I read with great interest your article in Kitces about why Risk-based guardrails are a better option than Guyton-Klinger (https://www.kitces.com/blog/guyton-klin ... isk-based/). I’ve been studying various approaches to this question - how much should I spend each year? - for the last eight years.I am one of the authors of the risk-based guardrails article you referenced, so I'm quite biased on this matter, but I just wanted to offer a few thoughts/clarifications based on your questions.
My first attempt at establishing our decumulation approach was based on McClung’s Prime Harvesting, although I felt it was a bit complicated and too deterministic.
So when I first heard about the guard rails approach on a podcast I immediately saw that approach as the way to go with its ability to continuously adapt changes in portfolio RoR while allowing for a permanent spending floor. Perfect for our situation. Then you guys wrote about risk-based guardrails and that was it. My niggling worry about G-K complexity was addressed. The RB approach is easy to understand and implement, easy to explain to my spouse, and intuitively a good fit with behavioral finance - spend less when the market drops. Duh!
My main challenge was then to find a reliable MC simulation that I could use a couple times a year to establish and adjust our annual SWR. I like ficalc.app and found it easy to use and pretty complete. More recently I found Flexible Retirement Planner and made a donation to get the full license.
What I really like about FRP is the goal seeking analysis and the sensitivity analysis. For goal seeking I'm inputting a custom RoR for our 65/35 portfolio and a target success rate of 70% with an income floor of $100k. Even with 4% inflation it's coming back with some really high spending levels that we're nowhere near doing right now.
For sensitivity analysis I'm looking at spending level vs inflation rate, the latter varying from 3% to 8%. This lets me find what spending level my 70% minimum risk guardrail target will support across that entire range of possible inflation rates. Again, gives me greater confidence in upping our spending to a level I never would've considered before.
I feel like we now have a complete, easy to implement, low maintenance approach to decumulation. RB guardrails is now our official decumulation approach and is part of my retirement policy statement. We are ending year 1 of using it, and I’m feeling good that it will allow us to fully enjoy worry-free the funds we worked so hard to accumulate for the next 40 years. Thank you.
Statistics: Posted by tman9999 — Mon Dec 09, 2024 10:45 am — Replies 36 — Views 6907