So to make sure I am following: As of 3/31, you had hit your $1MM target. But you looked on 4/1, and your portfolio is already down 20%? And you believe it will stay there for the next 3 months? (And why/how do you know this latter is true?)
Not sure this is math vs. psychology as much as math vs. math. :-) How much money I had (or didn't have) yesterday, or last week, or last year is irrelevant -- I could have had $800K or $1.2MM or $5MM yesterday. But I am retiring today, and what I want to know is whether what I have now will provide me $40K/yr. Since the 4% rule now says it won't, I keep plugging away.
To put it another way, the 4% rule isn't a guarantee -- it's just a figure that, for most people, under most market scenarios, will sustain a consistent withdrawal rate for 30+ years. But the hypothetical here is *exactly* the kind of scenario in which the 4% rule tends to fail, so IMO it would be short-sighted to FIRE based on my NW yesterday, knowing that I have 20% less today -- you're relying on a general rule, while ignoring very pertinent data suggesting the rule won't work in your situation. (Plus, frankly, 20% is a pretty big one-day dip, so there may be something significant going on in the world that I am paying attention to instead of debating FIRE. :-))
More realistically, though, my target number is going to have a little more leeway into it to defend against an early downturn -- I am conservative, so psychologically, if I want $40K/yr, I am probably targeting closer to $1.1MM, specifically as protection against this very scenario. Plus, by that time, I will presumably have developed and implemented a plan to manage income needs to prevent me from over-withdrawing in your scenario (e.g., bond/CD ladder, dividend-paying stocks, RE, etc.). So the real answer is that I would look at my portfolio in total and evaluate whether the last-minute market drop is going to require me to make more withdrawals from the market at its current low value, or whether I believe I have sufficient other income to ride out the dip, and make my decision accordingly.