We can't know the future.
My belief is that you can't have a hard and fast rule. If you keep your expenses managable and get rid of debt, you have a lot of flexibility. Without a mortgage, housing expenses that aren't flexible are taxes, insurance and to some extent utilities. I guess health insurance isn't flexible. But everything else is to some degree. My plan is to be very, very conservative in spending for the first year or two and see where we are. FIReCALC and my spreadsheets say we are unlikely to ever run out of money, so I keep changing the assumptions.
If, for example, we think our full retirement annual budget will be $Y, I plan on having $Y + some cushion in cash and another $Y in cd's or whatever minimal interest we can get. Y is a number I think is more than enough to live on, based on current expenses. I really think Y is a higher number than we will spend in year 1, but I don't know for sure and can't until we get there.
In year 2, if Y>actual expenses, we'll add whatever interest, dividends and profits we made during year 1 to the Y bucket or whatever you want to call it, so that we have enough for year 2 in cash and enough for year 3 in cd's.
If actual expenses > than Y, I guess you cut actual expenses in year 2 and/or do something to generate more Y.
The "Y + cushion" I'm using for cash flow forcasting is a number that is higher than what we are spending now and hopefully even more higher than what we will spend in year 1. If we hunker down for that first year or two and Y is higher than what it costs to live, we'll be golden in our golden years. If Y is way too low and we can't make on that, and can't reduce expenses, there will have to be a major re-evaluation.
Does that make sense?
Even back in 2006, I wouldn't have used expected returns this high, much less these days!
