I have what is likely a basic question: should I be thinking of "two pots of money" when determining a withdrawal rate, vs. looking at my assets as a single lump sum?
Let me explain:
1) Many books and sites I have read tend to think of retirement assets as a single entity from which you determine your SWR. However, present company excluded, most of these resources tend to think that retirement begins at 65 (or at least post 59 1/2) when tax-advantaged accounts can be accessed with no penalties.
2) I plan to (mostly) retire well before that, as does pretty much everyone else on this site. Yet we all are investing in tax-advantaged retirement accounts, because we all hope we will one day reach the penalty-free age and will put that money to use (or will have adopted all sorts of fancy footwork to access it sooner penalty-free).
3) When I see SWR calculations/estimates/guesstimates on this site, there appears to be a tendency to continue to think of all assets as a single entity, yet (aside from the fancy footwork), I really have two "pots of money": one pot that can be accessed without penalty at any time, and one pot that is age-restricted. By calculating a SWR on the aggregate but only tapping assets in the first pot, there is a more than decent chance I will be drawing that pot down faster than it is replenishing itself (though the overall portfolio will continue to grow, because neither I nor the taxman is touching the second pot for now).
4) So here's the real question: shouldn't I be determining a withdrawal rate based on the value of the first pot (non-restricted), accepting that the rate is likely higher than a traditional definition of SWR (e.g., one that does not draw down capital over time) for that pot but knowing that I will eventually have access to the age-restricted pot (at which point I would indeed shift to a perpetuity-oriented, SWR strategy for the second pot)?
To put it in the extreme: why shouldn't I opt to spend the entire value of the first pot between now and the penalty-free years, knowing that by the time that first pot runs out, I will be able to access the proceeds of the tax-advantaged accounts (that have been growing all the while)? I could go super conservative and place that first pot into a guaranteed return instrument (even as basic as CDs), essentially just dividing the pot (plus interest) over the years between now and penalty-free access to the second pot.
The main reason I think this is a basic question is that calculating SWR off of all assets may essentially accomplish that faster draw down of the first pot of money, depending on your circumstances (such as when the current value of your tax-advantaged accounts is substantially greater than the current value of your other assets). Therefore, others appear to be implicitly assuming a drawdown of the first pot, which could make their SWR calculations potentially more aggressive than they realize.
I am likely missing something major here, so please do share your thoughts.