Risk-based retirement income guardrails

[walkinwood]

Another way to look at variable withdrawal rates based on market performance & longevity.

https://www.kitces.com/blog/guyton-klinger-guardrails-retirement-income-rules-risk-based/

In the article, the guyton-klinger guardrail method is viewed as flawed because...

The main reason is that the Guyton-Klinger framework triggers withdrawal and spending cuts when they are not needed. It is overly conservative and tends to overcorrect, preserving far more capital than is needed at the cost of severe reductions in the standard of living.

Instead, the use of risk-based guardrails is suggested. Risk based guardrails use monte-carlo simulations (or historical data) to determine the risk of running out of money & adjusting your spending accordingly.

...what are risk-based guardrails? Simply put, we use a methodology that is very similar to the distribution rate guardrails defined above but swap in a metric of risk for distribution rates.

In practice, I think that's what most of us do here. Re-evaluate our spending each year and adjust it based on market conditions. i-ORP used to recommend this too.

Another good post at kitces.com.

 

[OldShooter]

Now if we only had a way to measure risk ... (Hint: Risk is not variance or standard deviation.)

 

[walkinwood]

As explained in the article, risk, in this case, is the probability of your portfolio supporting your withdrawal needs for the rest of your estimated life.


You estimate that risk by seeing how your plan would have fared historically or use a monte-carlo simulation.

 

[rayvt]

Another way to look at variable withdrawal rates based on market performance & longevity.

https://www.kitces.com/blog/guyton-klinger-guardrails-retirement-income-rules-risk-based/

In the article, the guyton-klinger guardrail method is viewed as flawed because...

Another good post at kitces.com.

Yeah....no.

managing this sort of adjustment plan ... is impossible without specialized software.

1) So here's a problem with G-K. Okay.

2) And here's a fix to solve that problem. Okay

3) That solution requires our specialized software that we will gladly sell to you for a fee. Yeah, no thanks.

 

[ERD50]

Sounds like just rerun FIRECalc or FICalc.app every year or so is what he's saying.

Not news. -ERD50

 

[Gumby]

Sounds like just rerun FIRECalc or FICalc.app every year or so is what he's saying.

Not news. -ERD50

I was thinking the exact same thing. I think I've heard it called "retire again and again". I have rerun FIREcalc each year since we retired and have been pleased to still see 100% success rate with double actual spending. But I don't adjust our spending upward as a consequence, since we are spending as much as we want right now. I just can't think of anything else to spend it on, and unlike some, I don't care if I leave a big pile on the table when I shuffle off this mortal coil.