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Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76891  
Subject: Re: 4% Withdrawal Date: 7/9/2007 1:50 AM
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The model usually indicates you can reset the withdrawal to the *new* 4%, but if one wanted to be more conservative and bulletproof, stick to increases pegged to inflation.

I don't think the model really indicates this.

To see why, we have to look at what are sometimes called second-order effects. A 4% withdrawal rate has a 95% chance of success. If you reset once, you are taking more than the original 4%, and you are starting over with another 95% chance of success. To me, that gives you a probablility of success of 0.95 x 0.95, which is just under 90%.

Every time you reset the withdrawal rate you decrease the probability of success. Sooner or later, you get to the point where failure is a pretty high probability.
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