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How to Withdraw Money In Retirement Using The Guyton Klinger Rule:
Do you know how much money you need in order to be able to retire? It’s a question that many people are asking themselves every day and if you’ve seen my video on the 4% rule you already know one of the most popular answers that will be given in response to that question. If you haven’t, then, in short, the 4% rule suggests that you need roughly 25x your annual expenses saved in order to have a reasonably good chance of not running out of money once you leave the workforce.
However, while I do believe that on the whole, the 4% rule is a good starting point and a solid rule of thumb to use as a guide, it isn’t by any means the only answer to the question. And depending on your situation and goals, it may or may not even be the best one.
Today we’re going to be asking whether or not it’s possible to withdraw more than 4% of your money every year in retirement when we look at another popular retirement withdrawal strategy known as the Guyton-Klinger Method.
We’re going to be talking about what the Guyton-Klinger Method is, how to use it, the rules associated with it, as well as the potential pros and cons associated with it in comparison to other retirement withdrawal strategies.
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Planning for retirement can be a daunting task, especially when it comes to withdrawing money from your retirement accounts. One strategy that has gained popularity in recent years is the Guyton Klinger Rule, which provides a systematic approach to withdrawing funds during retirement while ensuring longevity of assets. Here’s a look at how to use this rule to make the most of your retirement savings.
The Guyton Klinger Rule, named after financial planners Jonathan Guyton and William Klinger, is based on the concept of dynamic withdrawal rates. Unlike traditional approaches that rely on a fixed percentage of annual withdrawals, this rule takes into account changing market conditions and adjusts withdrawal rates accordingly. This can help retirees navigate through periods of market volatility and economic uncertainty without depleting their savings too quickly.
The first step in implementing the Guyton Klinger Rule is to determine an initial withdrawal rate based on your portfolio size, expected lifespan, and spending needs. This initial rate is typically set at a conservative level, such as 4% of the total portfolio value. However, the key difference with this rule is that the withdrawal rate is not fixed for the rest of retirement. Instead, it is adjusted annually based on a set of dynamic rules.
One of the primary factors that determine the annual adjustment is the performance of the market. If the value of your portfolio experiences significant gains, the withdrawal rate may increase to capture some of those gains. Conversely, if the market underperforms, the withdrawal rate may be reduced to preserve the longevity of your savings. This flexible approach allows retirees to take advantage of market upswings while also safeguarding their assets during downturns.
Another important aspect of the Guyton Klinger Rule is the use of guardrails to manage fluctuations in the withdrawal rate. These guardrails outline specific thresholds that trigger adjustments to the withdrawal rate. For example, if the portfolio experiences a 20% decline in value, the withdrawal rate may be reduced by a predetermined percentage to mitigate the impact of the market downturn.
It’s worth noting that the application of the Guyton Klinger Rule requires continuous monitoring and assessment of market conditions and portfolio performance. Retirees should work closely with a financial advisor to ensure that the rule is being applied effectively and to make adjustments as needed.
In conclusion, the Guyton Klinger Rule offers a dynamic and strategic approach to withdrawing money in retirement. By adjusting withdrawal rates based on changing market conditions and implementing guardrails to protect against market downturns, retirees can better manage their assets and extend the longevity of their savings. While this approach may not be suitable for everyone, it offers a valuable framework for those looking to secure their financial future in retirement.
Your didn't go over portfolio allocation percentages.
In many cases, the illustration "drawing hand" can add to the argument. In this case, it was a distraction. It would have been far better used sparingly. Use bullets instead of the hand to better teach complex rules. Otherwise, good information.
Do the vanguard dynamic spending withdraw rate
Hmm…great presentation (thanks), but I am curious how this compares to the bucket strategy in terms of effectiveness. Any thoughts?
05:33 Portfolio Management Rule
Finally! Someone has explained how to practically apply this method. I've read all about it until my head exploded. Really needed it illustrated just like this to better understand how it works in action. Thank you!!
Excellent example. Thank you very much. I am not likely to use it, but it is good to have a grasp of the option.
Too complicated
well explained and is food for thought. seems like if we need to look at using some hybrid draw method like starting with the 4 % but with guardrails where we don't increase for inflation in down years
I understand the reasoning behind this method, but it's just way to complex to be sustainable in my opinion. There are far simpler draw down methods that can achieve similar results like the basic guardrail withdrawal method, for example.
