It’s been barely three years into my early retirement. So, no I am not talking about myself here. I recently came across this article about a couple who retired 30 years ago. And they were 38 then. What great clarity they must have had of their future to retire in 1991!
Since FIRE (Financial Independence, Retire Early) is a new phenomenon, there aren’t a lot of stories where people have been retired for a long period of time. Thanks to this couple, I have an opportunity to study their story and see what can apply to us. I wanted to understand how early retires would have handled market fluctuations. How was someone’s experience with the 4% rule over a long time frame? Now all these questions can have some answers.
These guys did not plan early retirement until after they were 30. A story that is similar to ours. I did not even have an idea of early retirement until I was 30. We also decided to limit our spending much less than what we could earn from investments so the money can continue to grow to compensate for inflation.
They used the 4% rule. Like them, we tracked our spending diligently for a couple of years before deciding on what was really going to be our expenses after retirement. So going by their 4% rule and yearly expenses of $20,000 they decided to retire with $500K. That is a lot of money in 1991! However, I beat them by retiring at 37 instead of 38 like them :). But of course it must have been a much harder decision for them in 1991 when FIRE is probably unheard of.
30 years of experience
Over a period of 30 years their investment of $500K has grown to over $1 million. And all that while their investments were not only supporting their expenses but also compensating for inflation. If we go by the 4% rule, then they could be spending $40K per year now. Which I think is reasonable if you own a house.
They went through many recession periods and still were able to stay retired. These recessions include the likes of 1991, 2000 tech bubble, 2008 housing bubble and COVID-19 period. Now they did wonder if they should go back to work in 2008, so that must have hit them really hard.
So far I haven’t gone through any real recession yet so I have absolutely no experience on how to face hardships. This could be one takeaway for me from their experience. A day will come in my life when I have to choose between continuing retirement and going back to work. Don’t know when that might hit me.
Their early retirement advice
They have two important pieces of advice for early retirement. One, start as early as possible and monitor your spending. This is pretty much what I’ve said in step 1 and 2 of my 5 steps to early retirement post. Two, think of yourself as a CEO of a business and learn finance. Then invest for 10 or 20 years and you will be surprised.
Some missing facts
There is some important information missing from the article. For example I don’t know if they have any kids or if they have any medical conditions etc. From what I understand, they invest in ETFs and index funds. But do they have any other sources of income? Because it does seems like they are helping other people retire early (I presume for a fee). They also have a blog with ads (which I haven’t yet read) and sell books.
Nonetheless they have some useful advice. I used my calculator to see how long the equivalent of $500K with $20K expenses per year will last in Indian context. It turns out, the investment will last until I turn 91 . Not bad. I used all the defaults numbers for inflation, returns and 4% withdrawal in the calculator.
Sometimes it helps to know the experience of a person who already traveled the path that you want to follow. So you can compare their old times with your times and judge if you are doing things right. I am not at all worried about my plan, but it helps when there is some history. However this is one of the confirmation bias fallacy that I should not fall prey to. Ideally I need to actively look for disconfirming evidence, but oh well!