Simple 4% withdrawal question

[utrecht]

The way I understand it, when taking 4% withdrawals it works like this:

I have $1,000,000 so I withdraw $40,000 for that year.
If next year I have $1,100,000, I can withdraw $44,000. Correct?

What if the following year my IRA balance is $900,000? Do I have to take a pay cut or do I still take whatever I took the previous year?

 

[tightasadrum]

year 1 - $40000
year 2 - $40000 + inflation (you define)
year 3 - year 2 + inflation

down year? reduce if you feel better, but not in the plan

 

[W2R]

Here's a great thread on the topic:

http://www.early-retirement.org/forums/f35/explain-4-withdrawal-rate-19234.html

(Not meaning to squelch the discussion, but to add to it!)

 

[youbet]

No.

$1,000,000 starting portfolio = $40,000 withdrawal the first year.

1st year = 3% inflation.

2nd year withdrawal = $40,000 X 1.03 = $41,2000.

Refer to the extensive discussions in the "Best of" section.

 

[tightasadrum]

Oh WTH, close enough.