Fourteen years ago this month, The Motley Fool published the very first issue of the Rule Your Retirement newsletter -- a service advised even then by Robert Brokamp.
So in this episode of Motley Fool Answers, he and co-host Alison Southwick get a bit historic. First, it's a "What's Up, Bro?" segment that harks back to the second issue of that newsletter, in which he profiled Billy and Akaisha Kaderli, a couple who had retired in 1991 when they were just 38. They've done quite well in that lifestyle, and the Fools share the most important moves that contributed to their success. Then, your hosts reach further back, to the 1700s, to lay out the strategies that made the George Washington one of the most wealthy men in the United States. Plus, they bring The Motley Fool's newest crop of interns into the studio, and poll them for an array of summer suggestions.
A full transcript follows the video.
This video was recorded on July 3, 2018.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert and patriot here at The Motley Fool.
Robert Brokamp: Happy Fourth of July weekend!
Southwick: Yes, that's right! It's the Fourth of July and we're bringing you two tales of independence: the money lessons of a couple who declared their financial independence at the age of 38, and how George Washington amassed his millions. Is that in today's dollars or back-then dollars?
Brokamp: It's today's dollars. Almost back-then dollars.
Southwick: Not too shabby.
Brokamp: It depends on who you ask.
Southwick: I'm asking you. All that and more on this week's episode of Motley Fool Answers.
Southwick: So Bro, what's up?
Brokamp: Well, Alison, this month marks an anniversary. 14 years ago The Motley Fool published the first issue of Rule Your Retirement.
Southwick: Are you serious?
Brokamp: Yes! With yours truly as the advisor. And as so often happens with first issues, it was followed by a second issue. And in that issue, I profiled Billy and Akaisha Kaderli, a couple with a pretty extraordinary story. After careers in the restaurant and financial services industries, they retired in 1991 at the age of 38.
And their story generated a lot of interest in Rule Your Retirement. People wanted to know how to retire that early and how they were faring, so every few years I get in contact with them and get an update to see how things are going and I did that just this week. So how were they able to retire so young and how are they doing now at the age of 65? There are seven lessons from their story.
No. 1 is determine how much you really need. Right before they retired, they figured that they could live on $20,000 a year. This is 1991, so adjusting for inflation that's $39,000 today.
Southwick: Still not a ton of money.
Brokamp: No, not a ton of money. What they figured out was that once you cut out the costs of home ownership, car ownership, work-related expenses and the high taxes associated with their careers, you could get by on a lot less. At that point [this is 1991, again] they had saved almost $500,000, so $20,000 would be a 4% withdrawal rate. They figured out they could make that work. And by the way, this is a few years before the 4% safe withdrawal rate became a thing, so they figured out on their own that that was a good withdrawal rate.
One thing they told me was that they constantly recommend going into retirement with zero debt. No mortgage, no car loan, and no credit card debt period.
No. 2 is live around the world. How could they live such a relatively low-cost lifestyle? They do what they have called a nomadic lifestyle living in low-cost parts of the world. They're either renting furnished apartments or staying in hotels, but this does not mean living in boring parts of the world.
Their first retirement destination was Nevis, a gorgeous island in the Caribbean. Here are some of the other places that they've lived either longer term or just visited: Thailand, Mexico, Guatemala, Venezuela, Vietnam, China, New Zealand, Australia, Indonesia, Panama, Myanmar, the Philippines, and Ecuador.
And they love this. They love moving all over the world. They really enjoy immersing themselves in the cultures of the places they visit, so in a small town in Mexico they taught English. They built tennis courts. They imported a basketball scoreboard. In Thailand they took cooking and massage classes. In Venezuela they ate giant black ants... which is apparently a local delicacy. And they've been doing this on $30,000 a year or less ever since they retired. Even in this past year. And despite all that, their net worth has grown since 1991 even adjusted for inflation.
No. 3 is track everything. So every morning when Billy wakes up, he fires up his spreadsheets, tallies their daily expenses, and calculates it as a percentage of their net worth. He also manages their spending weekly, monthly, and annually.
As he told me in an interview a few years ago, if you do this for 30 days it can change your life. Also that feeling of being in complete control of your finances is a real boost to your self-confidence. That fact, alone, is motivational.
