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I've thought about that issue too. Can't say that I have an answer, but I've developed a few alternatives. The "inverse $ cost averaging method" you described is not appealing as you noted--just because one needs cash isn't a good time to sell a stock. Another approach is to invest in income producing assets so you "never" sell. Probably not the best ROI, but it's simple. Another approach is to keep a cash buffer. The buffer provides a waiting time so you aren't forced to sell a "good stock at a bad time". How big should the buffer be? Maybe 3 years worth of withdrawals?

Disclosure: Although I retired the first time about 5 years ago (age 45), due to a "cash flow" investment (partner in a business), I've not had to make withdrawal decisions yet. Now I've found an enjoyable job (by accident) and should be able to live on it for as long as it lasts. Currently, I am leaning toward a 3 year buffer model.
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