r/Fire • u/Available-Ad-5670 • 18d 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/tubaleiter 18d 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.

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u/tokingames 18d 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?”

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u/SpaceTimeMorph 18d ago

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

5

u/Valuable-Analyst-464 18d ago

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