I would not go so far as to call it a "bad" withdrawal strategy. It has been hiding in plain sight in the Trinity study, and has not received the attention and discussion I think it deserves, but it is not "bad".michaeljc70 wrote: ↑Sat Sep 14, 2019 8:32 am
...Seems like a bad withdrawal strategy and I'm not sure why they didn't consider the better/more common strategy of fixed % of current portfolio (also called the endowment method). Inflation will eat away at your withdrawals taking a fixed % of the starting portfolio and not adjusting it for inflation. I could see this suitable for short retirements only. After 22 years (assuming 3% inflation) you will be getting half (in real dollars) of what you started getting.
As many have said before, the endowment method will never produce a failure, although it may reduce your withdrawals to a poverty level. I strongly suspect that the lack of failures is the real reason they chose the method they used. For the purpose of this academic study the method chosen will produce failures, and the withdrawals are comparable to those the the 4% plus inflation produces.
After 22 years (assuming 3% inflation) you will be getting half (in real dollars) of what you started getting. As much as this is true, the real comparison is with what the 4% plus inflation strategy produces. For the first 18 or 19 of those years the 7% fixed withdrawal produces higher withdrawals, and at 22 years your withdrawal is 91.3% of the inflation adjusted method.
I am 12 years into retirement, and our spending for trips and activities is starting to slow down, not out of financial necessity, but because our physical capabilities are diminishing.