this post was submitted on 08 Sep 2023
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Showerthoughts
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A "Showerthought" is a simple term used to describe the thoughts that pop into your head while you're doing everyday things like taking a shower, driving, or just daydreaming. The best ones are thoughts that many people can relate to and they find something funny or interesting in regular stuff.
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No, you're spending that increase to live. You leave the 1 million to generate gains and take off the top. In ten years that 1 million will have less purchasing power than before.
No, you always take less than the increase. This is why most FIRE plans revolve around living on 3-4%. The gain percentage minus withdrawal percentage should ideally leave you with a number greater than the losses due to inflation.
To add to this, you are also expected to withdraw more year after year along with inflation. If your safe withdrawal rate allows you to withdraw $40,000 on year one, you can withdraw $40,800 the second year (assuming 2% inflation). Dispite this increase, your portfolio should still grow. If you are withdrawing all of your gains, you are setting yourself up for failure.