I think we try to make this stuff more complicated than it is. Simply setup an Excel spreadsheet with an assumed rate of return and voila ….
retire with no debt, own ur home, some cash in the bank and private investments for emergencies, withdraw more than 4% leave as little behind as possible, most die late 70’s early 80’s from what i have seen
in early retirement you will need more money to enjoy life, you slow down later and spend less . retired and loving it
Ok then. Fascinating, but run it against this very simple strategy…………invest in VWINX which has had only 4 down years from 1971 to 2021….and the worst being only 9.8%, yet provides excellent upside returns…….taking 7% fixed amount out yearly “NOT adjusted for inflation” …..and you never run out of money and live handsomely ever after. Example………total funds. 100,000 take 7000 every year…..you never run out of money…..add that income to SS income and you should be fine. Note that as you age your expenses will decline…thats a proven scientific data point. Taking 7% flat dollar amount out allows you to live now and as inflation erodes over years to come, coincides with your reduced expenditures..fewer trips, etc….healthcare is a non issue. Medicare starts at 65. Actuarial’s who have studied this say that the average person age 65-95 will only spend about $60k over that period in health costs….($2k per year) and once again……..investing as stated above, (or less..doesnt have to be 7%) you are gold. :).
Why would you want to set a low end guard rail unless you are worried about large minimum distributions in a retirement account. Allowing your account to grow will make it easier to guarantee you wont run out of money.
Very good and well explained, thanks.
Every 'rule' is YOUR rule. Everyone's financial situation is different, so it is best to follow your instincts…this type of stuff is way too confusing.
any strategy that is complex is a NO go in retirement, no wonder I never heard of this.
my brain hurts, I'm just gonna stick with the 4% rule. But thanks for putting that info together for us. great content
It seems that we confuse drawdown strategies:
One is “never touch the principle.”
The other is “die broke.”
One withdraw strategy is to take out all of your retirement savings the day you become 59 1/2 and spend it all on good whisky and bad women for as long as it lasts then go on public assistance. Another is to never withdraw at all, live in a tent in Slab City, and die leaving no clue to anyone that you have a million dollar retirement account. Maybe you should do what the Buddhists say and chose the middle path.
I’m a big fan of your videos, but this is your best one. I’m using this strategy in planning out my retirement withdrawal strategy. Thanks!
None of these strategies seem to address RMDs. Once you hit 72 you are now forced to withdraw at a much higher rate from any non-Roth accounts starting at about 6.4% at 72 and increasing each subsequent year.
Yes I know exactly how much I need and no it has nothing to do with the 4% rule which I think is total BS.
funding investing*
Can you cover IUL(Index Universal Life) and VUL (Variable Universal Life)?
This is a very good plan, I found two dollars in change between the sofa cushions and now have effectively doubled my retirement savings! At this rate I should beable to retire in my early 100s if I lived in the year 1947! Thank goodness math works out!
I am 60 and I became financially independent at 48. I really like your distribution strategy videos. I really like Paul Merrimans' strategy of using a straight 5% https://paulmerriman.com/wp-content/uploads/2019/05/Flexible-Distrib-@-BoY-of-Portfolio-SP-500-2018.pdf . It is very close to your https://www.bogleheads.org/wiki/Variable_percentage_withdrawal#Detailed_Example . I think it would be good for you to do a segment on reverse mortgages. This would be basically a plan B retirement series. Now that I'm am older I'm seeing friends who have not done a good job saving consider their plan B retirements. Divorce can take you from Plan A to Plan B and it is really likely that many will be divorced as I was in 2004.
I really like your videos. They are logical and simple but they do deal with complex topics that I find hard to communicate to others. I am a really big fan of your videos. My job now is to motivate young people and your videos are one of my tools! Thanks again for all your hard work!
So to really prove these methods would be best to use the markets ACTUAL performance for the LAST 30 years. Personally I have been simply withdrawaling 3% of my total portfolio each year. As the Market GROWS at 9% each year on average, thus my ASSETS will always grow LONG TERM. Having NO DEBT and only paying CASH assures NO PROBLEMS, man.
How is it these methods never talk about expenses, Social Security, or pensions? He might not need to withdraw at these levels at all.