, but yeah, I, you need to look into those, uh, that is, that’s the mindset that I recommend, and that mindset leads to a fairly narrow set of options.
And, uh, yeah, those options will tend to be the indices. And the reason I say use the reason I picked Vanguard as an example, again, just because it’s an investment in choice in the financial independence community. And that is because Vanguard charges a very low management fee. I’m sure everyone’s heard of a hedge fund. You know, it may sound like a mysterious thing, but it’s, it’s just private money management to put it very simply. Well, they tend to charge pretty high management fees. They charge you a percentage of your assets every year to manage your money. And that can be 1%, 2%, 3%. Whereas if you get into a low fee kind of investment, like as available at Vanguard, you might be paying 0.01%. Say, just pick a number out at thinner. Well, you can see how the difference between 2% and 0.01% adds up every year.
And again, compounds year over year into a substantial amount of money across time. If you’re getting a seven and a half percent return, and somebody’s charging you 2% of that, you know, you can see how quickly that would kick the legs out from under your returns. So that’s what I recommend that people should look like, especially when they’re young. But that said, when you’re just getting out of college, I think you have some other important questions to ask yourself at one of them. And this is a big one being well, given the amount of student loans I have and the interest rates on those, should I really be investing in the first place?
Chris Pratt: Yeah. I’m glad you brought that up. And I want to get to that. I want to first summarize what you just said. So you should invest in index funds as opposed to single stocks, because the risk of single stocks is much higher than investing in an index fund, an index fund, like the S & P 500 holds, you know, approximately 500 of the largest companies on the US stock market. And so the idea is that those companies are extraordinarily stable. Some of the largest companies in S & P 500 today, or the big tech companies, Apple, Microsoft, Google, Facebook, um, and, and of course there’s a plethora of companies across industries in the S&P 500. And then you also talked about Vanguard. So Vanguard is a company that has mutual funds and exchange traded funds, ETFs. And all of these things basically just mean that, that the company packages up all of the stocks in the S&P 500 for you and puts them into a single little package and you buy that package and it comes with all of those stocks. So it’s almost an automatic form of diversification. You hear the word diversify all the time. And so you want to diversify so that you reduce the risk of investing in a single stock that may go down and may lose money, but you also want to make returns and make gains. So that’s why you were talking about that seven and a half percent year over year return or whatnot.
Ed: Two things. If I could interject. One way to look at the S&P is that when you buy a little slice of it, you’re investing in the American economy, not in one particular sector or one particular company, it’s a broad economy. Okay. And what we know across time is that the American American economy tends to do pretty well. The second thing is earlier, you said you used the word should, uh, in the context that I’m telling people what they should invest in. Uh, there’s a subtle difference here. I, if I have said anyone should invest in anything in particular I’ve misspoken, I think there are best ways to do it. I have my opinions. I recognize that people’s, uh, circumstances are all different. And I think that someone who is new to the investing game needs to look at the simpler options and needs to stay away from home runs and such. So I hope that clarifies, if I would be doing people a tremendous disservice, I said, everyone should do the same thing. And
Chris Pratt: You haven’t. That was, that was my error. So thank you for that clarification. And the other thing to that point is investing in single stocks is not something you have to do. And speaking in terms of shoulds and should nots and haves and have nots, it’s not something that you have to do ever. So I also don’t want people to think that eventually you’re going to have to become more sophisticated in order to keep getting returns on your, on your investment. You could just, uh, invest in one of these, uh, simple mutual fund or ETFs, and you’re likely to do well over time. The other thing that I’d like to emphasize is what you meant about the S&P being a marker of the American economy. A lot of people have nervousness about investing because they’re afraid that prices could go down and that prices could go to zero.
And the kind of hedge that’s pretty common in the personal finance world is to think of it this way, if the stock market, so the S&P 500, um, and all of these investments go to zero. Then that means that you’re assuming that the American economy has completely and utterly failed and collapsed. And, uh, the value of the US dollar would, would likely be pretty worthless at that point anyway. And so whether you invested or not, wouldn’t really matter at that point. I’m not sure what you think of that if, if you agree with that, but I’d love to hear your thoughts.
