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Guyton-Klinger Retirement Withdrawal Strategy--Is it Worth the Complexity?

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Today we look at what's called the Guyton-Klinger retirement withdrawal strategy. It uses the following somewhat convoluted decision rules:
The Portfolio Management Rule
The Inflation Rule
The Withdrawal Rule
The Capital Preservation Rule
The Prosperity Rule
In theory, Guyton-Klinger allows you to start with an initial withdrawal percentage notably higher than 4%. The downside is that depending on when you retire, you may have to make significant adjustments to your spending after inflation.
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Video Resources
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Guyton 2004 Paper: www.financialp...
Guyton-Klinger 2006 Paper: citeseerx.ist....
Guyton-Klinger Decision Rules: docs.google.co...
Criticism of Guyton-Klinger: earlyretiremen...
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eFIREsim: www.cfiresim.com/
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
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21 авг 2024

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Комментарии : 83

@rayzerot 7 месяцев назад

Going from a 4% withdrawal to a 6% withdrawal could mean the difference between $80,000/yr and $120,000/yr That's huge. People put up with waaaay more complexity, work, and headache for 1/hr (2,080/yr) raises while they're working then a whopping $40,000/yr raise. Seriously after the first 3 times you try it, it's 4 hours of planning per year IF you do the paperwork while you eat lunch at the same time The other criticism that the withdrawal (sometimes) ends up close to the 4% rule after several years? That's ideal! We WANT to spend more money while we're younger and healthier and less while we're older. We're not doing big trips in our late 80's and 90's. Spending more up front is what good retirement planning shoots for Again, $40,000/yr is well worth the small bit of complexity. Spend $1,000/yr to have a fee-only advisor do the math if you need to and you still come out massively ahead

@user-vs3jj5wn3y Месяц назад

Way too easy and cheaper to do the math myself. Or set up my spreadsheet once and have it do it for me lol.

@johndbro1 2 года назад

So I checked out FI Calc - very cool! I did the numbers for a portfolio of 2.7MM (80/15/5) using both 4% (108k annual) and G-K at 6% (162k annual). I checked at both 40 years and 50 years. 4% at 40 years: success rate: 91%, near failure: 10.7% 4% at 50 years: success rate: 79%, near failure: 5% the 4% rule also left you with a meaningful chance of a large estate. GK at 40 years: success rate: 97% - near failure - 29% - median spend: $152k GK at 50 years: success rate: 96% - near failure - 41% - median spend: $139k Because of the GK guardrails, you're less likely to go bankrupt with GK over longer time horizons. And since you'll eventually get social security if you're retiring in your 50s, you will have an extra cushion for those guardrail income limits. Out of curiosity, I also did those same studies using E.R.N's example year: 1966 4% rule at 40 years or 50 years: bankrupt in ~1990 . so you had a good run for 34 years, and then you're on SS alone for the rest of your life, with no estate at all. GK at 40 years: median income is 45k (oof) - but you never run out of money GK at 50 years: median income is also 45k, you never run out of money, but you're getting close

@jeffb.2469 2 года назад

Too many rules for me. I'm going to keep it simple and not overthink things. Age 61, and a few years before retirement. Stock/Bond allocation around 50/50, 3-years cash in CD Ladder with monthly machurities. My plan is to withdraw ~5% each year from portfolio annually and simply keep it in a general savings account for living expenses. I've been tracking the obits of the people I've worked with, and I can tell you almost none of them made it to age 80, with the majority passing away in their late 60's to early 70's. While we spend a great amount of time creating a plan to live comfortably into our 90's, the fact is, most of us won't. It's okay to plan, but don't stress about it. Today is a gift.

@ph5915 2 года назад

Pretty similar to me, Jeff! I'll be 59.5 in April and I have a 2 yr CD ladder and then a 3 yr MYGA and the rest in stocks. In most things I'm a worrier and have been about $ as well, but like you, I don't even know that I'll make it through my 60's, let alone 70's or beyond!

