In reading the
stop worrying about the 4% rule thread, I was playing with cFIREsim trying to understand why $100 portfolio with a $6 inflation adjusted withdrawal was getting such relatively high success rates for 50+ year runs.
This was rather confusing to me initially, since I was assuming that $6 withdrawal was corresponding to a 6% withdrawal rate and expected not such a high success rate with a minimum withdrawal. But it's not. The $6 default is your inflation adjusted spending. And this corresponds to how your FIRE experience would actually be rather than some arbitrary percentage withdrawal rate.
It is often repeated that a "4% SWR is what you should aim for!" but it occurs to me that the concept of a SWR doesn't actually make much sense at all. Nearly everyone on this board is going to have more fixed expenses spend - rather than fixed portfolio spending - in ER.
Consider that if your portfolio is 1M and you spend $40k/year, if your portfolio doubles, a SWR FIRE plan implies you will withdraw $80 -- rather than the more likely $40k. The SWR also implies that it drops to $500k, you will only withdraw $20k. Neither of these scenarios is likely to really occur nor do they make sense from a planning perspective. It is far more likely you would still spend close to $40k (regardless of your portfolio balance).
Any meaningful retirement analysis should therefore not consider a SWR, but rather an expense multiplier (so 15x or 25x expenses etc). Then, use constant or inflation adjusted spending until SS/pensions, at which point that constant drawdown decreases. Or keep expenses constant and ignore future incomes. Either way retire the concept of a SWR entirely.
Am I missing something about why a SWR is so commonly used for ER and retirement planning?Sure it's easy to conceptualize, but just because it's easy to conceptualize doesn't mean it's actually meaningful.
The takeaways I see are similar to
what sol discusses here except more focused on a paradigm shift from "need 25x expenses" to "need 15x (or whatever) expenses with a modest income stream and future SS" perspective. Supplemental income streams, such as SS, pensions, rentals, hobby income, or whatever allow you to drop your expense multiplier significantly.
Additionally, using a SWR focus seems to roll the importance of surviving the first 5 years of ER into the entire time. Whereas if you focus on the inflation adjusted expense side you can much more easily address the time periods where FIRE fails. An example might be covering 50% of your expenses via part-time work and being 1/2 FIRE'd for those 5 years instead of drawing down your portfolio. Or working halftime to cover 100% expenses (but not saving anything).
ie perhaps a hypothetical "a 60k withdrawal on a 1M portfolio with 30k part-time additional income during years 1-5" scenario would seemingly reduce your working time
significantly while allowing you near the same success that a 4% scenario might be if you had worked another 5 years FT.
.... this makes me want to program my own FIRE calculator to account for the scenarios which, while perhaps more complicated than "SWR!" scenarios, would allow you to build protections against risk in when comparing to historical periods for analysis.