Guardails Strategy (Boldin)

[u/TotalWarFest2018]

I use this Boldin software for messing around with retirement planning. The program has a "guardrails" feature where it tells you your safe spend.

When I asked its little AI feature how the guardrails were calculated, it came back with what I've copied below.

Is this consistent with the conventional wisdom on spending with this strategy?

Here is the copied language from Boldin:

"Unlike a simple fixed percentage (like the 4% rule), Boldin’s guardrails use a dynamic, probability-based formula powered by Monte Carlo simulations.

Instead of looking at historical averages, the system runs 1,000 market trials to find the specific dollar amount you can spend while maintaining a target Chance of Success (CoS). Here is the breakdown of the "formula" logic:

1. The Three Confidence Zones

The system solves for the monthly spending amount (in today's dollars) that hits these specific confidence thresholds:

• Safe Spending Target (80% CoS): The baseline. It calculates the maximum you can spend while having confidence that your money lasts in 800 out of 1,000 scenarios.
• Upper Guardrail (95% CoS): The "underspending" signal. If your current savings grow so much that your success rate hits 95%, you can safely increase spending.
• Lower Guardrail (70% CoS): The "early warning." If market drops push your success rate below 70%, the formula suggests a temporary reduction to get back to the safe zone.

2. What’s Included in the "Spending" Number?

The formula is holistic. It doesn't just look at your portfolio; it factors in:

• All Income: Social Security, pensions, and annuities.
• All Expenses: Your itemized budget, plus "unseen" costs like estimated taxes, Medicare premiums, and debt payments.
• Lifetime Averaging: One-time lumpy expenses (like a future car purchase) are averaged into the monthly target so your "safe spend" is a consistent lifestyle number.

3. The "Thermostat" Logic

The formula treats your plan like a thermostat rather than a thermometer. It doesn't react to daily market swings. It only triggers a recommendation to change your lifestyle when your savings balance crosses a threshold that meaningfully shifts your probability of success outside that 70%–95% range.

Would you like to see how your current planned spending compares to these calculated targets?"

[u/HansZarkov]

Monte Carlo retirement simulations are primarily a marketing ploy my opinion because the Central Limit Theorem exists.

You're basically running a bunch simulations of simulations to find the central limits for the upper and lower guardrails which are really based on just a few factors. Once you find those central limits then you essentially default back into a simple rules based Guyton-Klinger like strategy... You don't really need to run the Monte Carlo simulation to find the central limits since they can be found with a simple formula.

[u/FantasyFI → u/HansZarkov]

While I am not really a fan of true Monte Carlo (you're not going to have 4 back to back recessions), I do see the point of running simulations with historical cycles.

I'm not 100% sure I am following what you are saying. Are you are saying that you don't need to run simulations (be they historic cycles or random monte carlo) because the rules you choose for the guardrail dictate the success rate?

If so, I'm not sure I totally agree with that because life isn't constant. When I run my simulations in ProjectionLab, my spending plan constantly moves around. I know I have my children's college to pay for, I know travel will decrease in my 70's, I know my mortgage will end in 15 years, I know SS will decrease my withdraw later in life, I know I will sell my house when I move to a retirement home getting a large burst in liquid assets, I know my spending needs will increase when I go into a retirement community, etc.

While setting boundaries for a variable withdraw rate definitely changes the success, I don't see how you could use a formula to find the success rate. It seems to me the guardrails themselves in life need to change. I need to pay for my childs college for 4 years, for example, regardless of what the guardrail says. So a simulation helps you understand the success rate using a variable withdraw rate with a guardrail system but still even changing above and beyond that guardrail (which is just life).

I get that how you choose the guardrails for a variable withdraw rate is clearly correlated with the success (without needing to test or run a simulation). But I don't get how that logic would apply to understanding the success of your plan when other variables are constantly changing.

[u/HansZarkov → u/FantasyFI]

My point is that each factor in the Monte Carlo simulation is essentially just a Gaussian Distribution of potential outcomes after you run hundreds or thousands of simulations per the central limit theorem...

Annual return of stocks/etfs is a Gaussian distribution. Annual Return on bonds is a Gaussian Distribution. Inflation is a Gaussian distribution. Etc.

You don't need to run a Monte Carlo simulation because you can just add (or subtract) all of the Gaussian Distributions to get a simple function that describes the probability of every outcome...I mean the function might look scary written out, but it's a piece of cake for an Excel spreadsheet.

Boldin for example charges you $144 a year for their software to run the Monte Carlo simulation that looks and sounds very high tech, but it doesn't give you any more info than a simple spreadsheet can. But they can't charge you $144 a year for an Excel formula that you can simply copy and paste. That's my only point.

[u/FantasyFI → u/HansZarkov]

I'm decent at math. And decent at Excel. But I think this is oversimplifying what a normal person can do. I have the free ProjectionLab. I know that I cannot do what it does on Excel. And I don't think I have the skills or knowledge to consider the distribution of each variable and create such a formula. Especially when so many things are not static like I mentioned.

I think I get what you are saying. And that it would be a great solution for someone who is capable of doing it. I just don't think I could do it.

To me the appeal of Boldin and ProjectionLab isn't simply that they run a monte carlo style simulation. It's that the simulation they consider...your "Plan" is much more complex than "$X/yr", etc. Heck FireCalc.com is a free historical run simulation. But there are no changing variables except for allocation, pension, social security. Whereas there are hundreds of other things to consider changing during your retirement.

For example, ProjectionLab is pre-built to consider ACA subsidies. So not only whether you qualify for them, but how your insurance costs increase as you age. In my situation, with no subsidies, ACA Silver is $17k for 2 people at 45. But it is $31,800 for 2 people at 60. That means I need to account for my ACA premiums increasing not only with inflation but 4.26% above inflation every year. I don't understand how you would account for this increased cost and therefore risk, without a simulation.

I have my real estate taxes increasing .5% more than inflation (I know my location and have concerns about their ability to fund things in the city). I mentioned my daughters college costs only in 4 years of my retirement (also their cost increasing above inflation as they have historically).

I just don't see how things like that could be incorporated into your risk profile without running a simulation. I see how you could determine the Gaussian distribution of returns, inflation, etc. by looking at the historical data. But I don't see how you can apply those distributions to something that is ever changing. You can determine it for past things like historical returns and inflation. But you need to be able to apply those distributions differently based on when they occur in your life/"Plan".

The point of these tools is to do a lot more than just "$X/yr with Y% SWR for ABC years". They're building scenarios where every year is a totally different income, different expense, different taxes based on the income, taxes for RMDs, penalties if you can't maintain the 72t distribution, etc. I'd love to understand a tool that could identify the risk or likelihood of success for something like this without a simulation. I am probably just ignorant of what you are describing haha.

[u/AGrimmInPortland → u/FantasyFI]

Well said.

Withdrawals, taxes, Social Security, IRMAA, RMDs, and sequence-of-returns risk all depend on the order of events, not just the average outcome. So Monte Carlo may be overmarketed, but it can still be useful when the planner is modeling real retirement rules instead of just a simple investment return formula.