Flexible 4% Withdrawal Spending Rule

I believe that some of you may have heard of 4% withdrawal rule. One will be able to withdraw and spend $40,000 for a $1 million portfolio. $1 investment million portfolio is equivalent to 25 times yearly withdrawal amount. There are instances in which such withdrawal percentage might not work due to the sequence of event. My take is that it requires flexibility in the withdrawal amount in accordance to the sequence of event. Let me quote an example.

If one start with $1 million investment portfolio and withdraw and spend $40,000 in the first year, the amount will be $960,000 at the end of the first year with  the assumption of non-change market circumstance. It is well known that this is unlikely to be the case in respect of market circumstance. The market goes and down periodically.  In the event if the value amount of the investment portfolio is indeed $960,000 at the end of the first year, one will need to adjust his/her spending to $38,400 based on the 4% withdrawal limit.  I believe that this will enable one to be sustainable on a long run.

The yield which I could get from the investment portfolio, is about 7%. I believe that I will not have to dip into the investment value in order to sustain the yearly expense. I do not dump all the fund into the investment portfolio as I do keep some fund in the form of the cash. This sum of cash can last me 8 years of expense. There is no need for me to sell the investment portfolio in order to sustain the living expense. The crux of the solution is to be flexible in the annual expense in respect of the market value of the investment portfolio.

The above is my two cents of views.


Author: firewtk

A middle-age Singaporean currently having a minimalist and simple lifestyle. I am not longer in full-time employment with effect from 1 May 2019. I try my very best to write one post per day on this blog. The purpose is to share my prevailing thoughts to interested readers. It is up to the interested readers to decide whether they want to take action in embarking on the FIRE journey. I do not gain anything from this blog and it is solely for sharing hopefully for the benefits of all interested reader. WTK

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