Michael Kitces on ErinTalksMoney made me realize the dichotomy of FIRE results
Skip to minute 49 if you’re just interested in the part I’m talking about, but this is one of the best interviews on retiring that I’ve listened to in a long time.
https://youtu.be/B3Po35uaXL0?si=EnUIPoZ\_TSQ9YgFy
The gist of it is, due to SORR, constant withdrawal strategies like the 4% rule almost always end up either failing before end of life or with enormous piles of wealth left over.
Variable withdrawal rates or reductions in spending during market downturns can allow for higher average withdrawal rates with higher probabilities of success.
5% rule:
For example, a $2.5M portfolio can last 30 years with $125k (5%) annual withdrawal rate but it will completely fail about 20% of the time.
Dynamic SWR:
But, if you take that same $2.5M, and are willing to cut expenses to $80k during downturns, you can spend $150k (6%) for the majority of the years and still have a 100% probability of success. 67.5% of the time you can spend the whole $150K and the average is $139k. Only 3.9% of the time do you actually have to go all the way down to $80k.
This is mind blowing to me and really changes how I look at some of this stuff and make plans.
All calculations were done using the ficalc.app with an 80/15/5 portfolio and adjusted for inflation.