Thanks for all the responses guys! Lots of good ideas as usual. I really appreciate the wealth of experience and fresh ideas.
I'll do one big post to respond to all the different points.
1. Several people suggested it is all too complicated or over-detailed.
Well, this would only take 10-15 minutes to set up in a spreadsheet and after that there would be very little additional work. Also, a couple of people implied it sounds too much like work - but in my opinion this is the interesting kind of work. If all I had to do all day was stuff like this I wouldn't be retiring. This is way better than going to meetings and having to repeatedly explain how and why everything works the way it does to the nuance-deficient guys.
Additionally, I'm a firm believer in the need to keep my mind active in retirement. So, I'm not going to shy away from complexity.
2. There were a few comments about withdrawing monthly instead of annually and how that would increase costs.
What I'm trying to do is keep money in the market as long as possible on the grounds that on average it grows x% a year where x is usually positive. I think this outweighs the extra 'trading' costs. Most of the money on the equity side of the portfolio is invested in individual stocks with an average of about $10,000 in each one. Trading costs are $10 per buy/sell. So 12 trades a year would be $120. That's less than 0.01% of the portfolio. Granted, it's more than if I sold a year's worth of stock all at once but I'm expecting to gain more than that by leaving the money in the market longer. Also, and this is a little dig at those people that keep their money in low cost index funds, 0.01% is way less than the expense ratios of index funds.
3. I see various people suggesting lower withdrawal rates.
One person even mentioned that they are withdrawing 2%. Unless you're planning to leave a lot to your kids or want to create some kind of charitable fund that is way to low. 4% is supposed to survive the worst possible scenarios over the last 100 years or so with a very high probability of success. I'm not sure what's to be gained by living on half that for the rest of my life just in case some extremely low probability event occurs and even if that were to happen - I'd still be able to fall back on social security AND before anyone tells me that I'll never see a dime of social security, people have been telling me that forever. I just don't believe them.
Now I see other people are withdrawing amounts between 3-4% and those seem more reasonable. It would be interesting to know from anyone that has been doing this a while how that is working out for you. Are you finding that your portfolio is growing really large or that you are scrimping to get by on 3% or that 3% is plenty and you don't really have anything you want to spend the additional money on that 4% would provide?
I did see OverThinkMuch's post and it seems to be working for him but 2.5% is too low for me. If I ever get down to about 60-65% of my initial draw I'd be looking for a part time job.
It's a bit paradoxical really in that we'd like to travel earlier in retirement while we can but doing that requires more money. So I need a higher withdrawal rate now than later, but logic tells me that it's safer to withdraw a higher rate later when there are fewer years left for it to all go pear-shaped.
This brings me to the one thing that does concern me about my plan. I think I'm probably adjusting the withdrawal rate upwards too aggressively early on. A 4.68% rate with 30 years still to go and a 5.4% rate with 20 years left both seem high to me. I think I may dial those down a bit.
And on that topic Rodent's suggestion provides food for thought.
4. Vanguard floor to ceiling dynamic spending and VPW
I read over the 'links' provided by Rodent and they were really useful. Thankyou very much for that. I also looked at VPW suggested by big-papa which is also extremely useful.
It seems like I'm using the floor and ceiling method with a very high range and a monthly withdrawal strategy rather than a yearly strategy. The Vanguard article has a range of 2.5% as the floor and a ceiling of 5% but later on discusses a range of 10% either way which is close enough to mine to garner useful data. That results in no failures but 25% of the time the withdrawal amount is 2/3 or less of the initial withdrawal in real terms. That makes me think that I might have better chances limiting the ceiling to a value lower than 12%/year, perhaps 6% but keeping the floor at 12%.
Furthermore as an added bonus it discusses 'safe' withdrawal rates using the floor/ceiling methods for varying retirement lengths and AAs. I put "safe" in quotes because it sees an 85% failure rate with these numbers. It doesn't quite cover my allocation which is 70/30 but is close enough to get a feel as to what to expect.
However, this Bogleheads link - thanks big-papa has completely different and more comprehensive numbers:
Now when I look at the VPW table here:
These are the two sets of numbers compared to mine. I am 55 by the way.
40 years: Vanguard: 4.1% Bogleheads: 4.8% mine: 3.96%
30 years: Vanguard: 4.8% Bogleheads: 5.3% mine: 4.68%
20 years: Vanguard: 6.3% Bogleheads: 6.3% mine: 6.12%
10 years: Vanguard: 10.5% Bogleheads: 8.8% mine: 6.84%
Additionally, I'm adjusting my rate every month and I don't think they are doing that at all, which should work against my method. On the other hand Vanguard are using a more constrained ceiling and floor and Bogleheads are using none at all.
That's quite a large difference between the two at least initially. I think that I'd prefer a higher safety margin than 85% so based solely on the Vanguard information I'm thinking of lowering the ceiling to 6%/year (0.5%/month) but leave the floor at 12%, plus I think I need to reduce the change in the rate of withdrawal during the early retirement years and increase it during the later retirement years. So instead of increasing the rate by 0.0005% a month I think a better bet would be:
0.00025%/month for years 1-10
0.00050%/month for years 11-20
0.00075%/month for years 21-30
0.00100%/month for years 31-40
This would mean the following withdrawal rates
Year 0 - 3.96% /year
Year 10 - 4.32% /year
Year 20 - 5.04% /year
Year 30 - 6.12% /year
Year 40 - 7.56% /year
For anyone that's still following me - I calculated that 0.00025% of my current portfolio is $3.60 so this would give me roughly an additional $36/year to spend after 1 year.
However, the Bogleheads information implies this is unnecessary and that I should be fine. Although that methodology does imply that you should have a base income from SS or pensions which I don't have yet. So. I think I may just make the adjustments derived from the Vanguard data.
5. Variable withdrawal vs fixed spending
While this may seem to be a problem I don't think it is. many people have variable income in real life. Some people have variable overtime or variable commission. Others run a small business with seasonal income. Others have a spouse that takes a part-time job for a while. Still others lose their job or get promoted. It's just life. People cope. In many respects we are better off than the average guy. A huge war chest is a sobering factor to any worries on that score. I agree with audreyh1 on this I think that keeping a year's worth of expenses readily accessible should help with any short sharp shocks.