Want More Retirement Income? Use This Guardrails Approach

A few years ago, our family visited Mount Washington in New Hampshire. If you've ever been there, you know that it's absolutely breathtaking. Definitely worth the $83 entrance fee (yes really). But let me tell you, the drive up and down? Absolutely nerve-wracking.

The mountain is privately owned and the 7.5 mile road is narrow, winding, with several blind corners. And the worst part? No guardrails. Just a steep drop-off inches from your tires. One wrong move, and you’re not pulling over to take in the scenery—you’re taking the express route straight down the mountain.

The whole time, I kept thinking, Why on earth didn’t they put guardrails here?! If there’s anywhere in the world that guardrails would come in handy it’s here!

A video my wife took as we drove down the mountain!

Retirement withdrawals can feel a little bit like that drive down Mount Washington. How do we keep ourselves safely away from that dangerous edge? That’s why I use the Guardrails Strategy with my clients. It gives you a framework to adjust as needed, so you can enjoy the retirement journey without the constant fear of running out of money.

By the way, in the previous blog post we talked about annuities: how they work, their pros and cons, and why I don’t typically recommend them. For most retirees, I believe the Guardrails Strategy ends up being a stronger alternative.

The Two Big Unknowns

Planning your retirement withdrawals comes with two major uncertainties:

1. How long you’ll need the money. That’s a nice way of saying, we don’t know when you’ll pass away. Your retirement could last 10 years or 40 years.

2. What the market will do. While we know the market has a long-term history of growth, we also know that along the way there will be years when it’s up and years when it’s down.

   
   

And since we can’t predict either of these, we need a withdrawal strategy that works in any scenario.

Introducing the Guardrails Strategy

This is where the Guardrails Strategy comes in. It’s based on research by Jonathan Guyton and William Klinger, and it’s one of the best ways to ensure your money lasts while still giving you flexibility.

Here’s an example:

1. Start with an initial withdrawal amount - Let’s say you retire with $1 million and decide to withdraw 4.8% of that amount each year ($4,000 per month)

2. Adjust for inflation - each subsequent year you increase your monthly withdrawal based on inflation (with a maximum of 6% increase). For example, if inflation was 3% last year, you would increase your monthly withdrawal 3% from $4000 to $4120.

3. Set your guardrails - We establish an upper guardrail ($1,250,000) and a lower guardrail ($833,000). As long as your account stays within this range, you continue withdrawing $4,000 per month.

4. Adjust when needed:

   • If your balance drops below the lower guardrail (due to market downturns or large withdrawals), you temporarily reduce your withdrawal. So instead of $4,000/mo we temporarily reduce that to $3,600 per month until your balance recovers.

   • If your balance exceeds the upper guardrail, then congratulations you can increase your withdrawals so you can enjoy more of your money. We can now afford to increase your withdrawal from $4,000/mo to $4,400/mo. 

Source: Kitces.com

This flexible approach ensures that you’re not taking too much when the market is struggling, but you’re also not leaving too much on the table when the market is booming.

Why This Works

This strategy has been tested through over 100 years of market history, including the Great Depression, World War II, the inflation crisis of the 1970s, and the 2008 financial crash. In every scenario it held up. The reason? It allows for small adjustments in tough times, which significantly increases the odds that your money lasts.

In fact, I ran simulations using historical market data, assuming someone retired at age 60 with $1 million and used the Guardrails Strategy for 30 years. Here’s what happened:

• In the Worst-case scenario: They still had $270,000 left at age 90.

• In the Best-case scenario: They ended up with over $2 million!

• Average outcome: They withdrew income for 30 years and still had about $800,000–$900,000 left.

  
  

That’s the power of flexibility. Small tweaks make a big difference over time.

What About the 4% Rule?

Unlike the traditional 4% rule, which assumes that you take out 4% of your portfolio every year regardless of market returns, the Guardrails Strategy is far more dynamic. It allows you to start with a higher initial withdrawal, giving you more income from the beginning while still maintaining a safety net. It also does a better job of ensuring you don’t run out of money by scaling withdrawals down in bad markets and increasing them in good ones. This means you can enjoy your retirement without constantly fearing economic downturns, while also benefiting from market upswings when they happen. In my opinion, the adaptability of this approach makes it superior for retirees looking for both security and maximal retirement income.

The Role of Conservative Investments

A big reason why this works is asset allocation. If you put everything in stocks, a market downturn could force you to sell investments at a loss. That’s why we keep about 5–7 years’ worth of spending in conservative investments (like bonds) and the rest in growth investments (like stocks).

Here’s why that matters:

• Market drops of 20% or more happen every 3-4 years on average.

• If your stocks are down, you withdraw from the conservative portion of your portfolio.

• This gives your growth investments time to recover and you avoid selling them at a loss.

Since bear markets typically recover in 1-2 years, having that cushion allows you to ride out downturns without panic-selling at the worst possible time.

The Bottom Line

The Guardrails Strategy is the best way I know to balance retirement income, continued investment growth, and financial security. It allows you to withdraw more money upfront than the traditional 4% rule, while still protecting against market downturns. Plus, it gives you the flexibility to enjoy retirement without constantly worrying about outliving your money.

If you’re approaching retirement (or you’re already there) and want to explore how this could work for you, let’s chat! You can email me at info@nateskelly.com or visit nateskelly.com to schedule a call. Let’s make sure you get the most out of your hard-earned savings while securing your financial future!