He told me that it's been important for them to have all this information so when the market goes down or if their costs are a little higher than expected, they have it all planned out and they know how their spending will change. If for some reason expenses go up or they decide to stay in a higher-cost space like Australia, they just then decide to go live in a lower-cost place like Vietnam or Cambodia. They adjust their expenses that way.
No. 4 is start early to retire early. They had saved $500,000 by the time they were 38. That would be pretty amazing today and it was even more extraordinary back then. They were able to do it because they owned a restaurant that they started and then they sold it. And Billy was also a manager at a brokerage firm. They obviously accumulated a good amount of money, but still when I ask them if there is anything they would have done differently, they said they would have started earlier. They also said they wouldn't have bought a house, like they did early, because houses delayed the amount of time for them to be able to retire. Their lesson is constantly regardless of your age, just start saving now.
No. 5 is let the stock market replace your paycheck. The S&P 500 closed at 312 when they retired. Today it's around 2,700 and of course that doesn't count for dividends. So during their retirement they endured the two bear markets, the dot-com crash, and the Great Recession, but their portfolio still returned about 10% a year and they've been heavily invested in the stock market throughout. Now that they're 65, they've pared back their risk a little bit and he says right now they're about 50% stocks and 50% cash and bonds.
No. 6 is get comfortable with international healthcare. They said this is one of the questions they get the most. How do you handle healthcare if you're living outside the United States? Basically they say the healthcare outside the United States in many places is just as good if not better. Especially in Mexico and Thailand, many of the doctors are trained in the United States and it's much more affordable.
They've been through all kinds of experiences, including one situation where Akaisha almost lost her finger in an accident [I think it was in Guatemala], but they received perfectly fine medical care. And what they do when they travel the United States is they buy catastrophic insurance just because they don't want to be uninsured in the United States and also now that they're 65 they have Medicare. But it's important to know that you can only use Medicare when you're in the United States, so if they ever need Medicare, they just come back to the United States and use it there.
No. 7 is their final tip -- give it a try. If you're interested in doing this, pare down your budget and learn to live off that for a year or two; visit some of the places you're interested in without selling everything you own, first, just to make sure that you're happy with it. They have encountered people that try it and find out they don't like it.
They have this term called "early retirement depression." There are people that find they leave their lives in the United States. They leave their families, they leave their jobs, and they find it wasn't quite for them. Or they didn't really have a plan for what they were going to do. They suggest that you give it a try for a couple of years. But for them, they don't have a single regret and they're very happy that they left the working world at age 38.
Southwick: It's awesome that they were able to retire so young because those are such good years of being able to be mobile. Like we say, the last few years of life are not the good years.
Southwick: What is their plan for when they get to the "not such good" years?
Brokamp: I've asked them what their biggest fear or anxiety is. It is basically losing one of them. I mean, they're best friends. They've said one thing is that end of life care is actually much cheaper in other countries. They do have a very small home, and I believe it's in Arizona that they go back to every once in a while, so that's also a possibility. But basically one of their biggest anxieties is what's going to happen later on in life.
If you'd like to learn more about their exotic and inexpensive adventures, you can visit their website at RetireEarlyLifestyle.com.
Southwick: Last year Bro brought us estate planning lessons from Benjamin Franklin and this year he's reviving the founding fathers theme and we're learning money lessons from George Washington.
Brokamp: Right. Since it's the week of July 4th, this is the time when Americans celebrate our independence and no person can claim more responsibility for that independence than George Washington.
When you think of Washington you may think of him as the general who led the colonial army, or the first president, or the puffy face you see as you put a dollar bill in your wallet. It was probably made puffy by his dentures.
But what you may not know is that Washington was one of the wealthiest presidents of all time. Estimates of his net worth range, adjusted for today's dollars, from $20 million to $525 million.
So how did he amass such wealth while also successfully rebelling against what was then the most powerful country on the planet and then helping create what is now the most powerful country on the planet? Here are eight lessons.
No. 1 is it always helps to have wealthy relatives.
Southwick: It never hurts.
Brokamp: It never hurts. It always helps to have a little head start in life. Washington's father was a relatively prosperous planter in Virginia. He did die when George was 11, which was originally a setback for George because he then couldn't go on to Europe to become educated like his older brothers did. He had to stay back. But some people look at that as actually a good thing for him because instead he had to learn more practical things like accounting and mathematics.
