No. of Recommendations: 7
In the archived post in 2021 you mentioned "so long as brk keeps rising at say inflation +6pct then you can cash out that amount on average".
I assume that leads to retaining the nominal usd 1m and so to maintain its purchasing power you can only take out the 6pct over and above inflation?
My suggestion results in your retaining the real $1m you started with, not the nominal $1m.
You're selling only an amount proportional to the rise in real value, so the remaining real value at the end of each period remains forever unchanged.
Your estimate of real value will necessarily be imprecise, especially with a bit of a time lag due to the smoothing function.
And the market value will vary up and down a bit. But in general you always have the same real value in capital at the end of each period.
My recommended implementation is to do the calculation of what you can safely sell each period, but actually sell only 90% of that much.
That will cause the real value of both the capital and cash withdrawals to rise slowly over time. Very slowly.
It adds a bit of a margin of safety for things like errors in your valuation metric, or a personal expenditure inflation rate higher than monetary inflation.
The margin of safety can also be used to fund a floor under the withdrawal amount, e.g. 1% of real value of starting capital each quarter.
It's nice to know there is a minimum size of cheque coming.
Jim
