My understanding was he didn't want the ending balance to fall below the inflation-adjusted beginning balance, ignoring year by year undershoots. The PP doesn't offer enough growth not to be depleted by inflation + withdrawals to stay above initial principal, which is a rather oddly strict rule.
Yep -- my understanding as well. When I use "sustainable" withdrawal rate that's exactly the definition I use. Whereas the "safe" withdrawal rate is where the end balance was exactly 0 (not lower). The Safe WR for the PP (since 1972) is about 5%, and the Sustainable WR is about 4%.
Correct, I'm looking to try to establish a number based on Tyler's sustainable withdrawal rate methodology but with MG's extrapolated data going earlier than 1972.
The reason I'm asking is that I'm still experimenting with models for living in FIRE out of the portfolio. If the portfolio is needed for 50 years, then I've still been trying to establish a sustainable withdrawal rate. Further, I've been trying to establish an annual withdrawal percentage that still allows the portfolio to somewhat grow with inflation. I recognize that there will be years when the portfolio will be less and more, and the annual draw from the portfolio will also be less or more than the previous year draw (i.e., 4% of less or more). But, I'd like to take as high of a percentage as possible each year, but not take so much that the annual draw amount on a year-by-year basis starts to get eroded by inflation. Does this make sense?
To complicate a little more, I've also been modeling whether the sustainable withdrawal rate is raised (and by how much), if the annual withdrawal percentage draw is taken from the cash portion. Using the sequence of returns since 1972, drawing from cash seems to raise the sustainable withdrawal rate verses taking from the portfolio as a whole. To me, this is a real advantage of the PP for an early retirement portfolio. Also, seems a lot less complicated to manage in retirement.
MG, I'm hoping the .31% number is incorrect. Because that would mean that my annual percentage sustainable draw off a $1M PP is only $3,100! I was planning on the annual draw being closer to $40K!