When his mother died about 15 years or so later, George inherited Mount Vernon, which is the estate about 15 minutes south of us, here, at Fool HQ. When Washington inherited Mount Vernon, the building was essentially a farmhouse on 2,000 acres and by the time he died it was a 21-room mansion with 8,000 acres.
And at the age of 28, Washington married Martha Custis who was a wealthy widow, who owned 18,000 acres spread over five plantations. Her main house was known as White House Plantation, and that's where they got married. In fact, it was the only building named White House that Washington was ever in because the other White House was finished a year after he died. In fact, George Washington is the only president to have never actually resided in Washington, D.C.
While George and Martha never had kids [it's possible that Washington may have been made sterile by either small pox or tuberculosis], she had children from her first marriage and Washington raised them as his own. And by all accounts, they were very happily married, but marrying her made Washington one of the wealthiest men in Virginia.
Southwick: So that lesson was marry rich? Is that marry for money?
Brokamp: Well, have wealthy relatives.
Southwick: Marry for money I think was that last lesson.
Brokamp: I think that's what the lesson was. It helps.
No. 2 is avoid debt. Like many of the landed gentry of his time -- many of the founding fathers -- Washington occasionally found himself in debt. In 1764 he owed £1,800 partially due to importing too many luxuries from Europe. He decided to get his act together. He cut back on his spending and he worked to avoid debt, though he still had occasions of being short on cash. Legend has it he actually had to borrow money to travel to New York for the first inauguration. The first inauguration was in New York. The second one was in Philadelphia.
But it was important to him that he pay his debts, though he wasn't as fastidious about collecting debts. He was known for forgiving debts or just forgetting. He actually didn't forget that he made them. He just didn't ask for the money back. And the very first item in his will was, "All my debts, of which there are few and none of magnitude, are to be punctually and speedily paid." He wanted to make sure that one of the first things that his executors did was to pay off his debts.
So he didn't like personal debt and he didn't like America's debt. One of the great achievements of his presidency was limiting the debt that the colonies incurred during the war, which according to Professor Ed Lengel was estimated to be [adjusted for inflation] in the trillions. But with the help of Alexander Hamilton they were able to pay off all that debt within six years.
No. 3 is keep good records. Another reason he was eventually able to pull himself out of debt is that he paid more attention to his finances; in particular, keeping good records. All kinds of different records. All kinds of different ledgers. He had a little book with him that he would write down all of his expenses and at the end of every day he would review the day's ledgers and sign off on them.
Southwick: He would sign off on his own ledgers?
Brokamp: Well, the ledgers for all his...
Southwick: For everything.
Brokamp: For all his businesses.
Southwick: That's like the Kaderlis.
Brokamp: As I'll get to later, he had a lot of businesses. When he was appointed general of the colonial armies, he said, "You don't have to pay me. I just want to be reimbursed for my expenses," so he kept pretty careful track of that.
In the first inauguration speech, he once again said, "Don't pay me a salary," but then Congress voted to pay him $25,000 which at the time was 2% of the federal budget.
Most of his papers exist at the Library of Congress. When the Library of Congress put all his ledgers, and journals, and account books and everything together [all his financial paperwork], it filled 34 volumes. He was pretty good at keeping track of things. In fact, the only significant documents about his life that don't exist are the letters that Martha and he wrote to each other. She burned most of them after he died.
From what I read, she said, "I had to share him with the rest of the world most of his life. This part I want to keep private."
No. 4 is diversify your assets. Like most farms in the 18th century, Mount Vernon and the other plantations focused on tobacco. The problem with that was you had to send the tobacco to England. Washington was never sure whether he was getting a good price for it, and also you often didn't get paid in cash. You got paid in goods. You sent off the tobacco, and then you got back stuff that you had ordered, but he wasn't convinced that he was getting the best equipment. Some of the stuff that got sent over wasn't of high quality.
Plus in the 1760s, the bottom fell out of the tobacco market. He was one of the first people to say, "I need to do something else." So he diversified, first into wheat, but then he moved on to all kinds of other businesses [fisheries, milling, horse breeding, hog production, spinning and weaving]. He co-founded the Great Dismal Swamp Company. Do you know where the Great Dismal Swamp is?
