Here's one possibility. Maybe this person has SS plus a COLA'd pension that meets all of his/her "basic" spending. Withdrawals from the portfolio are used entirely for "nice to have" spending. In this case, the individual has unlimited downside flexibility on withdrawals. If this person takes 1% in one year, he/she could take 0%, 4%, 7%, or 100% in the next year. He/she has no need to be conservative to protect some minimum withdrawal amount.
Earmarked funds is just a different method of budgeting. Budgeting is compartmentalization, whether it's done by earmarked funds, or amortizing costs over several years, or setting aside ("saving") unspent annual income toward some goal. And the last thing anyone needs to worry about is the long term performance of funds they have set aside for short term goals - stability is the key. One must just make sure that funds for long term goals such as the retirement portfolio have good enough performance to survive inflation and withdrawal. And it only needs to be good enough - it doesn't have to be optimal.