@MILGEO Год назад

@jeffb.2469 Yes you're right that most of us won't make it into our 90's and I keep hearing about people passing that are close to my age. My Chiropractor died suddenly at 58 early last year which is a few years younger than me and I thought he was in better shape than I was! Exercise equipment in both offices as well as taking care of 3 properties and always talking about good nutrient's. The thing is that unless you know that you won't live into your 90's, the last thing that I would want to happen would be to run out of money at a very old age. I had an old girlfriend who's grandparents on both sides lived into their hundreds! I think that when talking about withdrawals there will always come times when adjustments will need to be considered though you don't want to live like a miser and miss doing the things you like while your still young enough to enjoy them! 😊

@jeffb.2469 Год назад

@@MILGEO Time or Money. One day we run out of both of them, but I know which one is more valuable..

@closecatapult8472 Год назад

Jeff don’t let a few more turn into ten more…

@jeffb.2469 Год назад

@@closecatapult8472 Absolutely right!

@marcrose23 2 года назад

I love this strategy - and it’s not as complicated as it sounds once you put a spreadsheet together

@sl1173 2 года назад

Thank you Rob for this video. I found it very interesting and learned a lot. I had to view video 4x to get it all. Age 71, retired, and enjoying life in San Francisco-Sam

@darrellq6954 6 месяцев назад

I saw you on Geary Street yesterday waiting for the 38.....

@bencarter7839 2 года назад

Better to increase the withdrawal by your personal inflation rate rather than CPI.

@METVWETV 5 дней назад

That would be ideal however, it may be unsustainable at a higher than average rate. If you chose to do that, you may consider starting at a lower withdrawal rate and setting your budget accordingly.

@bencarter7839 5 дней назад

@@METVWETV Actually, my point was that often, one's personal inflation rate is much lower than CPI.

@METVWETV 5 дней назад

@bencarter7839 Lol...After I posted that, I considered that that's what you meant! I initially thought you meant, regionally.

@VietnamSteve 2 года назад

Maybe 20-30 year retirement spending rule is for people that had the same job for 20-30 years pre-retirement. For me, same spending rule as life, spend less than you earn and tighten the belt when necessary. Simple.

@METVWETV 5 дней назад

But your no longer "earning" anything. Your Portfolio income will fluctuate and you'll have to make adjustments accordingly

@philruehlen 2 года назад

Another great video Rob. Your Paul M. interview earlier this week, has me rethinking my withdrawal strategy. Paul's strategy of taking a straight 5% annual withdrawal seems simple and straight forward. If your balance goes down, you withdraw less and if your balance goes up you withdraw more. This strategy seems too complicated and convoluted.

@aknorth1053 Год назад

That method is the guyton Klinger with super tight guardrails. If your ok with lots of volatility in your withdrawals that will definatly preserve capitol but I think it would be challenging to deal with income changing 10's of thousands year to year

@craiglowden5995 2 года назад

I personally am more comfortable with the 4% rule along with a few simple guards and rules to make it more dynamic

@caliwish7585 2 года назад

Great overview and analysis. The idea of leaving 6x of my portfolio on an average retirement year with the 4% rule doesn’t appeal to me. Guyton-Klinger is much more efficient withdrawal strategy when starting on an average retirement year. Plus, I want to enjoy the early part of my retirement before I get too old. I would love to see an interview with Jonathan Guyton where you bring up those questions you mentioned. Thanks for the great content! (P.S. in Guyton's second paper is states that that inflation is no longer capped at 6 % in " The Executive Summary" section)

@johndbro1 2 года назад

HI Rob. Very interesting, thank you for the introduction to Guyton-Klinger. I've been thinking about the idea of guardrails in my own retirement planning, so it was wonderful to find out that someone had already done the work. One thing that I didn't hear you mention in the Early Retirement Now comparison is that the 4% rule was designed for a 30 year retirement, while G-K appears to be designed for a 40 year retirement. I'd expect that G-K might underperform 4% in some cases, since it is intended to last 10 years longer. I feel the E.R.N. graph is a little unfair, because it conveniently skips those last 10 years, just at the point where the G-K model from 1966 seems to be recovering steadily. And, if the 4% rule leads to bankruptcy in year 31, the G-K rule is infinitely better, even if it has some down years in the middle.

