Given the rising costs of living, many Americans think it takes a few million to retire well. But with $1.3 million banked, it is still possible to pursue a leaner form of FIRE (Financial Independence, Retire Early), so long as some trade-offs are made. Most notably, one would need to minimize expenses to ensure their nest egg can deliver a good bang for the buck without running the risk of breaking open. So, if you’re single and willing to relocate to a country that has a lower cost of living, lean FIRE could be right for you.
In this piece, we’ll explore a specific case I came across involving a single 52-year-old gentleman who has a lofty $1.3 million portfolio ($100,000 in stocks, $400,000 in cash and CDs, and $800,000 in the 401(k)). Their plans are to live in Thailand with an expected monthly expenditure in the ballpark of $3,000-3,500.
Indeed, such a sum will take an individual a very long way in Thailand. And with $36,000-42,000 in annual expenditures, a $1.3 million nest egg looks large enough to fund such an early retirement, with high-end expenditures entailing a withdrawal rate of 3.2%, which is more conservative than the more popular “4% rule.”
Of course, healthcare expenditures and other potential costs with unknown price tags should be carefully evaluated by a financial advisor. Beyond that, I personally view the retirement plan as sustainable, given there aren’t any children or liabilities (think a home) that cause many to pursue a chubbier form of FIRE.
Key Points
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This prospective retiree has grand ambitions as they look to retire in Thailand following an untimely layoff.
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$1.3 million may be enough to fund a dream retirement in Thailand. But the portfolio may be a tad too cash-heavy
Arguably, I think this individual has more than they’ll need to pull the trigger on retirement with more than $1 million in the bank. That said, I do think that there’s too much cash in CDs, which could fetch a far better return in the stock market. For someone who’s looking for a bit more growth in retirement, I’d look to consult an advisor about the possibility of shifting gears towards equities, especially as the S&P 500 attempts its continued recovery from its March-April springtime correction.
Though I have nothing against CDs (Certificates of Deposit), which provide a decent amount of interest at no risk, the lock-in period and move to a lower-rate environment must be considered. Indeed, the days of 5%-yielding CDs are coming to an end. And while President Trump can’t tell the Fed what to do, I do think that lower interest rates could be in the cards as the economy stalls at the hands of Trump’s troublesome tariffs.
That’s a lot of CDs. Could rotating a bit to stocks make sense?
In any case, CDs yielding closer to 3% may be on the horizon come maturity time. And with such lower rates, it may not make nearly as much sense to lock in for another couple of years. Of course, retirees should opt to take less risk after they’ve left the workforce. However, for this individual, I’d argue they were already quite conservatively positioned with less than 10% of their portfolio in stocks. It’s quite an achievement that they were able to reach millionaire status without much investment in the stock market over these past few decades.
While stocks are a wobbly asset class, I do think something like the Vanguard Dividend Appreciation Index Fund ETF (NYSEARCA:VIG) could provide a smoother ride, with a slightly higher yield, and potential for substantial capital appreciation throughout their multi-decade retirement. For someone retiring so young, with as many as 40 years of retirement to cover, I believe adding some growth makes sense. As for the asset allocation, it’d be best to reach out to an advisor for the magic percentage.
The bottom line
On paper, retiring with just over a million may sound risky, especially amid inflation. However, for someone who has low expected expenditures (your dollar can take you quite far in Thailand) and no dependents, I think there’s a sustainable plan in place. Though I would ask an advisor about the asset allocation, given their limited exposure to equities.
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