There’s the famous 4% rule that has been amended to 4.7%. I rounded up to 5%. Just a nice even number of 200k per year. With the flexibility the buffer adds and the ability to cut back in a down year I’d be comfortable with the extra .3%.
The buffer is there to live off of in a down year or years and not pull 5% out of the investment portfolio. Either 100% comes from the buffer or it can supplement a much lower withdrawal rate. In a known downturn I could reduce my expenses, minimize withdrawal rate, and fund the rest of the year with the buffer. Essentially I don’t want to pull $$ out of the 4M on a down year that will prevent recovery.
In an up year or a year I didn’t spend the full withdrawal amount, I can replenish. The 5% rate over a long time period will still let the portfolio grow. So if I pay myself 200k per year static, my rate could also naturally decline. There are a lot of factors (inflation, expenses, lifestyle) but that’s the high level framework.
