Chapter 5A Buy-Hold Disaster Story

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Year Beginning Nest Egg Amount Withdrawn Market Return Market Loss/Gain Ending Nest Egg Draw %
2000 1,000,000 40,000 –10.14 –101,400 858,600 4%
2001 858,600 41,400 –13.04 –111,961 705,239 5%
2002 705,239 42,849 –23.37 –164,814 497,575 6%
2003 497,575 44,349 26.38 131,260 584,487 9%
2004 584,487 45,901 8.99 52,545 591,131 8%
2005 591,131 47,507 3.00 17,734 561,358 8%
2006 561,358 49,170 13.62 76,457 588,645 9%
2007 588,645 50,891 3.53 20,779 558,533 9%
2008 558,533 ...

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