@stevenobrien595 2 года назад

Excellent Rob. Just I'm time for morning coffee. Thanks!

@MartinHopkinson 2 года назад

Or lunch! (Across the ‘Pond’!)

@METVWETV 5 дней назад

Or dinner on Mars... It's 2024 now.... Hope the whole time dilation thing doesn't throw you too much!

@stevenobrien595 2 года назад

The cheat sheet is sooo helpful. Great idea.

@edmundfong7288 2 года назад

Rob must have written great legal briefs, both pro and con on complex and convoluted issues. Right or Wrong, he often has insightful postings.

@DrWeaselander 2 года назад

I would love to see the ending portfolio value of that graph showing the comparison with the 4% rule. Taking out more money while your portfolio is dropping dramatically doesn't seem to make sense to me.

@stevemoore7333 2 года назад

To address your chief objection, that the guardrails don’t confine the variability of annual spending more, why not just lower the initial withdrawal rate a bit? G-K, like Bengen, were trying to find worst case scenarios and set IWRs accordingly. I think if you drop your G-K IWR even just a bit from the max G-K suggest is safe, e.g ~5.5% to ~5.0%, you will see the annual spending stay in a narrower channel while still being well above Bengen’s original 4%. As Kitces and Morningstar show, the key advantage of a G-K strategy is its ability to capture more annual spending. You still, however, need to set an IWR that you are comfortable with, just as you would with a constant dollar strategy.

@Fred2-123 Час назад

That Retire Early graph showing that the 4% rule is better than G-K assumes that your portfolio never runs out of money. That's the flaw in his comparison. If he went further and tracked the portfolio BALANCE you would probably see that the 4% rule line drops to $0 when the portfolio was empty, whereas any of the G-K lines would still be pumping out money, even though less than the 4% line would be -- because the G-K portfolio still had money in it.

@ShaharLevinshtein 2 года назад

Hi Rob, love your videos :) Can you please create a video about "Vanguard Dynamic Spending"?

@noreenn6976 2 года назад

that sounds like a good suggestion

@johnbeeck2540 2 года назад

Great overview of a variable withdrawal strategy Rob! Thanks!

@maa11235 2 года назад

Thanks for all of the research! Feeling thankful for that one.

@wread1982 2 года назад

You make the best videos sir, thank you!

@johnbrown1851 2 года назад

Whew! I had to hit rewind about 15 times!!

@METVWETV 6 месяцев назад

MAN! You must be very smart! I'm on my 15th rewatch....Lol!

@Fred2-123 51 минуту назад

There is no way to adjust spending that succeeds in a period where the market is terrible for 20-30 years. When your portfolio drops in value year after year, at some point you have to cut withdrawals. Naive 4% rule maintains your spending until your portfolio drops to $zero, then your withdrawal also drops to zero. G-K or any other variable withdrawal rule reduces your withdrawals so that you never run out of money. It may be reduced a lot, but even a 50% cut is better than a 100% cut.

@ph5915 2 года назад

I wonder if I'm missing something. I'm not really worried so much on adding in inflation adjustments every year. Much is made about inflation and the costs, but really, it's subjective to one's own life/spending style. Of course, I am aware of gas and food prices, but I don't drive much or eat extravagantly. To me it's about staying within a budget and if it's basically the same from one year to the next, I don't think I would 'pay myself more' just "because". But thanks, as always, for the in-depth look.

@alphamale2363 2 года назад

Same. I just don't spend that much money, or have a desire to.

