If you believe in the SWR data- whatever number you think is the ”S," and whatever you think the "S" stands for- Safe or Sustainable, AND you believe we have seen the worst (the Great Depression, the stagflation of the 1966-1974 period, the Tech meltdown, the Great Recession,etc.), there is an interesting observation about what you should be able to set your SWR.
It should be "S" to withdraw at a rate based on whatever the PEAK value of your portfolio was- NOT based on the value on the day you retire.
Example:
If you accumulate $1M with a plan to spend $35,000/year and adjust up each year for inflation and on the day after you retire the market tanks-- you should be able to still spend as before and make it 30 years....historically this worst case scenario still works out. But this should be true even if the market tanks the year before you retire and drops your $1M down to $600,000. You should be able to spend $35,000/year and adjust up for inflation even though technically you are spending at a starting rate of 5.8%. That is because the SWR is based on the worst case scenarios in the past when you retire at a portfolio peak and then your portfolio falls. Historical returns are lower after peaks. If it falls before you retire, history suggests historically returns will be better and thus support the higher initial rate. (Really still just the old 3.5% SWR, but as if in year 1 you did not make a withdrawal).
Weird and true and yes, not something with which any of us would likely be comfortable. But interesting.
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