Subscribe For Updates

Navigating Retirement with Guardrails: A Strategic Approach to Withdrawals


The guardrails approach is a practical way to keep retirees from over- or under-spending as they take withdrawals from their retirement nest egg. In this blog post, I explore what the guardrails approach entails, its key benefits, and how it differs from other approaches to retirement withdrawals.

Understanding the Guardrails Strategy

Most retirees struggle to reconcile two conflicting goals while in retirement: 1) maintaining a certain desired lifestyle, and 2) ensuring they don’t outlive their money. The guardrails strategy involves setting predetermined boundaries, or “guardrails,” to guide the withdrawal process. These guardrails help retirees strike a balance between enjoying their retirement lifestyle and ensuring the longevity of their savings.

Research tells us that for most retirees who have a 30-year horizon and hold a balanced portfolio, they can safely withdrawal 4% of their initial portfolio balance at the beginning of retirement and then increase this dollar amount by inflation each year. This so-called 4% rule is a worst-case scenario rule that enables a portfolio to survive a bad sequence of market returns (e.g., a severe recession or below average market returns in the first decade of retirement).

The benefits to using the 4% rule are that it provides for steady inflation-adjusted spending, it is simple to implement, and requires no reduction in “real” purchasing power over time. The main drawback, however, is that it requires a much lower initial withdrawal percentage from the portfolio than if retirees were willing to adapt spending based on actual changes to their portfolio. The guardrails approach seeks to improve upon this major weakness of the 4% rule.

How Guardrails Work

  1. Establish Initial Withdrawal Rate: The first step is to determine a safe initial withdrawal rate from the portfolio. With guardrails, retirees can actually have a higher initial withdrawal rate than when using the 4% rule thanks to the adaptability of spending. Research indicates this to be in the range of 5-6% (more on this later).

For example, with a $1M portfolio and a target withdrawal rate of 5.5%, a retiree would withdraw $55,000 in the first year of retirement. Each subsequent year, the retiree increases this initial withdrawal amount by inflation. So, if inflation were 3% after year 1, then the withdrawal amount for year 2 would be $56,650 ($55,000 x 1.03).

  1. Establish Guardrails: The second step is to establish guardrails around the initial withdrawal rate. These guardrails are the upper and lower limits that the retiree can spend and are also expressed as a percentage of the portfolio balance.

For example, if the target withdrawal rate is 5.5%, the guardrails might be set at 4.5% and 6.5%.

  1. Implement Guardrails: To calculate the upcoming year’s spending, a retiree would increase the prior year’s spending by inflation (see step 1) and then check to see that this new amount is within the guardrails set forth. If it is not, then they must adjust the spending, up or down, by a certain amount.

To finish off our example, if the target withdrawal in year two calls for spending $56,650 but the portfolio value has dropped to $800,000, then the retiree has breached the upper guardrail ($56,650 / $800,000 = 7.1%) and spending should be throttled back.

How much and when to adjust spending by is a topic of rich debate within financial planning literature. Some financial planners suggest a 10% decrease (increase) in spending for the next year if the retiree breaches the upper (lower) guardrail. Ultimately, it can vary (just as the initial target withdrawal rate and guardrails can vary) based upon an individual’s tolerance for risk.

Benefits of the Guardrails Strategy

  1. Financial Security: The guardrails strategy provides a sense of financial security by offering a systematic and disciplined approach to withdrawals. Retirees can navigate market fluctuations with confidence, knowing that their withdrawals are based on a carefully planned framework that has been back-tested and provides similar levels of success to the “4% rule.” In fact, the original research on the guardrails approach showed it to have a 99% confidence standard of not depleting a portfolio for initial withdrawal rates between 5.2–5.6%.
  2. Higher Initial Spending: Using guardrails can result in significantly higher initial spending than the more static 4% rule. In our example above, the initial withdrawal rate of 5.5% represents a 38% increase in spending ability over a 4% withdrawal rate. And as discussed, retirees can actually increase their spending beyond inflation if they are lucky enough to experience a good sequence of market returns. This is especially beneficial in the first decade of retirement (“the go-go years”) when retirees tend to want to spend more than they do in their 80s or 90s.


The guardrails approach helps retirees strike a balance between enjoying their retirement lifestyle and ensuring the longevity of their savings. It is a systematic and structured way of spending a bit more in good times and modestly cutting back in bad times.

As retirees embark on their journey, the guardrails strategy offers a reliable roadmap for managing retirement withdrawals. By setting clear boundaries, regularly monitoring performance, and adapting to changing circumstances, individuals can enjoy their retirement while safeguarding their financial well-being. Ultimately, the guardrails approach provides the peace of mind that comes with a well-thought-out and disciplined strategy for navigating the complexities of retirement finances.

Picture of Mark Haser, M.B.A., CFP®
Mark Haser, M.B.A., CFP®
Mark is a Partner and Wealth Advisor with Artemis Financial Advisors LLC. He has an MBA from Boston College’s Carroll School of Management and is a Certified Financial Planner (CFP®) professional. Mark helps physicians and high-income families to optimize their cash flow, minimize taxes, and build a plan for long-term financial success.

Subscribe For Updates

Related articles