In the past year, I've been on a quest to better understand various approaches to withdrawal methods (post retirement). On the way, I came up with a simple method I've not seen described elsewhere. I do NOT believe this is a one-size-fits-all, but still, this is an idea that could work for some, so let me share it... All my numbers below are in 'real' dollars. And my references to 4% or 3% apply to the US, things are different other countries.

Ok, say you save a given stash. Conventional wisdom say that you can spend 4% of it every year (inflation adjusted) post retirement, and you should

probably make it. Now if person A has $1M in 2013 and retires, person A gets $40K to spend per year. Now person B has the same stash and keep working one more year, and there is a stock market crash in 2014, the portfolio is now $750K, and Person B retires for a paltry $30K. But wait, person A went through the same crash, and still it's ok for person A to take $40k in 2014? Huh? Let's keep going. In 2015, the market recovers, and the portfolio of both guys went up to $1M. But Person A gets $40K while Person B gets $30K. Are you kidding me?

Fact is the 4% method has a very fundamental flaw, being overly reliant on the starting point. So what if we all try to be Person A (the lucky guy who retired close to a market high, hence his 4% is higher than others!).

Basic idea is simple. Do retire when you feel like it. Take 4% of your stash as annual spend. Next year, look at your portfolio, do the math again (current portfolio times 4%). If this is better than your current withdrawal, well, RETIRE AGAIN, take 4% of your current portfolio, i.e. you got a raise! Now Person B will catch up with Person A. Rinse and repeat every year.

Does this work? Not exactly like that. I used the word "probably" earlier. Fact is 4% can fail if you happen to retire at the very exact craziest peak (1999, anyone?). So if you follow what I just suggested, you might significantly increase the probability of stepping in this failure zone (which existence is another reason to dislike the 4% starting point randomness).

Easy fix. Start at 3.2% or even 3%. Now that is super safe. Too safe? Too little to start with? Well, remember, you will get raises along the way (unless you started at a crazy high peak already). Until you settle to a plateau, which will remain a) very safe b) reasonably optimal c) fairly independent from your starting point.

Want to play with this idea? Well, take a look at

http://www.cfiresim.com/input.php and select the appropriate spending method. Thanks Bo, for implementing my idea.