Calculate Your SWR at Every New ATH!

I've been doing a lot of thinking, and planning, as I realize I am completely in one more year territory. After thinking about what would happen if I retired today, and the market was cut in half tomorrow, I realized that it doesn't matter. Using the same logic, I realized that you can always readjust your withdraw amount at every new ATH. This isn't a post about finding the ceiling of retirement spending, but instead about FINDING THE FLOOR.

ASSUMPTIONS:

3.25% SWR gives a 100% success rate for a 50 year retirement. Big ERN says 3.39% is 100% safe and I rounded down to 3.25%. In other words, if you invested at the absolute worst time in the history of the market, you would have survived at 3.25% SWR.

This relies on the same historical data assumption built into any SWR analysis, including the trinity study, that the future will not be worse than the worst path in history.

THEORY:

The standard approach:

Retire with portfolio value X, withdraw 3.25% of X, then adjust that dollar amount for inflation each year. So if I retire with $1mm, my historically safe spending floor is:

$1,000,000 × 3.25% = $32,500/year

But what happens if my portfolio later grows to $2mm?

Most people probably would not double their spending, permanently! But theoretically, if I had retired for the first time on that later date with $2mm, the same 3.25% rule would say I could safely spend:

$2,000,000 × 3.25% = $65,000/year

So my theory is:

Each time the portfolio reaches a new all time high, I can reset my spending floor to 3.25% of that new net worth.

If the portfolio later falls, I do not reduce spending just because the current balance is lower. The locked in spending amount is based on the last ATH, not the current portfolio value.

LOGIC:

The logic is that a 3.25% SWR is already designed to survive the worst historical sequence of returns from any starting point in history.

If I retire today with $1mm and withdraw $32,500, I am saying:

“Even if today turns out to be one of the worst possible retirement start dates, this withdrawal amount will survive based on historical data.”

Now suppose my portfolio later reaches $2mm.

At that moment, I could treat that day as a new retirement start date. If I were retiring for the first time with $2mm, the same SWR logic would support $65,000 of spending.

If the market then immediately crashes back to $1mm, that does not invalidate the decision. It simply means the ATH date turned out to be a bad sequence of returns starting point. But that is exactly what the 3.25% SWR was supposed to handle.

So the rule becomes:

My spending floor is 3.25% of the highest portfolio value I have ever reached, adjusted for inflation thereafter.