No. of Recommendations: 4
I think the notion of SWR of [real] 4% of starting portfolio market value advice is like advising people to subsist on unicorn meat. Does anybody still buy that stuff? But what do I know.
Sequence of returns risk per se doesn't really exist. It's really just "risk that you got bad advice and are withdrawing way too much". If you can't ride out a bad bear, you can't retire with the withdrawal rate you're contemplating, period. It's terrible to simply say to someone "you're not rich enough for that retirement income", but that's way better than saying "you're rich enough" when they clearly aren't.
Most poors don't have the luxury of satisfying their every desire at a 3.25% WR of initial portfolio value or 4% WR of shares. And some others still might wish to "Die With Zero" or otherwise make the best use of their savings (while consumption smoothing).
Thus, the *industry standard* 4% SWR advice.
The notion is that income outcomes like what was typical in the past can only be expected if the starting situation resembles those that were typical in the past.
Not typical, but worst. 4% is based on the WR that survived the historical worst SOR. Unless you fear a worse SOR, it's safe enough.
No one blindly adheres to it, of course. Retirees naturally WR less after bad years in the market.
And since the average retiree's SOR is better than the historical worst, they end with a portfolio something like 2.8X their initial balance, they WR more once past SORR.
