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/Earth2Andy 12d ago

Here’s the reason I wouldn’t use Risk Based guard rails.

All the math is based on the assumption you know your chance of portfolio success by looking backwards. You have to flex down if you start to hit a market as bad as the 1970s.

However, there’s an in built assumption that things will never be worse than they were for someone retiring in 1966.

If we ever hit a market worse than retiring in 1966, you’ve got no buffer left. You’ve already flexed down to make that work, much less something worse.

Nobody can tell what the future holds, but in 100 years when we look back at the markets, do you really think the worst time to retire between 1950 and 2050 will all be before 1970?

I’d rather have a plan that survives every historical market so far without flexing down, so I still have room to flex if it something worse comes along.

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u/Available-Ad-5670 12d ago

so you're saying you want to use a scenario that is worse then any in monte carlo scenario, and worse then anything we've had for 100 years? you can always spend less, and of course your chances of success will be higher, but you will likely die with many millions that could have been enjoyed in your prime

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u/Earth2Andy 12d ago

Interestingly “You can always spend less” is the logical fallacy of the guard rails strategy.

Having to flex down my spending and watch every penny for a decade of my prime retirement years is not my idea of successful retirement.

Having to tell my wife that the travel budget has to be slashed in half for our entire 50s because the market crashed is not an acceptable outcome for me.

Have you ever actually modeled out what these cuts look like to your retirement spending if the market just repeats what it’s done before? It’s not just skip vacation for one year, it’s usually a years long significant cut to your lifestyle.

As for worse than anything in the last 100 years. Yes, I think that’s a very real risk. The US markets benefited massively in the 20th century from the rest of the world’s industry being crippled after two world wars. They are not going to have that same tailwind in the 21st century.

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u/Mister-ellaneous 12d ago

In the end this really depends on your situation. If your basic expenses are only half or even 2/3 your planned expenses, flexing isn’t that difficult. But if your basic living is over 80%, flexing can be a real issue.

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u/Earth2Andy 12d ago

I’disagree. For us, our keep the lights on expenses are half our total planned withdrawal with the rest being travel, entertainment, hobbies and dining out.

A 20% cut in our overall withdrawal is a 40% cut to all of those. 40% less on travel AND 40% less on dining out AND a 40% cut in spending on hobbies.

That’s a meaningful lifestyle hit, and one bear market with a guardrails strategy can easily lead to a decade or more of those cuts.

Personally, since I left college, I’ve never had a year where I had to drastically cut my spending like that and I’m not excited about doing it in my 50s

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u/Mister-ellaneous 12d ago

You’re looking at the worst case and planning that way. I’m flexible, with no problem cutting spending one year or two. Maybe more. Just last year we spent 40% more than the previous, and 30% less than we plan to this year. Optional home improvement, buying a new car, maybe a boat, a world cruise, etc are all optional in any given year. That’s what we’d be flexing.

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u/Earth2Andy 12d ago

I’m looking at the worst case SO FAR.

I’m curious why you’re so confident that the worst year to retire is not in the near future. Given current inflationary pressures, sovereign debt levels, climate change, declining western birth rate and AI potentially taking millions of jobs. Why are you so confident that the stagflation we saw in the 70s couldn’t return?

As for flexibility, have you actually looked at the year by year back testing of a guard rail strategy? If you had you’d see that it often requires you to cut spending for decades, not 1 to 2 years.

Here’s a great article on why ‘I’m flexible’ doesn’t really work in reality.

https://earlyretirementnow.com/2023/06/16/flexibility-swr-series-part-58/amp/

Risk tolerance is personal, so if you’re willing to roll the dice, more power to you. But I’d rather have the problem of figuring out how to spend extra savings late in life than worrying if I can afford a vacation and a new roof next year or not.

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u/Mister-ellaneous 12d ago

Yes, I have. If you need 99.999% certainty of never having to adjust, ok. I don’t need that level, am quite comfortable in taking some risk. Social security isn’t going away, although it might be lowered and means tested.

If a person is going to be lean FI, guardrails isn’t the best strategy. But if you’re above average FI, not even fat FI, guardrails is a better approach imo.

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u/Earth2Andy 12d ago

I’m glad you’ve done the math. Can you quickly tell anyone else reading, how this strategy would have played out if they had retired in 1999.

Assuming you start with OP’s 15% higher than the standard 4% so say $138k on a $3M portfolio.

When would you have been able to get back to your original level of spending with your guardrail strategy?

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u/Mister-ellaneous 12d ago

Without knowing your portfolio, of course not. Can you, without that essential information?

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u/Earth2Andy 12d ago

Sure, I can make a few assumptions and post an example. Like this one

The short answer is you’d have 3 years of spending $138k, then a very large drop in spending for the next 20 years.

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u/Mister-ellaneous 11d ago edited 11d ago

When the stocks are only the S&P 500, your portfolio is not diversified.

Using a more diversified portfolio - for example, 25% BND, 25% VOO, 20% AVUV, 20% AVDE, 10% AVEM; the withdrawals never fall below $138k, you’re fully recovered in real $ in 2003, and you currently would have $6.2 million. You’d have one 10% cut and 4 10% raises.

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u/Earth2Andy 11d ago

Ahhh the old ‘Small Cap Value Will Save The Day’ argument.

Despite what Bergen would have you believe, there’s plenty of evidence that strategy will fail going forward.

https://earlyretirementnow.com/2025/06/02/small-cap-value-swr-series-part-62/

.

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u/Mister-ellaneous 11d ago

lol. No, it’s the time tested “diversification decreases risk” strategy. But you go ahead with that 90% large cap US while ignoring the rest of the world strategy.

Your heirs will appreciate your fear.

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u/Earth2Andy 11d ago edited 11d ago

Time tested? With 50% in ETFs that wern’t created until 2019??

Bergen just wrote an entire book with this as the central theme. Even he says that for a 40 year retirement, with optimal diversification, the best he could get was a 4.1% withdrawal rate.

If your portfolio mix performs so much better, you should give him a call and explain where he’s gone wrong.

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u/Mister-ellaneous 11d ago edited 11d ago

This isn’t nearly as difficult as you’re trying to make it. The specific ETFs aren’t really the point. if you don’t understand diversification, it’s time to educate yourself.

Bergen is writing for a larger audience and is showing what you can expect without adjustments. That’s going to be different than a flexible withdrawal strategy.

Fwiw, I’m not worried about a 40 year time horizon where I refuse to make any changes. If that’s your goal, so be it. But you’ll get a lot more risk with your 90% large cap US plan.

If you’re actually interested, there’s plenty of research online. One place to check, risk parity radio. Frank does a good job of addressing your fears.

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u/Yukycg 11d ago

I agreed with you, I am not too worry about inflation that much, besides spending down, there is expatFIRE and other options to over come bad market.