It's a formula based on annuity payout algorithms. Supposedly if you have a portfolio worth $300000 invested in a 50 50 mix of stocks and bonds and you withdraw 4% which is $12000 a year, you should be able to withdraw that same amount for about 30 - 35 years adjusted for inflation every year. And it will work with the ups and downs of the market. Your not withdrawing 4% of what is left, but taking that amount as the base starting point and adding inflation each year. So yes some years it may grow 10% and the next year only 2% but over the life of the investment should work OK.
I set mine up to start with a 3.5% amount and will see how that works. You can always adjust up, but it is difficult to adjust down.
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