Question about calculating the 4% rule

[big-papa]

The 4% was based, as others have noted, on the original portfolio, with adjustments to the withdrawal amount for inflation. There is nothing wrong with calculating your withdrawal on the current value of the portfolio, but 4% has no meaning or basis in this approach. 4% would be a random or arbitrary percentage. Your withdrawal percentage in this case should be related to your income from the portfolio, not a figure taken from a different methodology.

Correct - if are withdrawing a % of your current portfolio, then the choice of % might come from a backtest of historical returns or a monte carlo set of returns. When I've studied this method (and its variants), what I normally look at is the post-inflation effective withdrawal and how low it can become and whether that plus any fixed income would cover living expenses (including taxes). That % is going to be different for everybody.


Big-papa