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No. of Recommendations: 4
At age 38 (1991) Billy and Akaisha Kaderli walked away from their jobs to travel the world. They had $500,000 in net worth. "I calculated our portfolio extracting 4% per year, with our first year withdrawal being $20,000." Twice, 2000-2003 & 2008-2009, their net worth halved. Their current net worth has increased to 373% ($1865330)of original net worth.

Again, this exercise is assuming that we were 100% invested in the S&P 500 Index through the entire market cycle, and that we withdrew 4% annually.

Today we have a more balanced portfolio. Our actual spending has been much less over the years*, so there is room for us to kick it up a bit. Maybe 5%?

The net worth value on the chart, is the amount after pulling out the 4% spending figure on January 1st of each year and illustrates the effect of compounding though these decades.

https://retireearlylifestyle.com/aaa/4_percent_withdrawal.ht...

https://retireearlylifestyle.com/aaa/annual_spending_update....

*https://retireearlylifestyle.com/aaa/annual_spending_update....
Generally speaking over these last 30 years, we have been utilizing Geographical Arbitrage, living in cost beneficial countries such as Guatemala, Mexico, Vietnam, and Thailand, thus positively affecting our numbers. The Peso-to-Dollar exchange right now is a great deal, making Mexico seemingly on sale.

We kept up a travel schedule in the Year of the Pandemic, adapting to changing regulations. When others chose to remain in place, we saw opportunities in bargain flights and empty hotels. We visited four countries on two continents.

In January we flew to Colombia, returning to Chapala, Mexico. Throughout the year we made six trips to our favorite beach, Chacala. Billy had a shortened trip to Guatemala due to COVID closures, and one trip to Puerto Vallarta was cancelled. Akaisha visited the US and then we flew and bused between Puebla, Cuernavaca and Oaxaca, only to return to Oaxaca a couple of weeks later. Billy flew to Puerto Vallarta then taxied up the coast to Sayulita and once again to Chacala.

Because of this great exchange rate, the year before we traveled from Chapala, Mexico to McAllen, Texas, Las Vegas, Nevada, Prescott Valley, Arizona, more travel through Mexico to Chacala Beach, Puerto Vallarta, and took the ETN bus to Morelia, and Patzcuaro.

We also enjoyed a much anticipated train ride through Mexico's Copper Canyon did some extensive traveling in the Mexican Highlands, visiting the cities of Tepatitlan, Atontonilco El Alto, Jesus Maria, and Arandas, tasting some of the best tequilas in the world.

We continue to self-insure for health care, taking advantage of medical services in the countries where we stay. Now, since we are 68, we qualify for Medicare and no longer need to take out a Traveler's Health Insurance Policy from World Nomads to cover our time in the USA. A few years ago at age 62, we decided to begin taking our Social Security. Billy has made some adjustments to our portfolio using ETFs which allows him to buy and sell in real time, and take advantage of market downturns, as well as market upswings.

House sitting from time to time has helped with housing costs.
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No. of Recommendations: 1
Most people would have a tough time when their portfolio, especially if it isn't huge, drops 50%.

4% SWR seems to work almost too well in most cases.

Right now I have a tough time using a balanced portfolio with interest rates so low.
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"Right now I have a tough time using a balanced portfolio with interest rates so low. "

It's tough. I have some money in REITs and GNMAs.....along with TIPS......

also still have a few CDs but not renewing them since they only pay 1.x% for five years .....and a lot less for a year or two.

Moved some money to dividend paying stocks.

Still keep enough cash in the IRA to fund the RMD for at least six months - but the money fund pays 1+% interest.....

t.
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No. of Recommendations: 5
Most people would have a tough time when their portfolio, especially if it isn't huge, drops 50%.

4% SWR seems to work almost too well in most cases.


These people were using a 4% withdrawal rate. They were not using a 4% SWR.

PSU
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No. of Recommendations: 2
They had $500,000 in net worth. "I calculated our portfolio extracting 4% per year, with our first year withdrawal being $20,000." Twice, 2000-2003 & 2008-2009, their net worth halved. Their current net worth has increased to 373% ($1865330)of original net worth.

By staying 100% invested in the S&P 500, they have significant sequence of return risk. But if they aren't 100% invested in the S&P 500, their returns aren't nearly so spectacular.

AJ
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No. of Recommendations: 2
4% of our current portfolio is more than our current annual expenses (even before we stopped doing much because of the pandemic).

I know there's a lot of debate about the 4% number, which is why I prefer FIRECALC. I think it's a bit more thorough because it takes into account some factors that would be specific to the individual.

Also, TMF published an article within the past two or three years that said you shouldn't "rebalance" your portfolio just because of your age or status. Stick with what works for you. I tend to agree. I don't know bonds, and haven't owned a bond fund in 30 years. I might move out of some riskier stocks I have if I feel I don't have time to monitor them properly, but otherwise I have no plans to change my approach. It's worked for me for the past 25+ years (when I mostly moved out of MFs and into actual stocks).

1poorguy
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No. of Recommendations: 6
At age 38 (1991) Billy and Akaisha Kaderli walked away from their jobs to travel the world. They had $500,000 in net worth. "I calculated our portfolio extracting 4% per year, with our first year withdrawal being $20,000." Twice, 2000-2003 & 2008-2009, their net worth halved. Their current net worth has increased to 373% ($1865330)of original net worth.

