NB. At time of writing, $1 USD = approx. $1.10 AUD and $1 AUD = approx. 90c US, so the figures are roughly interchangable. It's the inflation I've calculated that makes the real difference.
Housing Terhorst argues that, in 1980s America at least, housing took up a third (33%) of people's income. In current-day Australia, a recent article in the Sydney Morning Herald stated that "mortgage stress" can be defined as spending more than 30% of your pre-tax income on your loan repayments. Apparently 3/10 Australians with home loans are in this predicament (meaning that the majority have more affordable housing costs than Terhorst assumes back in 1980s USA). Obviously, if you are one of those 3/10 who are handing over a huge chunk of your income to the bank each month, Terhorst's advice to get rid of your house may be applicable. But what about for those 70% who don't have as large repayments? Or those who have already paid off their mortgage? Does it still make sense?
To answer this, we need to assess why we are converting our home equity into cash. If that is to buy one-year CDs, which, as we know, yield only around 0.9% in the US today, it is not worthwhile.
http://mozo.com.au/ is a great place to compare rates in Australia, and a one-year term deposit is shown as earning you a maximum of 3.6% at current rates. Considerably better than the US, but as the average home equity held by each household, according to the ABS, is about $297,000 across all households in Australia, if you were to pull out that money and put it into a term deposit, at 3.6% at the end of the year, you'd have $10,692 - well short of $50 a day (more like $29 a day). I imagine there would be few places you could afford to rent and then live on that sort of money - in Australia or overseas. You'd need to have a fair amount of other investment as well. So again, the main lesson I'd take from this rule is make sure you aren't in a house that is too large and expensive for your needs. But (obviously!) don't go selling up without crunching the numbers!
Although they recommend renting rather than buying, Tehorst admits in his book that he and Vicki did buy a property in Argentina. They have two guidelines: 1) your vacation home should cost no more than $40,000 or so, and 2) your vacation home should be in a place you'd like to live once you retire. The second piece of advice is timeless, but surely the first is vastly outdated? Well, there are still properties in the US$40k region in Argentina - I found a block of land for $40k, and a very modern apartment for $47k. Of course, Argentina may not be for everyone, but Terhorst's book, once again, provokes some interesting thoughts.
Kids Terhorst drives home the message that "your kids need you now", and makes a good case for retiring early if one possibly can on this basis (rather like the arguments Mr. Money Mustache makes). He also provides some arithmetic, budgeting $11 per child, or $5,000 per year (I know some will complain that this is clearly ludicrous, and Terhorst himself acknowledges that some people spend $5,000 on a 6-year-old's birthday party alone - sounds like something for the anti-Mustachian wall of shame and comedy!), but I wouldn't be surprised if many MMM followers and likeminded people were already pretty close to this. Also consider that the 2014 poverty line in the US for a single person is $11,670, a couple $15,730 (so just $4,060 more) and for a couple with a child, $19,790 (another $4,060 again). So $5,000 per child is approximately 25% more than the poverty line is drawn at today.
Bare Bones Retirement Terhorst also enticingly claims you can retireme on $100,000 (well, $110,000 actually, to generate $743 of monthly income at the time - equivalent to the average Social Security payment at the time). To update these figures for 2014 Australia, the age pension today is $577.40 per fortnight for one person in a couple, or $1251 per month. The 1988 rate of US$743 adjusted for inflation and converted into AUD would be $1601 per month. So the 1988 US rate was perhaps a bit more generous. (A single rate today is $766, or $1659 per month, so we could say they are roughly equivalent though - and bear in mind that this article:
http://www.huffingtonpost.com/kathleen-peddicord/retiring-overseas_b_4297593.html?utm_hp_ref=retire-overseas reports on a man in the 2010s who is living on social security checks of $828)
$110,000 in 1988 USD would be equivalent to approx. $237,000 in today's AUD. That would yield, at the current term deposit rate of 3.6%, $8,532 per year. Which is only $711 per month - far short of what is needed. On the other hand, if you can find investments which net you 8-9% per annum (hint: not term deposits at the moment!) like the Terhorsts were getting back in the 1980s, you can receive $18,960-$21,330 per year - a quite respectable $1580-$1778 per month. So as long as you're a bit more creative and successful in your investments, and build up a decent buffer, these adjusted figures still seem to work.
Good times The very last segment of the book states that part of the reason Terhorst can have such a great life is because he "happened to have been born at the right time. I grew up and went to work during the most sustained, spectacular boom in economic history" (p. 225). As evidence, Terhorst points to a 1987 article from the Journal of Accountancy, which shows the improvement in the standard of living over 35 years. In the 1980s, a person had to work 6 mins on average to buy a dozen eggs, down from 13 mins in 1960. It took 2 hours to earn enough to buy a toaster, down from 6 in 1960. And 17 mins to buy a 6-pack of beer, down from 30 in 1960.
What about today? I looked at current prices, compared to the average US hourly wage of $24, and it seems it takes just a little longer to buy a dozen eggs today - 7 mins compared to 6 mins. Seeing as I'm unsure exactly what figures or store they used in the 1987 article, such a minute difference could just be a difference in our methods, as opposed to any real increase in the cost of living. The cost of a toaster has gone down drastically - 20 mins now, compared to 2 hours. And a 6-pack of beer takes the same amount of time to earn still - 17 mins again.
Now, I did use the cheapest examples for each of these categories (using online prices at Safeway and Walmart), but even comparing mid-range options, things haven't changed much. To buy a dozen free-range eggs would cost the average worker 15 mins of time (although, as far as I'm aware, most eggs in the 1980s were cage eggs, so the cheaper price is probably a better comparison). To buy one of the mid to high-end range toasters at Walmart would take 1 hour - still half the time it took in the 1980s. And you only need to work for 1 min more to buy a pricier beer instead of Budweiser.
What about in Australia? The time required to work to earn these items, and the average wage, are surprisingly similar to the US examples. Using an average hourly wage of $23, and prices from Coles and Kmart, it appears to take 8 min to earn enough to buy a dozen cage eggs (just 1 min more than in the US), or 15 min to earn enough to buy a dozen free-range (exactly the same as the US today). For a low-range toaster, 20 mins, and a mid-range toaster, 1 hour (both exactly the same as the US today). It's only the 6-pack of beer that is more expensive than the US - 28 mins for a 6-pack of Hammer & Tongs, or 33 mins for VB. Obviously this will differ from person to person, location to location, product to product, but we're talking averages here, that can give us a feel for how the cost of living has (or perhaps more accurately, hasn't) changed.
