You’ve heard of the 4% rule, and if you’ve listened to this podcast before, you’ve heard of Guyton’s guardrails strategy. But have you ever heard of using them together? Today’s retirement headline explores this idea.

Overall, the article highlights the importance of considering sequence-of-returns risk in retirement planning and adopting flexible strategies, such as guardrails, to ensure financial security throughout retirement.

Listen in to learn more about this combination of strategies as well as my opinion on the matter. Then stick around for the listener question segment where Bret and I answer the question: Do I need a will if I want to split my assets evenly between my two children?

Outline of This Episode

  • [1:42] Sequence of returns risk is the greatest risk to your retirement
  • [6:48] How you can take the best of both strategies
  • [14:20] Should I have a will to split my assets evenly between my kids?

What is the 4% rule?

The 4% rule was created to solve the question: how can a retiree never run out of money? 4% is considered the safe withdrawal rate for retirees based on research that took into account the worst 30-year market conditions in history.

One of the critical factors driving the need to establish a safe withdrawal rate is the risk associated with the sequence of returns. Sequence-of-returns risk occurs when a retiree’s portfolio experiences low returns early in their retirement. Those bad early markets combined with portfolio-heavy portfolio spending early in retirement make it challenging to recover financially, potentially leading to a shortfall in assets during their later years.

What is the guardrails strategy?

While the 4% rule uses a fixed rate of withdrawal, a guardrails strategy involves a flexible approach to retirement spending, allowing retirees to increase their withdrawals when markets perform well and reduce them during market downturns. This approach provides downside protection while potentially enabling retirees to spend more during retirement.

Morningstar recommends a safe withdrawal rate of 5.2% initially, with annual adjustments based on portfolio performance and the previous year’s withdrawal percentage. By adjusting your spending based on market returns and inflation you can enjoy more of the money you worked so hard to save.

The positives and negatives of the 4% rule

The 4% rule has its upsides. It is good for quick, back-of-the-napkin math so that you can project your spending and balances over the years. It also provides more of a fixed income that is easy to predict. Since it is so conservative, you can ensure that you’ll have enough through thick and thin. You also won’t have to adjust your spending based on market volatility.

However, using such an inflexible rule for the real world can pose a challenge. Spending in retirement is often lumpy and the 4% rule doesn’t allow for adjustments. It is incompatible with human nature.

My biggest complaint with the 4% rule is that many retirees are left with as much or more money than they started with. The opportunities lost–the trips not taken, the time spent with family and friends, and the memories made–can never be recovered.

While using the Guardrails with the 4% rule might be helpful for hyper-conservative retirees, I think both methods do different things, so it’s best to keep them separate.

Resources & People Mentioned

Connect with Benjamin Brandt

Subscribe to Retirement Starts Today on

Apple Podcasts,Stitcher,TuneIn,Podbean,Player FM,iHeart, orSpotify