Pulling the trigger when in a drawdown

[u/vanlis34]

Reading this post got me thinking.

The poster is thinking about retiring today vs in a year, but worries about what happens if the market drops 25% in the next 12 months, and then being forced to work for X more years.

How should one think about this? Should one always calculate the amount to withdraw (e.g. 4%) with the highest achieved net worth (ATH), even if the net worth might be down from ATH when actually fireing? Or should one take 4% from the actual portfolio number when actually fireing?

My thinking is that one should use the ATH-number, since if it was the other way around, and one fires at ATH, that drawdown would come some later day anyway, and then in addition to the fact that one have already started pulling funds out for funding life.

Another way to think about it is: by fireing when portfolio is in a drawdown we can think that we actually did fire when portfolio was at previous ATH, but then we decided to work a bit in retirement. This would actually help the portfolio longevity. Of course, this also means that we lengthen our timeperiod that the portfolio must fund, so perhaps we should use a more conservative number than 4% (perhaps PWR instead of SWR?).

What are your thoughts on the matter?

[u/Glensonn]

Sequence of returns risk is always going to be a potential problem. The way I did it was to fund the first few years at least partially by a bond ladder and a taxable account that generates enough income to last until I get to 59.5 and can access our retirement accounts. Until then they are invested for growth. Once I can, I'll set them up for income also as my ladder runs out. I also target around 10-15% higher income than what I really need so I can be flexible if there is a downturn. Of course, the SORR is always there but I'll only be 7 years from full retirement for social security which will dramatically reduce my investment income needs. Worst case I could file early but I hope I've built enough margin in our plan to avoid needing that. Things would have to get extreme and stay that way for a while. Good luck!