I first read about Billy and Akaisha Kaderli in a story that Scott Burns wrote in 2010. They used to own a restaurant. Akaisha ran it. Billy worked as an investment broker.

Both worked long hours. But over time, Billy grew less comfortable at work. “I understood how beneficial index investing was,” he told me over Skype. “But as a broker, I couldn’t really sell them [index funds]. They don’t pay high commissions. I was doing a disservice to clients [by selling actively managed products] so it was time to leave.” The couple quit the rat race early.

“We sold most of our possessions,” says Akaisha, “including our house and our car.” They added these proceeds to their portfolio of index funds. It totaled nearly $500,000 by the time they retired.

Billy and Akaisha know how to stretch their money. After 15 years of retirement, they started a blog at retireearlylifestyle.com. Along with some e-books they have written, their blog shows how people can retire on less, if they move to low-cost countries like Mexico, Thailand and Guatemala.

I was just as fascinated by how they manage money. After all, they retired back in 1991. They were just 38 years old. For a quarter of a century, they’ve lived off that initial $500,000.

How did they do it? They followed the 4 percent rule.

In 2010, Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz published a research paper in the Journal of Financial Planning.They back-tested a variety of portfolio allocations between January 1926 and December 2009. They found that if investors withdrew an inflation-adjusted 4 per cent per year, their money stood an excellent chance of lasting 30 years. This echoed William Bengin’s research from the same publication in 1994.

If investors chose to withdraw more than an inflation-adjusted 4 per cent, their risk would increase. They might run out of money. Based on the research, those who withdraw an inflation-adjusted 5 percent per year, from a 100 per cent stock market portfolio, had a 98 per cent chance that their money would last for three decades. Those odds dropped to 87 per cent if they withdrew 7 per cent.

Would Your Money Last for 30 Years?

Inflation-Adjusted Withdrawals 3% 4% 5% 6% 7%
100% Stocks 100% 98% 96% 93% 87%
75% Stocks/25% Bonds 100% 100% 98% 96% 91%
50% Stocks/50% Bonds 100% 100% 100% 98% 85%
100% Bonds 100% 100% 64% 42% 24%

The rule of thumb, however, does have its critics. Some say that today’s bond interest rates are far too low for the strategy to work. They fear that investors with a diversified portfolio of stocks and bonds could run out of money if they withdraw 4 percent per year.

Others argue the opposite. If stocks soar, investors pulling out 4 percent per year might leave too much on the table. Most of their hard-earned money could go to their heirs.

I wanted to see how it would have worked for Billy and Akaisha. They own an S&P 500 index. They don’t own bonds.

Stocks gyrated plenty between 1991 and 2016. It would have affected their year-to-year withdrawals. But over the past 25 years, if they took out 4 percent of their portfolio every year, without adjusting for inflation, they would have taken a total of $1,325,394 from their initial $500,000 portfolio. Yes, you read that right. They would also have plenty left. By April 30, 2016, despite those annual withdrawals, their portfolio would be valued at $1,855,686.

I calculated this using portfoliovisualizer.com. But the Kaderli’s retired halfway through the biggest bull market in history. What would have happened if they had retired just before stocks tanked? I looked at the S&P 500 over the past 25 years. Two retirement dates would have made investors tremble: March 31, 2000 and September 30, 2007.

Between March 31, 2000 and September 30, 2002 U.S. stocks fell nearly 40 percent. Most retirees wouldn’t want a portfolio made up 100 percent in stocks. There’s good reason for that. Such a portfolio would fluctuate a lot. Most retirees would prefer something balanced.

If $500,000 were invested in Vanguard’s Balanced Index (60 percent stocks, 40 percent bonds) on March 31, 2000, its value would have dropped to $398, 550 after just 30 months.

Investors withdrawing 4 percent per year would have seen their annual take drop from $19,719, during their first retirement year, down to $15,947 in their third.

But things got better. In total, they would have withdrawn $320,167 from their initial $500,000 over 16 years. By April 30, 2016, the portfolio would still have been valued at $593,667.

But there’s a bogeyman to talk about: inflation.

4 Percent Annual Withdrawals From Vanguard’s Bond Market Index Compared To Inflation 2000-2015

4 Percent Annual Withdrawals From Vanguard’s Bond Market Index Compared To Inflation
Sources: Morningstar; Portfoliovisualizer.com; U.S. Inflation Calculator

The cost of living gets more expensive over time. Investors who withdrew 4 percent per year from Vanguard’s Balanced Index would have been beaten by inflation.

Those who retired at another horrific time, September 30, 2007, would have experienced something similar. U.S. stocks, as measured by the S&P 500, dropped 45.8 percent between September 30, 2007 and March 31, 2009. Inflation, once again, beat retirees who withdrew 4 percent per year from 2008 until 2015.

4 Percent Annual Withdrawals From Vanguard’s Balanced Index Compared To Inflation
2008-2015

4 Percent Annual Withdrawals From Vanguard’s Bond Market Index Compared To Inflation

Sources: Morningstar; Portfoliovisualizer.com; U.S. Inflation Calculator

March 30, 2000 and September 30, 2007 would have been two of history’s worst times to retire. Inflation would have beaten those who withdrew 4 percent per year from a balanced index fund. But there are silver linings.

For starters, the race was pretty close. In both cases, the table still had plenty of money left.

Still Money On The Table
Vanguard’s Balanced Index Fund

Retirement Dates Starting Value Total Withdrawn Portfolio Value: April 30, 2016

March 31, 2000

$500,000

$320,167

$593,667

September 30, 2007

$500,000

$201,438

$574,085