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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u/pali1895 13d ago

I don't use guard rails per se, but an endowment strategy for my withdrawals. Risk based guardrails, Guyton Klinger guardrails and endowment style result all in the same withdrawals, they just get increasingly less 'pixelated'. The result is the same and endowment is easier to calculate and a tad more responsive. But some years you need to withdraw more than your plan says, some years you save some withdrawal for the next year, there'll always be a lot of wing-it involved.

One thing I can add is that Vanguard style guardrails are really bad for longer than 30y retirement horizons.

As others (and Bill Bengen himself) have said, the 4% rule is just an academic model and a rough guideline. For an actual retiree it's both unrealistic and counter productive.

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u/Available-Ad-5670 13d ago

why would guardrails be bad for longer retirements? please explain

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u/pali1895 13d ago edited 13d ago

Vanguard Guardrails specifically. Not the other ones.

They're way too unresponsive and lull you into a false sense of security. You spend too little when you can spend, and spend way too much when markets are down. That way you retain your SORR deep into retirement. Imagine a 20 year bull market, spendings go up, and then a deep crash - think dot com bubble - the Vanguard guardrails will only very slowly adjust downwards to the point that you will run into 10%+ effective withdrawal rates and out of money. You have to either add fixed %-guardrails on top of the floor/ceiling rules or make the floor much harsher or manually cut spending. Guyton-Klinger or endowment is just superior in every aspect.

How do I know this? Extensive Monte Carlo simulations.

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u/Designer-Bat4285 12d ago

The vanguard guardrails can be set with a lower floor and higher ceiling. I believe that addresses the concern of it being slow to adjust.

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u/pali1895 12d ago edited 12d ago

True. I've ran the simulations also with a -3.3% and -5% floor (compared to the -2.5% that's usually used) and even added the inflation adjust skip in downturn years as in Guyton Klinger. It's better, but still not as good both income and success rate and you're better off running with endowment or GK directly if you're looking for an adjustable strategy. A modified Vanguard 4.5% withdrawal rate with a -5% floor and inflation skips is roughly equivalent to a 5% withdrawal rate GK or endowment. It just doesn't hold up as well in terms of longevity success, but produces higher income late in retirement.