Key Takeaways
- The USD has been appreciating at a 10.78% compound annual rate since 1980 against the Colombian Peso
- Combining the S&P 500 returns with the currency advantage, you would have been able to retire with as little as 8x annual expenses in the 30-year period of 1981-2011
- The traditional 25x or 4% FIRE rule might be too conservative when retiring in a weaker currency country such as Colombia
In this article I will simulate multiple 30-year scenarios of FIRE when retiring in Colombia while maintaining an USD portfolio in the S&P 500 with dividends reinvested.1
Unlike most FIRE calculators, we will take into account taxes2, increase in cost of living and the currency arbitrage.
Let's first check the historic rate of the US Dollar against the Colombian Peso, going back as far as when the price of each dollar was 10x times cheaper than today:
Figure 1: Historical USD/COP Exchange Rate (1989-Present). 10.78% CAGR
What about the rise in the cost of living?
Calculated by the official inflation rate of Colombia, from 1980 to 2025, the annual compound rate of inflation is 12.53%.
In the same time period, the minimum salary3has seen an annual compound rate of 13.65%.
I've chosen to use the minimum salary as the base of the simulations, as in my experience serves as a better benchmark for the actual increase in the cost of living in the country.
Combining the increase in the minimum salary with the USD appreciation against the COP, we get the following graph:
Colombian Minimum Salary in USD
Figure 2: Colombian Minimum Salary in USD (1981-Present). USD value calculated at January 1st each year
Running the numbers
Considering all this inputs, we can run the calculations of a 100% USD S&P 500 portfolio with dividends reinvested and figure out how much would be needed to live in all the 30-years periods from 1981 to the present.
Below you can select the starting year and see the corresponding minimum FIRE ratio that would have been enough to live 30 years with 10 minimum salaries per month. (click on the number to change the amount)
You can change the dropdown to see different periods. You can also click on the link and in any row inside the grid to see more details about the calculation for that year.
Figure 3: 30-Year Simulation of FIRE with USD investments and Colombian expenses
FIRE Ratios by Starting Year
We can take the calculations above and graph all the necessary ratios for all the years analyzed, as well as group them by ranges:
Loading FIRE ratios for all years...
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Figure 4: FIRE Ratios by Starting Year (1980-1993)
From the graph above we conclude we normally need way less than 25x the amount of our annual expenses to live 30 years in Colombia. We can see it has steadily been going up over the last years, althought this does take a very critical period where the US stock market did really bad (2000-2010).
We will now group and check the distribution of the FIRE ratios more carefully below.
Figure 5: FIRE Ratio Distribution Analysis
Colombia FIRE Calculator
If we want to make sure we can always retire in any of the 30 year periods studied, the safest amount would be a 18x, that would cover even the worst years and would be more than double the necessary amount in the best years.
With this updated information, we can calculate below how much we would need to live 30 years depending on our particular withdrawal amount, which you can change below.
This will give you the amount you need to retire if you were to retire in 2025.
Figure 6: Adjusted FIRE Calculator for Colombia with USD investments
Disclaimer
Important Note About These Calculations
The calculations done in this article were zero-seeking functions, so that means after every 30-year period the portfolio will end up with nothing. This is not likely what you would want in a real life scenario.
This also assumes you generate $0 during your 30+ years retirement which can also be a bit unrealistic. You could potentially work when the market just had a down year in order to not realize the losses, and that would greatly improve the results.
If you want to ensure the money lasts for more than 30 years and potentially forever, and without generating any income at all, a conservative 4% rule might still prove to be the best approach for you.