Brewer,
Great question. I pulled up the old file (which I would be happy to send to anyone, btw -- it is an excel attachment -- PM me with your email address or email me at
bob@workless-livemore.com).
Turns out the going got rough but not to the point of cat-food eating. During the tough years starting in 1966, the bottome point was hit in 1974-- where the nominal value of the portfolio was the same in 1974 as it had been in 1966, and in inflation -adjusted terms it was down 35%. (Meaning your real withdrawal was about 35% lower that year than it had been.)
The 95% Rule had 'kicked in' 5 times by 1975, giving you an extra percent or so of withdrawal in each of those years in order to ensure you had at least 95% as much income each year as you had the year before. Inflation was the killer, though, eroding spending power. That is how you got down to a real withdrawal 35% lower than you started with 10 years earlier.
So while the adjustment was gradual, it was not trivial. This was the perfect time for a combination of belt-tightening, part time work and deep philosophy about the meaning of disposable income. But by staying the course and sweating out those bad years, you ended up with a portfolio 30 years later that was close to 50% up in real terms. Note that during these years the traditional 4% withdrawal methods with inflation adjustments all either crashed and burned (anything with less than 50% stock) or still ended up well below the initial portfolio value in real terms.
So, in a stagflation environment, retirees, especially ERs, wanting to live off a Safe Withdrawal Rate method have to do something different -- they either use a a regular stepwise adjustment like the 95% Rule or they go bust (or get seriously, possibly irreversibly depleted)-- you can't have it all during periods like 1966-1996.
Let's hope we arent' facing another period like that, but if we are (and you never know until years later), then the 95% Rule with belt-tightening and a bit of spare income on the side will see you through, at least as long as it doesn't get any worse than the 17 long lean years following 1966.... Oops, got to get off to my tennis game!