That is confusingly worded isn't it? Sorry about that.

So let's start with the 4% rule. You have 25x your annual expenses saved up. The first year you withdraw 4% of your portfolio (25 years expenses * 0.04 = 1 year's expenses). The next year, regardless of how much your portfolio grew or shrank, you withdraw the same amount (adjusted for inflation) and so on. The vast majority of the time you never run out of money.

The first question a lot of people ask is whether they could just spend 4% of their current portfolio balance every year. The answer is yes that's completely safe, you just have to be willing to cut expenses dramatically when the market drops 50% and 4% of your current portfolio balance is a much smaller number. Often people don't like that so they ask a second question:

Since it is safe to retire with 25x expenses, can I just "reset" my withdrawal rate each year the market rises so that I spend either the same amount of as I did last year (adjusted for inflation) OR 4% of my current net worth, whichever is greater. The answer to this is no, it increases the risk of a retirement failure (running out of money before you die) significantly. If you do this you're essentially filtering through all the possible start dates for a retirement until you find one that will result in failure.

However, in most scenarios your portfolio will grow significantly more than 4% per year so your net worth will increase and your withdrawals will decrease as a percentage of your total net worth. In the simulations I've run, once your annual spending is down to 3.2% of your current portfolio, it is okay to spend up to 3.2% of your current portfolio each year while still treating your original annual spending (4% at year 0 adjusted for inflation each year) as a floor if/when portfolio declines in value. Doing this doesn't seem to have a noticeable impact on the risk of running out of money before death.