Hi all,
I'm a believer in the 4% rule, having read some of the original studies long ago, along with the excellent MMM articles. But I haven't thought in depth about the finer nuances, the way many of you have. I would love to have your comments on the scenario below.
Suppose I were to retire (not particularly early, say at least age 60 ish) and start taking out 4% of my stash, to be followed by an annual inflation adjustment. I assume that I am unlikely to run out of money before age 95.
Now suppose a really good investment year comes along, during which my stash increases by an amount much greater than the inflation rate. Could I "reset" my retirement, and say: "OK! I declare this year to be my new retirement year!" ... and start over with 4% of the new amount?
For example: I retire with $1 million. First year I take out $40k. The next year there is 3% inflation so I should increase my withdrawal by 3% to $41,200. BUT my stash is now at $1.1 million. So I "restart" my retirement at 4% of the new amount and withdraw $44,000 instead... to be adjusted annually by the inflation rate.
Is there something wrong with this logic? I would be ratcheting up my withdrawals during "great years" but not adjusting downward during bad years (unless inflation is negative). Is this a recipe for trouble? Thanks in advance for your insights. Sorry if this has been addressed before; if it has, a link would be great.
Edit: on the other hand, if I had chosen Year 2 as my retirement year in the first place, I wouldn't even worry about it. I would simply start with 4% of $1.1M and assume that everything would be fine from there. So... would this work?