Brokamp: I had never heard of it, but it's actually in Virginia and North Carolina. The goal was to clear it and make it land worth farming on. Unfortunately it didn't work...
Southwick: Well, they should have renamed it. They had a branding problem.
Brokamp: A branding problem. But at the time of his death, he owned 52,000 acres of land as well as several other businesses.
No. 5 is diversify your human capital. We've talked about human capital before -- basically your ability to earn a paycheck. Besides running all these businesses, he thought he would have some time to become a politician, as he did, and he joined the military, serving in our military for a long time and then, of course, taking over the military. This obviously increased his standing in society, increased his connections, and he actually got land in return for serving in the French and Indian War as far as Pennsylvania. That's part of why he got some of his land.
No. 6 is own stocks and bonds, too. He didn't own just real estate. At the time of his death his portfolio of stocks and bonds was worth about $35,000 in those days. Not all of the investments turned out well. Some of the stocks that he owned did not fare so well. In his will he left some of these stocks to be used for charitable purposes; for example, The Alexandria Academy, which was a school for orphans and other poor kids. He left shares of the Bank of Alexandria, which was the first bank of Virginia, and the building still exists here in Old Town.
Southwick: Which one is it?
Brokamp: I think it's down on Cameron Street.
Southwick: Oh, cool!
Brokamp: He also bequeathed 50 shares of stock to the Potomac Company as an endowment for a university in Washington, D.C. and for years, even before he died, he said that [a good university was needed] in the central part of the country because otherwise people were going off to Europe to become educated and basically learning things that were not conducive to a good democracy.
Southwick: Oh, we know some of the things the French people believed back then.
Brokamp: That's right.
Southwick: Ben Franklin, we know what you did over there.
Brokamp: Unfortunately, the Potomac Company, which was meant to dredge up and build locks and canals up the Potomac... Some of those did get built. You can see them along the way like in Great Falls and places like that.
Brokamp: It did not survive, but the idea of forming a university in Washington, D.C. did happen. It was originally called Columbian College and then in 1904 it was renamed to George Washington University.
Southwick: A fine university.
Brokamp: A fine university. So he had mixed success with his stocks, but I admire the fact that he did try to do something good with what he had.
No. 7 is to cash in on vices. Always a good strategy. Washington was only a moderate drinker, and he considered drunkenness one of the worst vices, but that didn't prevent him from making money from alcohol. He built a distillery that in the year before his death produced 11,000 gallons of whiskey which made it the most productive distillery in America.
Southwick: I think they've talked about opening it back up.
Brokamp: Oh, really?
Southwick: Yes! Rick's nodding his head. There's like a big boom, right now, for [craft beer], spirits, cider, and things like that. We may have to take a field trip.
Brokamp: I just came across this funny story. Like I said, he didn't like drunkenness. He had a gardener that he wanted to keep on the payroll who drank a little too much, so he wrote a contract with the guy. "Listen, if you can say sober most of the time, I'll pay you $4 and you can be drunk for four days at Christmastime. I'll pay you $2 at Easter time and you can be drunk for two days. Otherwise, I expect you to be sober."
No. 8 is have a solid estate plan. He left most of his estate to Martha including, as stated in his will, "My improved lot in the town of Alexandria situated on Pitt and Cameron Streets." Rick is a longtime Fool. Can you tell us what else was on the corner of Pitt and Cameron Streets in Alexandria?
Rick Engdahl: The Motley Fool office, I think.
Brokamp: That's right. It's the previous Motley Fool office. We were George Washington's neighbors.
Southwick: That's awesome!
Brokamp: That was so funny to see that actually written in his will.
Brokamp: And in his will he apportioned out a lot of his estate for charitable consideration. He forgave a lot of debts. And he also freed his slaves, sort of. One thing we have to acknowledge is the fact that he owned slaves [and by the time he died it was more than 300] is a legitimate stain on his legacy. And when you talk about his financial success, it's no doubt in part to him having slave labor. What he put in his will was that once his wife passes away, his slaves would be freed and that they would be educated. So anyone who was younger would be educated. The older would be taken care of.
