In the past, every time a poster mentioned the "withdrawal" or "accumulation" phase, I didn't give it much thought. I had a vague generalized idea of these phases, but for whatever reason, this time around I started thinking about these 2 phases and what they really mean.ghariton wrote:Remember that FWF is just as good a source of advice in the withdrawal phase as in the accumulation phase.
I had first assumed that the accumulation and withdrawal phases occur serially. That is, an individual starts creating capital and begins to accumulate capital/assets. After some period of time, they stop accumulating and then they begin to draw down all that they've accumulated until they pass.
What happens if the accumulating doesn't stop? Do individuals automatically enter the withdrawal phase in spite of this?
Let's say that a retired investor requires $100k a year on needs and wants (e.g. food, shelter, vacations, charity, stuff, etc.)
In the first scenario, if they had a net worth of $5m that throws off 4% in dividends or $200k a year, then is this the "withdrawal" phase? Or is it still the accumulation phase because their net worth continues to climb (albiet at a slower rate)?
In a second scenario, what if this same retiree had $5m and had no dividends, but was employing Buffett's sell-off approach. Technically, the retiree is selling their amassed portfolio in order to sustain themselves, but can this really be called a withdrawal phase if their wealth continues to grow? Is it only a withdrawal phases when their net worth declines?
In a third scenario, let's say an individual had build up a real estate portfolio that, upon retirement, produces $200k per year in rental income but their net worth stayed flat. Would this person be in withdrawal mode as well?
From my perspective, all these individuals are all still in accumulation mode. That is, their net worth continues to grow. However, perhaps they can also be considered in withdrawal mode because they're no longer actively amassing capital/assets?
Thoughts?