Miss Kitty worked hard her whole life, saved her money, and invested wisely. After selling the Long Branch Saloon in 2000, she retired with a million dollars in investments—a nice amount of money.
Kitty intended to enjoy retirement, travel a bit, maybe take a cruise with her beau Matt once a year. She would be careful, taking out just the prescribed 4 percent for living expenses, which in her case was $40,000. She planned her post-retirement lifestyle based on having this money available to her. With $1 million, she figured she was all set. And she might have been, if she hadn't believed the buy-hold myth.
In 2000, the first year of her retirement, Miss Kitty withdrew $40,000 as planned. Unfortunately, the market also took a chunk of her money. The S&P 500 lost 10.4 percent. Miss Kitty took out $40,000 and the market took out $101,400, leaving her with $858,600. Not a very good start to her retirement. (See Table 5.1.).
Table 5.1 Miss Kitty's Buy-Hold Disaster
|Year||Beginning Nest Egg||Amount Withdrawn||Market Return||Market Loss/Gain||Ending Nest Egg||Draw %|