@VietnamSteve 2 года назад

Inflation doesn’t cover the same living expenses as when the 4% rule of thumb was devised, so pointless to add todays miss mash of numbers and be calling it living cost increases (inflation).

@ph5915 2 года назад

@@VietnamSteve Good point!

@METVWETV 6 месяцев назад

Your Food and Utility bills go up with inflation. Rent/Property taxes and the cost to hire people to maintain your home or your HOA fees. There's no escaping Inflation

@ph5915 6 месяцев назад

@@METVWETV Very true, of course, and I did spend slightly more in 2023 than 2022, but it may be that I started IRA withdrawals in 2023 instead of severe hunkering down on savings previously. I'm sure I will spend a bit more this year. But the thought of just automatically, every year, increasing is what was tripping me up...

@joeburns3302 2 года назад

Thanks Rob. Your new book should be called You have retired before mom and dad now what.

@luisoncpp 2 года назад

I don't get why the first part was complicated(where to withdraw from), for me it was pretty easy to remember, it's basically just withdraw with the intent of keep the portfolio balanced an try to avoid selling what you would immediatly buy again. For the other stuff; I started to wonder if the startegies are focusing too much in withdrawing a percentage without considering how much it's necessary to cover the minimum expenses, imho that number is critical to measure the risk and how much low you could afford to go if things go wrong.

@mikephilpot9857 2 года назад

@Rob Berger Great walkthrough as always, thx. I find myself searching for more variable strategies, decoupled from inflation, with some smoothing/guardrails. Haven’t settled on one yet, but I’m completely dissatisfied with all the strategies that include inflation adjustments and “play chicken” with your portfolio balance. I will just have to tighten the belt in down years and/or when inflation drives up cola beyond what my portfolio supports. Then let the equities recover and drive my balance back up to levels restoring my purchasing power. Anyhoo, thx again for the excellent video. 👍

@noreenn6976 2 года назад

Closing in on 61K subscribers, way to go @Rob Berger

@hoss6981 2 года назад

Do one on the vanguard dynamic withdrawal rate seems a lot more simple and still gets the job done

@singgrom 2 года назад

I investigated the Savebetter site and I was ready to register but I discovered that they won't open an account in the name of a Revocable Trust which is what my wife and I have. I've been advised not to register in just my name as that could possibly cause a complication down the road. I'm very disappointed as I really wanted to take advantage of their rates.

@Bluponi Год назад

Very interesting... Which strategy do you think is more accurate, or better to use ? Guyton Klinger or the Bill Bengen 4 % safe with drawl rule. I would never go up to 6 % inflation in my with drawl rate, its always better to be conservative in your retirement, and not spend more money " just because you can ".

@aknorth1053 Год назад

A really good point is the guardrails sit you between the traditional 4% adjusted for inflation, no guardrails and fixed 4% total portfolio withdrawal rate, very tight guardrails. I think it is very helpful in some ways in that it provides a system to take emotion out of of the process of rebalancing. Something you should of shown was the likely hood of success for the traditional 4% versus the guyton Klinger

@michaelmcmullen354 5 месяцев назад

Checking into 8% withdrawal using Fi calc. With a 93% stock, 7% bonds, 1,000,000 invested, 76% of previous year or 8% of balance, a minimum withdrawal of $32,000, 94.3% probability of sucess for 30 years. This has the advantage of providing more than 4%, in the worst case for at least 3 years, and on the median a $65,000 withdrawal.

@DaystarHiker Год назад

I ran simulations on the FI Calc and cFIREsim tools for Guyotn Klinger using the same inputs (starting portfolio, guardrails, etc) and got dramatically different results: FI calc= 90.8% success; cFIREsim=62.67% success.

