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Who doesn’t like the idea of retiring early? Financial independence means the freedom to do what you want, when you want. Even if you love your job and plan to work through your 70s and beyond, the financial insights offered by early retirees can be helpful.
Meet Billy and Akaisha Kaderli. They retired 27 years ago, when they were both 38. At the time, they were living busy lives in Santa Cruz, California. He was an investment manager while she managed the restaurant they owned. They were successful, financially secure — and they hardly saw each other.
When he was 36, Billy started researching the idea of early retirement and, eventually, Akaisha agreed to give it a try. They reduced their spending, and started carefully tracking where their money was going. Two years later, the Kaderlis, who don't have children, sold just about everything and hit the road. They’ve been traveling the world ever since, generally staying a few months at a time in countries such as Mexico, Thailand, Laos and Guatemala.
Their experience with early retirement may help you figure out how and when to retire. We talked with them via Skype from their current home base of Chalapa, Mexico. Our Q&A has been edited for clarity.
How much had you saved when you quit working?
Billy: About $500,000.
How are your finances doing now?
Billy: We have more money in our account after spending and inflation than we did when we started.
What’s your advice for people who want to retire early?
Billy: My first response is to track their spending to see what they are spending today. If you don’t know what you’re spending today, you won’t know what you’re spending tomorrow. We track it by day, month and year. We have a spreadsheet that allows you to see what percentage of your net worth you’re spending on a daily basis. That lets us monitor that to make sure we’re well within our range. So my No. 1 suggestion for “how did we retire early” is we tracked our spending for a couple of years before we actually retired, and we saved like the dickens.
It kind of becomes a game. The first few weeks and months, [the spending] bounces all over the place, but as you add more data the numbers stabilize. Then you say, “I’m going to go see if I can spend less today than I did yesterday.”
How much do you spend each year?
Akaisha: We spend $30,000 or less on average. That includes everything: health care, gifts for the family, trips back home. One beauty of our lifestyle: We can wait out the deals. We don’t have to fly at Christmas or when school is out.
How are you invested?
Billy: Between cash and equities, we’re about 50/50 right at the moment. I’m willing to take our portfolio up to 70% [in equities]. As long as we have a couple of years of living expenses in cash, I feel like we’re good. We own zero bonds. I can’t really recommend those at this point [due to the prospect of rising rates].
On the day we retired in January 1991, the S&P 500 closed on that day at 312.49. We’ve been in index funds since then. It’s been very rewarding for us. That’s an 8.27% return per year.
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Has the 4% withdrawal rule worked for you?
Billy: I like to say it’s a 4% guide, and not a rule. One year, we maybe went over 4%. We are well, well below 4% now that we’re taking Social Security. I think it’s important to not set any rule in stone. Given the [recent volatility] in the markets, some people might want to adjust spending if this continues for a while. Flexibility, I think, is very important.
» What’s the 4% rule? Read about it here.
What retirement tips would you offer to others?
Akaisha: Have a list of what to do on day one. A lot of people are running away from a job. They’re not focused on what they’re walking towards. Make a list of all the things you want to learn, want to do, want to see. We had a huge list. I wanted to do watercolor, we definitely wanted to travel, read books, learn a language, dive in the Caribbean. That motivates you.
Billy: We got started in ’93 traveling to foreign countries. Every day is an adventure. We like that. That keeps us going.
The important thing is for this young generation to get started now and take advantage of the power of compounding. The earlier they get started, the higher their assets will be when they get ready to retire. If my parents had invested $1,000 for me when I was born in 1952, it would be worth like $945,000 — something like that. That’s the power of compounding. That’s without adding another cent to it.
Can anyone do what you do?
Akaisha: First, anybody can track their spending. They can add, subtract and divide. That’s easy. The second point is, there are four categories of the highest spending in any household. If you modify any or all of those categories, you are in control of your finances. Those four categories are housing, transportation, taxes, food and entertainment.
Say for instance you pare down [your house] or you house-sit or find a smaller apartment. That saves you a lot of money. With transportation, we went car-free a decade ago. Even in the states, with Uber, friends and taxis, all of that’s a lot cheaper than owning a car. Regarding taxes, we don’t have our income in retirement [subject to income taxes]. We have it in capital gains, so that’s a different tax bracket. And then food and entertainment: You want to go out to eat, buy fine wines, have big parties, but you can eat well going out to lunch instead of dinner, cooking yourself for friends. If you make any changes in any of those categories, you save a huge amount.
Photo courtesy of Billy and Akaisha Kaderli.