Alternative 4% rule

[teejayevans]

Not that fine. A 5% withdrawal is 25% larger than a 4% withdrawal.

But it’s not the end of the world if you spend 5% or more one year to make a large purchase like a car or boat. The question is how much do you need, every year.
I used 4% as a general guideline, I don’t panic when I optionally go above it. If I need to, I can drop to 3% without resorting to eating dog food.

 

[TwoByFour]

I take “the market” to be equities. And though the market may drop 50% for example, I assume most retirees aren’t 100% equities, closer to 60:40 in which case the portfolio drop should be closer to 30%. Still quite a haircut but I assume no one here is 100% exposed to “the market.” And most have some other sources of income like SS, pensions, annuities, or others so total income would drop (significantly) less than 30%. So the belt tightening should be less than market fluctuations.

I am retired, AA of 60/40 but when this topic comes up I am reminded of my mother. My father died when he was 51 leaving my mom with a modest life insurance and some savings (but not much). My mother was a CPA so had financial sense and she invested that money 100% into equities, raised us kids on it including putting us through college, and lived another 40 years, all with an AA of 100/0. She used to scoff at bonds, calling them worthless. She managed to weather four market crashes (1973, 1987, 1990, and 2000), two recessions, and the wild inflation of the 1980's. So it can be done. She had far more intestinal fortitude than I have.

 

[big-papa]

But it’s not the end of the world if you spend 5% or more one year to make a large purchase like a car or boat. The question is how much do you need, every year.
I used 4% as a general guideline, I don’t panic when I optionally go above it. If I need to, I can drop to 3% without resorting to eating dog food.

Yep - flexibility is the key whether you follow an algorithm or use something like Taylor Larimore's (age 93 or so) method over on Bogleheads shown below:

"I retired in June of 1982 at the age of 57. We had about a $1 million dollar portfolio to last us the rest of our lives. I didn't know about safe withdrawal rates (the Trinity Study wasn't published until 1998). We had no computers, Internet, Monte Carlo, or sophisticated calculators. We only knew that we had to be careful to make our money last ($1M at 4% = $40,000/year before tax).

So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized. "