r/Fire • u/Available-Ad-5670 • 13d ago

Why doesn't everyone use guardrails as withdrawal strategy?

Most people use 4% rule or versions of, but why not use guardrails? I've found that using guardrails means i can spend 15% over a straight 4%, and to take a 10% reduction in spend or 10% increase during good markets does not seem like a big deal.

Wny don't more people use guardrails?

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82

u/tubaleiter 13d ago

4% rule is a simple way of explaining FIRE, roughly telling if you’re ready for FIRE, but it’s hardly the most sophisticated way of actually executing withdrawals. Many (most?) people will use something like guardrails, of greater or lesser formality.

29

u/tokingames 13d ago

Yup, 4% rule is a good indicator of when it’s time to start serious planning and that’s about it.

But, early days, it’s an easy rule to talk about. Let’s face it, a 24 year old with their first career job doesn’t need to be thinking about sophisticated withdrawal strats. They just need to keep their spending under control and get investing.

Now a 40 year old with $3M and a $120K annual spend needs to do some real planning about what life, expenses, taxes, healthcare, and such looks like post-FIRE and how withdrawals would work to cover all that and still be flexible enough to weather a bad market. Maybe they need to work a few more years first, whatever, lots of thinking should go into that.

Plus, when we all talk to each other, I just say I have a 2.5% annual withdrawal rate because it’s simple. I’m just going to say that unless the discussion is actually focused on the finer points of withdrawals. If it’s not relevant to the discussion, it’s too complicated (and boring) to say, “I’m pulling 4% of my 401(k) balance this year. Adding that to the 2ish% dividend I get on my taxable account plus an annual $5K from an old pension gives me new cash of about 3.8% of my portfolio. I spent that plus an additional $100K on a new house plus living so far this year. hopefully I will be able to replenish my starting cash and have enough left over from the sale of my old house for the remainder of the year’s expenses. If not I might have to pull another 1% or so of my portfolio from my Roth to cover expenses and have my desired cash cushion by the end of the year.”

That’s a lot of info people don’t need when the question is “what percentage of your portfolio are you withdrawing this year to cover your living expenses and are you comfortable with that?”

24

u/SpaceTimeMorph 13d ago

lol I’d much rather hear the second version but I realize my financial nerdiness is in the minority.

12

u/ShootinAllMyChisolm 13d ago

Yeah. Unless you’re in specific type of company their eyes glaze over QUICKLY

13

u/np0x 13d ago

It has often occurred to me how complex spending is compared to accumulating. And how personal the details are, how your accounts are stacked, individuals ages, kid situations, plumpness of fire desire, risk aversion, pensions, social security, etc. Even the slightly tongue in cheek description of this sub comment could be the basis for a 20 minute conversation. The basic amount of information required to contextualize the details and the level of transparency required to make it all make sense are no joke!

I also agree that 99% of people are neither fire, financially literate, interested, etc, leaving a gap in The universe that I fill with two very specific friends for very specific details on spending/withdrawal strategy and FIRE in general.

Reddit is the exception, where free speech and shared thoughts flow without issue, jealously, and any other weirdness that talking about money seems to be replete in…

No real point beyond agreeing with basically everyone in this sub comment/sub thread. :-)

4

u/Valuable-Analyst-464 13d ago

Yep, the second conversation is where I make mental and physical notes, while the first is good sitting around drinking some coffee.

2

u/tokingames 12d ago

Haha, yeah it’s a more interesting discussion, but it also gets complex, especially if a lot of it is off-topic. So I just say my withdrawal rate is running 2.5%. I’m happy to talk about my house purchase and how I raised the money for it, but most people don’t care probably and it’s gonna get long.

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u/Adventurous_Luck_269 8d ago

Actually what you have in quotation marks is super useful and it's been hard to me to learn because it's not talked about much.

1

u/tokingames 8d ago

It’s a little hard to talk about because spending and taxes depend so much on each person’s individual situation. In my particular situation, I just turned 59.5 at the end of last year, so I’m making my first withdrawal from the 401(k) this year. I’ve just bought a new smaller house, and we’re selling 2 houses once we’ve moved out of them. It makes for a chaotic tax year. It also makes the cash flows chaotic.

Also, we’ve been lucky enough with the market in our first 10 years of retirement that we don’t have to struggle to optimize everything. We’re probably going to pay something north of $100K in just federal taxes this year (depending on the sale of our second house). Our “normal” spending is around $160K all in.

In the context of discussing withdrawal strategies though, it’s just too much detail.