He had a very complicated story when it comes to slavery. He inherited his first slaves at age 11 when his dad died. Back then he thought it was the normal thing to do to have slaves. That changed over his lifetime partially being from the Revolutionary War because he interacted with people like Lafayette and Hamilton who despised slavery.
So, he then stopped buying more slaves. He stopped selling slaves. He refused to break up families. And even in his will he said no slave should be moved out of the state of Virginia. So in the end he tried to make it better, but still he didn't free them outright. He just freed them after his wife passed away.
Those are the lessons from George Washington. It took almost 40 years for his will to be settled. He named seven executors and by the time the will was eventually settled, only one of them was still alive; not because of any problems, necessarily. It was just his estate was so complicated it took that long. I'll close here with 10 fun facts.
Brokamp: 10 about George Washington.
Southwick: All right, everybody.
Brokamp: No. 1. Contrary to popular myth, his false teeth weren't made of wood. He had tooth troubles his whole life, and by the time he was inaugurated as president at age 57 he only had one tooth left. He had several collections of dentures with choppers coming from the teeth of cows, horses, and other humans, perhaps including some of his own teeth, which he kept. They have a letter from him [he was in New York at the time] directing someone at his estate to wrap up his teeth and send them to him we assume to create new dentures.
Southwick: Fun fact!
Brokamp: Fun fact. No. 2 was the dude could dance. He was famous for dancing. He could last for hours, and as his fame grew, there would be this line of women waiting to dance with General Washington.
No. 3. He knew his way around a horse. Thomas Jefferson called him "the best horseman of his age," and both people in America and Europe observed his great horsemanship.
No. 4. He was a redhead. Some descriptions of his hair have it as reddish brown. All the white hair you see in portraits is due to plenty of powder. He never wore a wig.
No. 5. He was known to gamble and in his voluminous financial records, he kept track of his winnings and losses, but not during the Revolutionary War. In fact, there was no card playing allowed among his troops because he forbid games of chance.
No. 6. He didn't like to shake hands. The stuff I read was either he didn't like to shake hands, in general, or it was after he was president and he thought it was beneath a president to shake hands. But he would bow and then hold his hands in a way that would indicate, "I don't want to shake your hand." And by the way, huge hands. He had to have custom-made gloves.
No. 7. A fired ex-employee once tried to steal Washington's skull after he had already died, so the running estate fired the gardener. Unfortunately, the gardener mistakenly took the skull of one of Bushrod Washington's in-laws; Bushrod being George's nephew and one of the earliest justices on the Supreme Court. If you've ever been to Mount Vernon, you see that there's the mausoleum of George Washington and there's a gate on it. His body, Martha's body, and all the family members' bodies were moved to a more secure location after someone tried to rob his grave.
No. 8. He chose some interesting names for his dogs. They include True Love, Sweet Lips, Madam Moose, Drunkard, Vulcan, Tipsy, and of course Cornwallis, named after the British general he defeated in the war.
Southwick: Tipsy's a cute name for a dog.
Brokamp: Vulcan I thought was pretty cool.
Southwick: Vulcan? Weird.
Engdahl: [Hot] Lips not so much.
Brokamp: [Hot] Lips. Sweet Lips.
Engdahl: He was probably a M*A*S*H* fan.
Brokamp: No. 9. After his inauguration he chose to be addressed as Mr. President. This was much less exalted than some of the others that people wanted to call him such as His Excellency, His Mightiness, His Elective Majesty, and his Electoral Highness.
And finally, he has the highest rank that will ever be bestowed upon someone in the U.S. military. In 1776, as part of America's bicentennial celebrations, Washington was posthumously appointed General of the Armies of the United States, and that law from Congress specified that no other officer in the United States Army should outrank him and that he shall have the highest rank in the United States military past, present, and future.
Southwick: There you have it!
Brokamp: There you have it!
Southwick: Happy Fourth of July, everyone!
Southwick: That's the show. Stocks! David G. sent us another postcard. This one was from Machu Picchu. It is our first one from Peru. And of course, if you want to send us a postcard from your summer adventures, we would love it. Our address is 2000 Duke St., Alexandria, Virginia 22314. Our email is Answers@Fool.com if you want to send us a question, although Bro will tell you we have a lot of questions to get to.
Brokamp: We have a lot of questions.
Southwick: And he feels very guilty about that. Anyway, the show is edited patriotically by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody!
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