Remember that the 4% was "worst case" *real* withdrawal. So, in the worst 30 year period, a 4% (plus inflation adjustment) annually ran out of money after 30 years. The Kaderlis' 30 year period didn't have inflation coupled with stagnant returns (remember "Stagflation?") that required large increases in withdrawals but no large growth of the portfolio. Also, being 100% in the S&P500 was a big benefit in the last 30 years because the returns were unusually high and the handful of drawdowns weren't very long.

On top of all that, the article says "Our actual spending has been much less over the years," so they not only had a really great 30-year slice to live off their investments, but didn't even take the full 4%. What the article shows me: The thing that intercst says regularly is true: You can plan for the worst case 4% (using a 60/40 or 80/20 allocation), and if you make no spending adjustments along the way, you'll hit year #30 with more than you started *on average.*

My plan doesn't assume *average* returns or inflation or spending (we used to spend $0 on cell phones and high speed internet). Also, having worked more than 35 years, I don't have any zeros in my social security calculations. I'm not as pessimistic as some, so I *am* planning on getting the social security payments that were estimated by ssa.gov. I also tried to build in some other changes we can make so there's no "withdraw 4% blindly and never change" method.
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1poorguy thanks for that post.
I just retired and have thought it’s a challenge to change my mindset in investing. I have done better than the S&P almost every year for decades, so going to cautious investing (bonds cds) is soooo hard for me. My thought has been to keep cash in the money market so I don’t have to sell in down times, but continue to invest as I always have. I have been curious about what to expect.
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so going to cautious investing (bonds cds) is soooo hard for me. My thought has been to keep cash in the money market so I don’t have to sell in down times

I'm confused. What is keeping cash in a money market other than 'going to safe investing' with that part of your portfolio?

AJ
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As AJ said, keeping cash is conservative. Absolutely nothing wrong with that, but just clarifying what you're doing.

Also, my post was what I'm comfortable with, and should in no way be construed as advice. More "things to think about". If I could find that TMF article I would link it. But note that it was an op-ed from a TMF contributor, and you could just as easily find contrary TMF articles. I've read several on both sides of the question, and I tend to agree with the one that says you shouldn't change your allocation so long as you can devote the same amount of attention to the investments.

For example, I have V and COST. They go up, they go down, but mostly they go up. Their businesses are pretty easy to understand. They don't take a lot of monitoring. I could go on vacation and not check on them, and not lose any sleep. Depending on your investments maybe you need to monitor them more closely. Maybe a biotech is having poor results in trials, and may not get FDA approval...that could tank them. Hypothetically.

I plan to take our annual expenses, divide by four, and sell whatever investments are necessary to have that cash available every quarter. Sometimes I'll be selling during a dip, other times while it's going up. Plus I'll have at least another quarter's cash as a reserve (maybe even 6 months). I haven't retired yet, but that's my thinking at this point. Subject to change as new info become available.
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Keeping cash enough to cover my cost of living keeps me feeling better about market downturns. I know I don't need to sell to pay bills. Secondly, I have cash available in case of a market downturn so if I see a buying opportunity I can participate.

I may be wrong, but I feel safer with cash than CDs and bonds. I usually have about 10% cash for income/emergencies and 10% to purchase in bear market.
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I appreciated hearing about FireCalc. I tried it out and it validated the tool I use. I know you aren't providing advice, I am foolish enough not to take advice from you since I don't know you. You simply validated (for me) that it isn't necessary to retire and retire my investment accounts as well.

Keeping cash is conservative but it provides flexibility for me and it is what I am comfortable with. I can save it, invest it, spend it and if I am doing well in my portfolio, I don't care if I am losing out on that if the rest of my portfolio is performing at acceptable levels.

I love COST. Have owned it many years. I do have more (and less) volatile stocks as well. I have just been sweating how to change my allocations in retirement.
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Keeping cash enough to cover my cost of living keeps me feeling better about market downturns.

That's fine - but just be honest with yourself, and realize that it's a part of your total portfolio that you are keeping in cash. If you are keeping cash, you aren't 100% invested.

I may be wrong, but I feel safer with cash than CDs and bonds.

Where are you keeping your 'cash'? Under the mattress? Buried out in the yard? In your attic? Each one of those options has risks, too.

Because if you're keeping 'cash' at any FDIC or SIPC insured institution, you have the same insurance on cash per account/titleholder - $250k. With CDs that you've purchased directly from the institution, you may (or may not - read your terms) pay a penalty for breaking the CD early, but usually it's limited to x months of interest (again - read your terms), or the interest you've actually earned, whichever is less. With brokered CDs and bonds, you may take a loss to exit early, since you have to sell to someone else to exit your position. On the other hand, you may get a gain, too.

AJ
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Keeping cash enough to cover my cost of living keeps me feeling better about market downturns. I know I don't need to sell to pay bills. Secondly, I have cash available in case of a market downturn so if I see a buying opportunity I can participate.

I may be wrong, but I feel safer with cash than CDs and bonds. I usually have about 10% cash for income/emergencies and 10% to purchase in bear market.


perfectly Ok. And no, this in no way is any kind of a "cash drag." These things are, over the long term and in real-life, literally incalculable. Plus it makes your life much simpler and easier to actuate.

Nother fact o' life: Everybody has cash. Even people who say they don't. I have never anywhere on the planet in any situation for any reason ever seen nor heard of somebody I need to pay being willing to cop the interest from a stack of CDs or bonds, or withdrawal money directly from a stock I owned, a mutual fund, or brokerage account. Nor has anyone who owes me been willing to send the money directly to buying me a new CD or a few shares of stock so I can be "fully invested".
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