Appreciate the feedback. Perhaps I am missing where you say my comments are off?? Your additional comments in your revised post seem to match my comments?
I was really trying to illustrate for myself, and perhaps others, the effects of strictly following the re-balance formula (in this case 60/40) regardless of individual balances for stocks & bonds. In my example, after re-balancing and taking your annual distribution, the stock allocation does not get back to the original balance until 2014, yet the "strict" re-balance method told me to sell stocks every year except 2008. Yes, stocks improved so the formula says sell, however, I got the sense from many here that they were trying to avoid selling stocks while they were below their starting balance and instead continue to pull from their bond/cash allocation. This would arguably not keep a re-balance purest properly balanced for that year(s) as their AA would sway more heavily into stocks. I get the logic, just making an observation. To me, the good news is the true dedicated re-balancer could still retire right before a big drop, hit their 4% WR, and eventually see their portfolio exceed their starting balance (at least in this specific example).
Makes me feel better about my plan. Just thought I would share the good news.
Some of my confusion is just the terminology for the year used. Are you rebalancing at the end of each year or the beginning of the next? I think of rebalancing as happening at the beginning of each year the same time as the draw. So you talk about buying selling stock to buy bonds in 2008 (meaning at the end of 2008) and I think of it as buying stock at the beginning of 2009. Interestingly your spreadsheet comments for each year matched the latter case which added to my confusion.
Note that for every year where the stock allocation has grown to more than 60% by the end of the year, some stock will be sold in the next rebalance. That's simple to understand and how it is supposed to work.
You are also drawing from the portfolio each year. Talking about whether stocks have "recovered" while you are also drawing them down - that's a bit tricky. Are you comparing before or after withdrawal? Before or after rebalancing?
I note that even though the end of 2009 stock portion did not reach the initial after withdrawal value of $576K in 2008, it had exceeded $560K by the end of 2009. In my book that's pretty darn close to consider the stock portion to have "recovered". And at the end of 2010 the stock portion was $581K, exceeding the start of 2008 value in spite of another year's worth of withdrawals and rebalancing. That's definitely recovered. I don't think you can look at the after rebalancing and withdrawal amount and say that the stocks haven't recovered. I claim your recovery year was definitely by the end of 2010 (even making up for a year of withdrawals), and extremely close by the end of 2009, not so late as 2014.
You bring up a good point overall. If someone is rebalancing, then talk of "not selling stocks when they are down" is
a red herring. If you buy more stock when it's been cut in half, and then it has a great recovery year, chances are very high your stock allocation is going to exceed your AA just as it had by the end of 2009, so of course that is going to be sold to rebalance/fund withdrawals. Saying "stocks are still down" is kind of meaningless. Maybe it makes sense if someone is not rebalancing and didn't buy more when stocks were low, but just waited for them to recover (actually, quite a few folks did this - it is so scary to buy when stocks are down hard). But if you do buy stocks when down and they recover a good chunk, you'll sell some soon.
The 2008/2009 bear market was brutal but brief. I'm sure other periods can be found in which stocks stayed mostly down for several years and the draw was from bonds for several years until stocks experienced a decent rally.