Retirement Income Guardrails: Spend Without Fear
Rethinking the question most people ask as they approach retirement.
When most people approach retirement, the big question they ask is:
“How much can I safely spend each year without running out of money?”
It’s a fair question. But it’s the wrong one.
A better question is:
“How do I set up a system that lets me spend confidently today, while giving me permission to adjust when—not if—markets (or life) throw me a curveball?”
That’s where retirement income guardrails come in.
What are retirement income guardrails?
Think of guardrails on the highway. They don’t dictate the exact lane you have to drive in—but they keep you from veering too far off course.
Retirement guardrails do the same thing for your spending. Instead of sticking to a rigid number year after year (say, the famous “4% rule”), guardrails allow you to take, on average, a higher withdrawal rate—so long as you make small adjustments when needed.
This flexibility is powerful because retirement isn’t a straight, predictable road. Markets go up and down, expenses change, and unexpected events happen. Guardrails help you adjust without losing your overall sense of direction.
Guardrail rules in practice
One of the best-known systems comes from Jonathan Guyton and William Klinger, who studied “dynamic withdrawal strategies.” Here’s the gist:
- You start with a base withdrawal rate (say 5.4% of your starting portfolio).
- You increase that withdrawal for inflation each year—unless the market gives you a reason not to.
- Guardrails kick in when your withdrawal rate drifts too far from the original target.
For example:
- If withdrawals climb above 6.5% of your remaining portfolio, you cut back.
- If withdrawals drop below 4.3%, you give yourself a raise.
It’s not about following a strict formula—it’s about setting clear boundaries. Guardrails only work when the underlying portfolio is built and managed correctly. A portfolio that is too conservative won’t generate enough growth to recover when markets rebound. On the other hand, a portfolio that is too aggressive won’t provide a large enough “war chest” of stable assets to carry you through downturns—potentially forcing you to sell equities at the worst time.
Dynamic vs Static Withdrawals
Static Withdrawal Strategy = “Set it and forget it.” You pick a number (like 4% of your initial balance) and keep spending it, regardless of what markets do. Simple, but it can leave you with too much unspent money—or risk running out if markets turn south early.
Dynamic Withdrawal Strategy = “Adjust as you go.” You spend freely in good years and tighten up in tough ones. The tradeoff? Slightly less predictability, but much more security and flexibility.
Which one feels more like real life? (hint, hint: Dramatic)
A $2 Million Portfolio Example
Scenario 1: 4% (Pre-tax) Withdrawal Rate
- That’s about $80,000 annually from a $2M portfolio.
- With inflation adjustments and normal market conditions, research shows this level of spending is very sustainable. But can we achieve the same outcome (not running out of money) while spending more?
Scenario 2: 5.4% (Pre-tax) Withdrawal Rate
- That’s about $108,000 annually from a $2M portfolio—$28,000 more per year than the standard 4% rule.
Can it work? Yes—with the proper portfolio structure and management
- In a recession, you might cut back to $97,200 (a 4.86% withdrawal rate). Notice that’s still higher than the 4% rule based on the starting portfolio.
- When markets are strong, you have the opportunity to give yourself a raise. For example, if your $2M portfolio grows to $2.5M, you could increase withdrawals to $118,800.
The real danger isn’t starting at $108k. The danger is insisting on that number no matter what happens.
The Behavioral Side: Why this Works
Retirement isn’t just math—it’s psychology.
One of the biggest fears retirees face is running out of money. Ironically, that fear often leads to underspending. Many sacrifice enjoyment in their 60s and 70s—when they’re healthy and active—just to preserve a cushion for their 90s.
Guardrails solve this problem because they give retirees permission to spend:
- You know what your “lane” is.
- You know you have room to go faster when markets are kind.
- You know you’ll slow down when things get rocky.
That flexibility builds confidence. Instead of feeling like you’re walking a tightrope, you feel like you’re driving with a sturdy guardrail system in place.
The Bottom Line
Instead of obsessing over the “safe withdrawal rate,” focus on creating a guardrail system that works for you.
- Start by figuring out your initial withdrawal rate.
- Build in guardrails that trigger adjustments if spending drifts too far.
- Make sure your portfolio is structured appropriately. Guardrails don’t work for every portfolio. If you’re unsure whether your portfolio is set up to support a higher dynamic withdrawal rate, please reach out to us—or your financial professional—for guidance.
- Give yourself permission to enjoy the wealth you’ve worked so hard to build.
Because retirement should feel less like a tightrope walk and more like a road trip where you know the path is safe, even if you need to steer around a few potholes along the way.
Feel like you could use sturdier guardrails before you retire?
No portion of this commentary is to be construed as the provision of personalized investment, tax or legal advice. Please consult with the appropriate professionals for advice that is specific to your situation. Note Advisors, LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.