Hi Folks
I've been following the discussion on the firecalc and cFIREsim both lie? thread and going over the stuff on the 4% SWR, and I realized that there's one aspect I've never fully understood. Maybe someone can help me puzzle it out.
The firecalc and cFIREsim both rely on a base amount being withdrawn each year, and that amount can be indexed to inflation, adjusted for things like SS, etc.
But is there ever a time after retirement to 'readjust' your SWR?
Here's a hypothetical to help illustrate my question.
Let's say "Joe" retires with $1M. He has a 4% SWR of $40k, indexed to inflation.
Never a big spender, Joe finds that he and his family can live off a bit less - maybe $36k. He also picks up some side income selling the furniture he builds as a hobby - another $10k a year, so Joe needs to withdraw even less from his account. Time marches on, the stock market has an 'average' decade, and then one day Joe looks at his retirement accounts and finds that he now has $1.6M
At the same time the community center near his house needs donors. Joe looks at his current balance, does the 4% SWR calculation ($64k annually on $1.6M), and thinks to himself "sure, I can give $25k a year to the community center, have $39k for myself ($39k is the inflation-adjusted $36k), and still be living on 4%, even without considering side income."
In my head I can argue this both ways. Arguing against I think that it's risky to re-assess the 4% rule ever few years or decades, because an "up" year or decade might give you a false sense of security. In a manner of speaking the 4% SWR generally works because it stays constant while the market goes up or down, and the average market gain of ~7% will allow for withdrawing in bad years.
OTHO, if you make reassessing a continuous strategy, you'll also reassess during down years, when 4% will give you less overall money. It's one method of being adaptable.
