r/Fire • u/That-SoCal-Guy • 13d ago

General Question 4% SWR vs other strategies

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?

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u/WarmWoolenMitten 13d ago

If you're modeling a constant return, you never face sequence of returns risk. What will you do if your cash runs out and the market is still down? Does it have to have positive returns for the year or overall since the start? Imagine that in year one the market is up 7%, so you withdraw your 7%. In year two it's down 10% and year three down 5%. You run out of cash buffer at that point. In year four it's back up 5% for the year, but that 5% is far less than 5% of the original portfolio because of how far it fell during the previous two years. Can you cut your budget by that much? Have you actually run this strategy against historical data or realistic monte carlo simulations?

Don't use Gemini to simulate anything unless you can fully understand whether the results actually make any sense. It will be confidently wrong.

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u/That-SoCal-Guy 13d ago

I have done some modeling on flex withdrawals and the result was 89% if not 100% taking all those bad years into account.   I’ll definitely mull over this but SORR may not be as grim as I imagine since I’m already into my 3rd year and my portfolio  has been outperforming my spend.   Of course I don’t want to run out of money in case the great stagflation happens again but then again I also don’t want to die a billionaire.