No. of Recommendations: 12
Hocus, I too am interested in seeing dialog about your questions progress in a constructive, meaningful way. And to that end, here's my attempt to state what I detect is driving some of your concerns about the SWR. I tried to word this so that I retained your original intent while using what I believe to be common points of agreement for the board. If I messed up, please let me know.

Background
There is a historical safe withdrawal rate (SWR). If the future is similar to the past, then there is a high probability that a portfolio will not run out of money if the SWR is utilized for that given time period and asset allocation. Then there is the actual withdrawal rate (AWR) at which a retiree withdraws his/her money. Although some may assume that the SWR and AWR are one in the same, in fact they are not. The SWR is a good starting place to determine a withdrawal rate, but after analysis of ones personal situation, the AWR could wind up being higher or lower than the SWR. For example, someone who can cover expenses with a small withdrawal rate might choose a lower choose a lower AWR than SWR. Conversely someone who is counting on some future income might elect a larger AWR than SWR.

Problem
In bear market conditions, emotions could cause ERs to change their asset allocation to the point where their AWR is no longer shown to be 'safe' as supported by historical data.

So it begs the questions: 1) What is the probability that this could happen to me during FIRE?(% of the population that will make the make wrong choice and method to predict this behavior) 2)For those potentially impacted, would adjusting the AWR ahead of time mitigate this problem and if so, then how much should the AWR be adjusted?


Solution
I think that question #1 must be answered before considering question #2 and I haven't really ever seen a good answer to it. I've had financial advisors attempt to assess my risk tolerance by asking how much up and downside I was willing to tolerate for a given investment. But guessing what I might do is a poor approach to projecting my future behavior. What is required is the ability to quantify how I actually reacted to past events (both related and unrelated to investments) in order to predict my probable future behavior. In another words, utilize the same rigor one uses when analyzing historical financial data.

Now some may just pooh-pooh this whole notion by saying, “hey face it, early retirement just isn't meant for everyone—if you can't stand the heat...." But it is important for one to assess ones ER readiness level. You may not feel this "heat" until several years into ER, after you've past the point of no return. It's difficult to use work as a “plan B” after you have let your job skills go rusty. Hey, maybe thats the true definition of ER—you know you're really an ER when you can no longer return to your previous occupation <grin>.

So, does anyone out there have any ideas on obtaining data to answer question #1? Do any psych majors hang out here???
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