That's still not making sense to me. Correct me if I'm wrong, but Firecalc isn't saying there is a 95% chance of success any time you retire, it is saying that for every 100 historical starting points, there are 95 successes and 5 failures. If you have the bad "luck" (not noticing you're deep into a bull market that could turn) to retire in one of those failure points, you don't have a 95% chance of success; you have 0% chance from that particular point (if history repeats) if you stick with 4% WR + inflation. Firecalc isn't saying that even in a worst case 4% will work, it only says that most of the time it will work, even in some pretty bad cases. ....
You're not "wrong", I'm just not sure there is much to be gained by looking at it your way.
I prefer to use a 100% historical success rate in these discussions, that gives you a continuum. With 95% success, you create a binary condition, where you could hypothetically have dozens of portfolios end at +$1 called SUCCESS, and a few at -$1 called FAILURE. But is a $2 delta significant to you? So significant as to call one a SUCCESS, and the other a FAILURE? In real life, it would be approached differently.
You can 100% insure "success" by that definition with a constant % of portfolio plan. But of course, there's no magic there - you can end up with tiny withdraw amounts for years on end - hey, my portfolio is down to $100 in an investment that keeps up with inflation, I get to take out $4.00 this year, and $3.84 next year, down to $2.77 ten years from now, and my portfolio is still in "success" territory! But it isn't meaningful to your life.
So for example, regardless your WR or chosen success %, the future is unknown, and if you found yourself 10 years in, with a shrunken portfolio, you probably are going to be reevaluating things. If you are willing to assume the future won't be too much worse than the worst of the past, you might look at the squiggly lines on your original graph, and see how low portfolios were at year 10 that still succeeded. You might decide you are OK, recovery is likely, or that you are in trouble and decide to adjust downward. After all, with 95% you assume some failures, and even with 100%, we can't know the future won't be worse than the worst of the past. You need to reevaluate if your portfolio shrinks, and make a judgment call on your confidence factors. That's life.
OK, so if we look at past market conditions, and have some good correlation that those 5% failures occurred near market peaks (I think that's probably the case, though inflation and other factors are in play), then sure, you could say with some confidence that an overall 95% success factor might really be assumed to be much lower if we currently look similar to those past 'fail' conditions. But like I said, that's baked into the cake, or as [correction]
[-]REWahoo[/-] pb4uski said, it's why FIRECalc says 4% under those inputs, and not 5%. It is the bad years that drove the 4% value, it really has nothing at all to do with the good years.
So look at it this way - historically, any WR from ~ 3.5% - 4% is 'flirting' with a danger zone if you retire into a bad scenario. The only real option is to be more conservative - what else can you do (if were looking for actionable items here, and not just a debate on probability and statistics)? And if you're trying to be conservative, why even think about a 95% success rate? Go to 100%, and then reduce that WR until the lowest ending portfolio has some buffer that you can accept. Or work until you die.
The advantage of a conservative starting WR is that you can conservatively apply the "retire again & again" scenario going forward, as the odds are pretty good you will be on one of the 'good' paths.
I think I'd agree with you - if you are using 95% success, and do a full ratchet up at every opportunity, you are increasing your odds of failure if you do it blindly. But as I said, that doesn't match up with a conservative approach anyhow, so I don't think it's really relevant. If I decide to ratchet up, it will be based on a conservative initial WR, and probably only a partial ratchet up. Or I might decide my heirs/charity can use it more than I can, and not ratchet up spending at all (but maybe give it away instead).
-ERD50