As we commence our journey into the depths of retirement strategies, we quickly realize that the world of finance isn’t as dry as it appears. And within this landscape, the guard rail method stands as a quiet, yet resilient guardian, designed to keep you on the straight and narrow during your golden years.
Conceptualized by financial planner Michael Kitces [^1^], the guard rail method, also known as dynamic retirement withdrawal strategy, is a retirement distribution method meant to ensure retirees neither outlive their savings nor live too frugally. It posits that retirees adjust their annual spending by a specific percentage if their portfolio’s value, divided by the intended spending for the next year, strays outside a predefined guard rail, usually set between 20% and 30% [^2^].
Consider the guard rail method the safety barrier on the highway of your retirement. Drive too fast, and you risk depleting your resources prematurely. Conversely, move too slowly and you could miss out on the fulfilling lifestyle that your savings can afford.
There’s a fascinating study by Wade Pfau in the Journal of Financial Planning [^3^] that likens the guard rail approach to a game of blackjack. The cards in this case are market performance, inflation, unexpected expenses, and the like. The guard rail method is akin to knowing when to hit, when to stand, and when to double down. It’s a strategy that keeps you agile in a game of chance where the stakes are your future comfort.
Yet, the guard rail method is not without its critics. Some argue that it’s too reactive, too sensitive to market swings, and can result in knee-jerk decisions that could prove detrimental in the long run [^4^]. Others lament its inherent complexity and the necessity for constant monitoring, comparing it unfavorably to simpler withdrawal strategies like the 4% rule [^5^].
Despite these criticisms, the guard rail method is a valuable tool in the retirement planning arsenal. When used judiciously, it can safeguard your retirement journey, allowing for adjustments based on real-time circumstances, a far cry from the rigid, inflexible plans of yesteryears.
Retirement planning is a saga of human emotion, market unpredictability with the need for safeguards. In this epic, the guard rail method shines as a beacon of flexibility and vigilance, ever ready to steer us back when we veer off course.
*References and Further Reading*
[^1^]: Kitces, M. (2016). “Understanding The Line Between Flexible Withdrawal Rate Strategies And Systematic Withdrawals.” [Kitces.com](https://www.kitces.com/blog/understanding-the-line-between-flexible-withdrawal-rate-strategies-and-systematic-withdrawals/) [^2^]: Pfau, W. (2011). “Making Sense Out of Variable Spending Strategies for Retirees.” [Retirement Researcher](https://retirementresearcher.com/making-sense-out-of-variable-spending-strategies-for-retirees/) [^3^]: Pfau, W. (2013). “The Yields of Dreams: Sequence Risk and Sustainable Retirement Withdrawal Rates.” Journal of Financial Planning. [OneFPA.org](https://www.onefpa.org/journal/Pages/APR13-The-Yields-of-Dreams-Sequence
Mark Whitaker, CFP® is a Certified Financial Planner™ professional, but he is not providing specific investment advice through this blog. This blog is for educational purposes only. Before making any financial decisions, you should consult with a qualified financial planner who can provide tailored advice based on your individual circumstances. Schedule a free one on one retirement strategy meeting for one-on-one retirement advice.