Ed: Absolutely. And I’d make the further point that if you’re, if you’re truly concerned about that, if you’re truly, truly, truly concerned about that, you would be better off buying a big pile of bullets and antibiotics and seeds and toothpaste and stuff like that, because gold is no longer going to be a medium of exchange, uh, after the end times comes. So say like, yeah, no, I mean, things go up and down. And as a small investor, the way that you won’t try to deal with that is by a method called dollar cost averaging, right. Instead of putting all of your money into markets, that once you are paycheck by paycheck buying a little bit every two weeks, and what that does is it averages you in so that if you happen to, you know, uh, in one pay period, catch a big downturn, well, maybe the next pay period, you catch a big upswing, you know?
And so you have averaged out your costs into the middle of those two prices so that you you’ll capture that upward trend across time. Even though you may catch a bunch of up and down movements, so smooth things out, and that’s the well, second to buy bullets, I guess that’s the best thing you can do. Yeah. As a small investor. So people will watch their 401k balances and they’ll see them go up a thousand bucks or down a thousand bucks and stuff, you know, 10 grand, 25 grand, a hundred grand, what have you? And they’ll freak out, Oh my God, I’m so much poorer than I was last week. And it’s like, man, you still own the same stuff, but you still own the same stuff. You just, if you were to sell it right now, you would realize that downturn, you would lock in that downturn. But until you’re ready to sell to you, those numbers are merely numbers. You still own a hundred shares of Apple or whatever. And, uh, you know, so it’s the same thing.
Chris Pratt: I love that. Yeah. So I think we’re, we’re, we’re running out of time, but I want to touch one other thing quickly. And if you have any other closing thoughts, it’d be happy for you to share them. What are your thoughts on William Benjamin’s the Benjamin rule. And I hope I’m pronouncing that right. Is 4% withdrawal. Banging is 4% withdrawal still relevant these days.
Ed: I think it is very much so. Um, but I want to remind folks of a point that I made earlier, which is that you need to get your spreadsheets skills up to speed. It would be extremely dangerous for anyone to rely on one model, um, for their long term financial planning, extremely dangerous. The models have their different strengths. They have their different weaknesses. They take different approaches. Some of them are dated, some of them are modern. So this isn’t just about the 4% rule. Okay. If you want to, yes, it’s relevant and it’s relevant because it’s one of several different models that you need to incorporate into your own planning. You don’t need to understand that today, if you’re just getting started out on the 4% rule, that the basis of it is that if you’re earning that seven and a half percent year over year, well, if you withdraw only 4%, then you’re doing okay, then you can expect your money to keep growing. And that’s all you really need to understand about it right now. That’s what it says. But, uh, among the other models that in time, you’ll probably want to look into are the Trinity study. And you’ll want to look into Monte Carlo simulations, and you’ll want to look into, you know, crafting your own models based on your own particular set of circumstances. So yeah, it’s relevant, but it’s not the be all end all.
Chris Pratt: Yeah. Well, that’s great. Thank you so much for coming on the show. Did you have any other thoughts that you’d like to share?
Ed: The last thing I want to say about FIRE is a, is just that I want to repeat that it’s not for everyone. Uh, because if you go down this path and you let it dictate your life to you instead of your life and sort of dictating itself to your retirement plan, you can really wreck a lot of things you love by the decisions you make, about who you hang out with, what you do for a social life, where you live, what you drive. Yeah. Don’t get self-righteous, don’t look down on other people for the choices they make, uh, understand that we each have our own path through life and make sure that this one is the one you want to follow before you jump in with both feet. Everybody thinks of quitting their job as the road to happiness. And maybe all you need to do is keep working that job and understand yourself and learn to be happy in your own circumstances, as opposed to completely changing your life. It’s a strange thing to say, but it’s the truth, man.
Chris Pratt: That’s, that’s really great feedback. That is really wise advice. I absolutely love that. Thank you so much for coming on and you can find Early Retirement dude on his website and blog early retirement, dude.com by the way. I absolutely love that name Early Retirement, dude. Yeah. Thank you.
Ed: I really appreciate you having me. We’ll catch you later. Thanks.