do you adjust for inflation each year or not?
what inflation rate have you been using and what inflation rate are you using now?
CPI-W. Which is what Social Security Admin uses for COLA.
With the guardrail method, you might have a big variance in the amount you can extract each year from your portfolio.
No. That’s a major point of G-K. That the withdrawals change gradually, not major changes from year to year.
During extremely good years when your withdrawal rate drops much more than the 0.8Xinitial withdrawal rate, could you increase the withdrawal more than the prescribed 10%? Conversely during very bad years, when your withdrawal rate increase much above 1.2* initial withdrawal rate, could you withdraw much less than the 90% or even you would not withdraw anything.
You need to read the paper. All these questions are covered. I think maybe it takes several reading to completely understand it.
- Decision Rules and Maximum Initial Withdrawal Rates by Jonathan T. Guyton, CFP®, and William J. Klinger – FPA Journal March 2006
- Decision Rules and Portfolio Management for Retirees: Is the ‘Safe’ Initial Withdrawal Rate Too Safe? by Jonathan T. Guyton – FPA Journal Oct 2004
So in good years you would store the excess in cash (amount above what is necessary to strictly cover your expenses), and use accumulated excess cash in bad years?
or would doing that wreck the entire process?
This topic is to determine the MAXIMUM amount you can withdraw and still not exhaust the portfolio. Nothing says you can’t withdraw less. Nobody worries about withdrawing less than they need.
This assumes that you have a big enough nest egg to give you an amount of money each year to cover your expenses and more (excess money for a cushion). By carrying this excess, you may have more flexibility later if you don’t spend it all.
Of course. You can carry-over under-withdrawals to future years.
- Year 1 your scheduled draw is $4500/mo, year 2 is $4600.
- In year 1 you only needed $4400/mo and that’s all you took.
- In year 2 you can spend the scheduled $4600 + the $100 that you didn’t take in year 1. = $4700/mo
Were you able to do that [withdraw less than scheduled] for some of the years? which ones?
This isn’t about me. this is about the strategy.
If you really want to get a good understanding of how Guyton-Klinger would work, create a model in a spreadsheet (or on paper by hand). Start off with, say, $1,000,000 in SPY on Jan 1, 2000. Use the actual historical figures for inflation (SSA COLA), SPY annual total return.
You ask: Were you able to do that for some of the years? which ones? The spreadsheet will show you this.
I have my own spreadsheet, but there is probably somewhere on the internet somebody has published one, or perhaps has worked through an example, that you could copy.