Franklin, I am not sure I understand your question. Do you mean taking your dividends 1st than selling what you need to, to rebalance to get up to the 4% #?
Sorry Gin, I'll give you an example.
For simplicity sake, let's say everything happens in December - a 4% withdrawal of my portfolio for next year's expenses, rebalance of my portfolio to my AA, and $15K in dividends.
Rebalance: Should I sell my winners down to my AA and fund my withdrawal.
Dividends: Should I fund my withdrawal instead of reinvesting?
I feel like all three should move in a coordinated fashion. However, I'm also aware that historical gains are based on rebalancing your portfolio and reinvesting your dividends. So I'm hoping there is a fluid mathematical solution.
Why would you re-invest your dividends just to sell those shares for income?
Here's one potential reason: Because reinvesting puts them back in the companies that made them, whereas sales likely are spread evenly across all companies. So your companies doing better become a bigger part of your portfolio.
That's even assuming they all pay dividends, which brings us to a second reason: By taking the dividends, you're short changing the companies that pay dividends, and the ones that don't pay become a bigger slice of your portfolio.
Fake numbers: Say you have 3% dividends you keep as cash, and then sell 1% of everything to make your 4% total. You just took 1% from non-dividend paying companies, but 4% from dividend paying ones; the non-paying ones grow to be a bigger part of your portfolio quickly. That's probably not what you're intending. By reinvesting them, then taking 4% from every one, you keep it "even."
This obviously doesn't apply if your portfolio is silly simple, like a single total market index fund, where you can keep the dividends and sell to make your total without affecting something like the above. But it's something to consider if you have multiple stocks (as it sounds like the OP does, given their "winners" comment).