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Now that I am fully retired (as of 9/30/04) I have been thinking about portfolio withdrawals. Can someone answer the following questions for me?
If I have already determined that a 4% SWR will meet my spending needs with a 95% probability of success, and my portfolio returns more than 4% plus inflation in the first year of retirement, can I safely withdraw all of the portfolio gain for the year?
My reasoning is that, if I simply maintain my portfolio value at the initial level it had when I did the SWR calculation, then that rate will continue to be safe in the future given that same portfolio value. Furthermore, I will have one less year of life expectancy at that point so my probabiliity of success should actually increase slightly.
Until I encounter a year where my portfolio fails to earn more than 4% plus inflation (or suffers a loss) I believe I can safely withdraw all portfolio growth above my initial starting value at retirement. These extra funds might be used to splurge on a nicer car, extra travel, etc.
Is there a flaw in this logic? Any comments will be appreciated.
Grumpy
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