statsguy:

Good morning Chin... we are traveling so I will not be able to check this again for an undetermined time... anyway.

I understand the SWR but someone recently proposed a modification that seems OK on the surface but I think also increases the risk of outliving their portfolio.  I am looking for input as to whether this modification is viable.

Suppose the person has a 4% withdrawal rate and is retired.  In the last couple of years his portfolio was growing faster than inflation and rather than increase his withdrawal rate by inflation he chose to withdraw 4% of his current portfolio size (a larger amount than he would withdraw if he only chose to only increase his withdrawal by inflation).  He characterized this as re-starting his retirement today with a larger portfolio.

Does this strategy work for the long term?  It seems to me that the simulation studies that are used to determine the SWR anticipate this situation and use the buildup in portfolio size in the good years to offset potential ruin in the bad years.  So I have advised not increasing the withdrawal rate in this situation.  Am I being too conservative?

Your post makes me wonder if this modification will work well since the SWR is "based on starting in the worst years".

Hi Stats,

I think R48 right.

It would work because the SWR is based on starting at the worst period. This is where the safety concept comes from.

As I offer, if you are lucky enough to have a few years of good returns, you could put half your excess income (after inflation) in ST bonds and spend the rest, both offering higher income and increasing the safety of the original 4% withdrawal rate.

You could do it without saving anything, but most are going to intuitively put a little back for rainy days. I think it probably wise to stick a little back.

With a more diversified portfolio, I think it will be less likely your portfolio will suffer the drawdown of the less diversified stocks/bonds, S&P 500/treasuries portfolio.

What you think?

Chin