@METVWETV 6 месяцев назад

Yes, I think something is off with the FI calculator. I emailed them once but felt they were defensive rather than informative. Maybe it was just me, I hope someone else reaches out to them and has better results

@METVWETV 5 дней назад

I love FICalc (Truth be told. ..I'm on it everyday!)! I haven't seen you or anyone else do a presentation on Hebler's Autopilot I or II. I've come to the conclusion that it does the best job in getting the most out of one's portfolio and still allowing for a substantial final value. It also seems rather simple, ie: back of a napkin calculation.... It seems Especially tailored for someone with a Pension and or SS.... Can you please either do a video or LMK what you do or don't like about Hebeler? Due to its lack of popularity, I'm afraid I'm missing something.... Thanks

@DaystarHiker Год назад

Correction. There was one difference: Data start and stop years. In cFIREsim I entered 1871-2001 to match FI Calc. The results still demonstrated a large disparity: FI Cal=90.8% success; cFIREsim=73.85% success

@jamesbulpitt9422 Год назад

Great video that explains this well. Thanks!

@pensacola321 2 года назад

I am 72 years old and 15 years retired. This is just crazy. Retirees want to retire not prep for Harvard Business School... BTW, I've done very well.

@shockwave1126 10 месяцев назад

My father never planned anything and he did fine. I am planning but, like you, it doesn’t have to be complicated.

@cihant5438 2 года назад

The criticism by the blogger is unfair since the 4% rule is for 30 years, and the Guyton-Klinger is 40 years.

@ensobasho6633 2 года назад

can the sallie mae cd be inside an IRA? Thanks.

@lw9936 2 года назад

Hi @Rob Berger, Love your channel and tops 😀! Would you explain why you like index funds over etfs in your portfolio ✋? What kind of bonds do you own or like to have ✋? thx!🙏

@METVWETV 6 месяцев назад

Index funds vs. ETFs? I think you may be confusing categories.

@drdonavon 3 месяца назад

Why do you think these online calculators don't show the benefit of bonds? According to FIcalc- the 4% rule is almost 97% successful and mixing in any amount of bonds doesn't improve outcomes. I can't find a scenario where adding in bonds increases the odds of retirement success at any draw down rate. I know the Bonds help people psychologically but what about real results in a monte carlo simulation?

@cihant5438 2 года назад

This is called "overfitting" in machine learning. You optimize your rules to the past data perfectly, and it works good for the past. But in the future, if things are slightly different, then it might not work so well. In addition to the complexity of understanding, interpreting these rules, "overfitting" is a problem. For a withdrawal rule like the 4% rule, you don't have such a problem since it has just one parameter (the percentage). So I would be weary of claims that any particular withdrawal rule tests well against historical data if it has too many rules and parameters.

@caliwish7585 2 года назад

In Guyton’s 2004 paper he used historical returns. In Guyton-Klinger’s 2006 paper, they use MonteCarlo simulations.

@charlesbyrneShowComments4all Год назад

Thanks I never heard of the Guyton - Klinger rule. The critical paper's chart you displayed indicated the monthly rebalance which I wouldn't do. I wonder what the results would be with a twice or single year rebalance

@michaelswami 2 года назад

Disappointed in these outcomes. In theory makes sense, but in practice????

@pensacola321 2 года назад

I prefer the Max Klinger method. Keep it simple.

@johnbick3884 2 года назад

Thankfully, we've saved more than we need so we can start with a low WD rate and spend what we need or want based on market returns. I thought this method sounded pretty good until Rob laid out some of the downsides of this method.

@2ndSprings 2 года назад

Ecuador has some great CD rates ;-)

@craigslist1323 Год назад

Let me give you 1 rule. If you are ready to retire with the sp500 dividends, you are ready to retire for life irrespective of age.

@texasyank48 2 года назад

Ponce

@Mitzi73 4 месяца назад

No one knows when their final 15 years are.😂

@dianepacifico8886 Год назад

I am desperately trying to transfer a $15000 credit card. I don't want to add on another $500 for the transfer fee! The only one is Union but it says you have to go in person! They are in Washington/Oregon. I live in PA. Anway you know of that I can apply for Union online??