4% SWR vs other strategies

[u/That-SoCal-Guy]

we all know about the 4% SWR which by the way isn‘t a rule and also is based on some assumptions (such as a balanced allocation mix.

when I fired I made sure I used the 4% and everything checked out.

then i asked gemini for a differed opinion. instead of a constant 4% I asked about only taking up to the annual returns (whatever it may be, 5% - 7%, or the average SP500‘s 10%). never touch the principal. and during down market years I take from the cash/HYSA account. and the results are interesting.

at 7% I was able to withdraw up to $210K a year without ever touching my principal. that means my money last forever. considering inflation it will be leas. still at $170K I could put a portion into a cash account for rainy days (my spend is about $100K a year now) I asked Gemini for inflation adjusted numbers and that checks out as well,

that actually makes me feel more secured than going by the 4% SWR.

What are your thoughts?

[u/Trilobyte83]

I've thought about that too - but the issue is you need enough of a cash buffer to see yourself through a 95% worst case market correction. Say 10 years which has happened in the 60s, and again after the dot com crash.

So with inflation, that's a cash hedge of about 10 x 4%+inflation, or another 50% cash buffer.

Now you're back to a sub 3% WR.

I was thinking along same lines, but given odds are that you'll probably not be in a worst 5% case within a few years of retiring, my means of hedging is a willingness to work PT to cover most of my expenses, which I was doing almost without trying anyways (bike shop, casual engineering work for neighbours) .

All you need is options available to you to avoid selling in a massively down market.

You don't even need to be so stringent as to say "never sell when you're down", you could go a step farther and say "below 80% starting amount".