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Using the Guyton Klinger withdrawal guardrails - updated for 2025

  • Writer: Noel Watson
    Noel Watson
  • Jun 12
  • 11 min read

Updated: 5 days ago

In previous blog posts, we looked at Bill Bengen's inflation-linked withdrawal strategy and the fifteen challenges that a U.K. retiree using his approach has to contend with:

  • Challenge One: U.S. data – 4% “rule” doesn’t necessarily hold for UK retirees.

  • Challenge Two: Asset allocation of 50% stocks and 50% bonds.

  • Challenge Three: Limited historical data.

  • Challenge Four: Starting stock market valuations are not factored into the analysis.

  • Challenge Five: Zero fees.

  • Challenge Six: 30-year retirement horizon.

  • Challenge Seven: Not evaluating whether the money is likely to outlast the retiree.

  • Challenge Eight: Not adjusting spending throughout retirement as remaining life expectancy changes.

  • Challenge Nine: Spending is assumed to increase with inflation each year.

  • Challenge Ten: Does not allow for spending flexibility

  • Challenge Eleven: Other income sources are not taken into account.

  • Challenge Twelve: Dying with too much money.

  • Challenge Thirteen: Not adjusting spending depending on how "lucky" your retirement outcome is.

  • Challenge Fourteen: Assumes perfect investor behaviour.

  • Challenge Fifteen: Being able to cope with drawdowns.


  1. longevity

  2. inflation

  3. investment returns

making retirement planning a particularly challenging problem.


We believe there are typically three financial "worries" for a retiree.

  1. Running out of money.

  2. Having to take reductions in income during retirement.

  3. Dying with too much money (challenge twelve in part two).


As a reminder, Bengen's approach is effectively a one-factor model, where the only variable impacting portfolio withdrawal adjustments is the current level of inflation. Bengen's model has historically resulted in a wide range of portfolio balances at the end of a 30-year retirement. Using our baseline example (see challenge one in part one) with a portfolio of 50% stocks and 50% bonds, the historical worst case had the money running out after around 21 years, while the best case had the finishing balance at almost than six times the starting balance (in real terms) after 30 years. The reality of Bengen's approach is that there is a very good chance that you will die with more money than you started with. Or you may run out before the thirty years are up. Either outcome is suboptimal.


A vast range of potential outcomes using Bengen's approach.
A vast range of potential outcomes using Bengen's approach.

What if we were prepared to be more flexible with our spending? Would this help a retiree avoid running out of money or dying with too much money? How much flexibility would we have to accept?



Guyton-Klinger guardrails


Variable withdrawal rate guardrails allow us to adjust our spending if investment returns are favourable, assuming we are prepared to cut spending during falling markets. I covered numerous approaches in my book 'Planning for Retirement: Your Guide to Financial Freedom', but for this article, I will focus on the popular Guyton-Klinger approach. In 2004, Jonathan Guyton released a paper titled Decision Rules and Portfolio Management for Retirees: Is the 'Safe' Initial Withdrawal Rate Too Safe?


Guyton established the following guidelines for determining the maximum safe initial withdrawal rate:

  • Never requiring a reduction in withdrawals from any previous year.

  • Allowing for systematic increases to offset inflation.

  • Maintaining the portfolio for at least 40 years.


Guyton examined only one period, from 1973 to 2003, and employed a more diversified asset allocation than Bengen's original work. Two portfolios were used, one with 65% stocks and the other with 80%. The 65% stock portfolio consisted of the following assets:

  • 10% cash

  • 25% fixed income

  • 44% U.S. equities

  • 15% international equities

  • 6% real estate


Guyton determined that this approach allowed initial withdrawal rates of between 5.8% to 6.2%, far more than the (approximately) 4% proposed by Bengen (and that's not forgetting that Bengen's research was primarily over only a 30-year retirement period rather than the 40 years for Guyton's research).


There were several reasons for this improvement in initial withdrawal rates:


  1. Better portfolio diversification.

  2. Forgoing inflation-adjusted increase in withdrawals following a year in which the portfolio's total return is negative.

  3. The maximum inflationary adjustment is capped at 6% (see Challenge One in Part One, which examines U.K. inflation during World War I and the 1970s, often much higher than 6%).



This paper differs from Guyton's original work in the following ways:

  1. Three stock asset allocations are tested: 50%, 65% and 80%.

  2. The 6% inflation cap is removed.

  3. Two new rules are introduced, the capital preservation and prosperity rules, which act as "guardrails".

    • The capital preservation rule is triggered when a current year's withdrawal rate has risen more than 20% above the initial withdrawal rate. If this is triggered, the withdrawal is reduced by 10%. This rule applies until the retiree is within 15 years of their predicted life expectancy.

    • The prosperity rule is triggered when a current year's withdrawal rate has fallen more than 20% below the initial withdrawal rate. If this is triggered, the withdrawal is increased by 10%.

The paper concludes that 5.2%–5.6% initial withdrawal rates are sustainable at the 99% confidence level for a portfolio containing at least 65% stocks.



Has it 'fixed' our three worries?


We will now compare the Guyton-Klinger (GK) and Bengen approaches using a portfolio consisting of 70% developed market stocks and 30% global bonds, historical U.K. inflation and a 45-year retirement horizon (see Challenge Six).


We will use the same clients in the previous articles, David and Samantha. David Smith is 60 and recently retired from ABC Chemicals. His wife Samantha is 55 and also retired. Together, they have a retirement portfolio of £1,000,000 and are seeking a sustainable income of £40,000 per annum (please refer to part one of our 4% rule analysis for the underlying assumptions).



Bengen


With a starting withdrawal rate of £52,000 (5.2% is the lower end of the GK initial withdrawal rate as described above), in the worst case, the money runs out at Samantha's age of 70. In the best case, the portfolio balance is over £11m in real terms when Samantha is 100.


A large range of outcomes for our 70% equity portfolio using Bengen's logic with a 5.2% starting withdrawal
A large range of outcomes for our 70% equity portfolio using Bengen's logic with a 5.2% starting withdrawal

If we reduce initial withdrawals to £40,000 (David and Samantha's desired retirement income), in the worst case, the money runs out at Samantha's age of 80. The best case has a finishing balance of over £14m.


If we reduce our starting withdrawal to 4%, the best case has a final balance of over £14m!
If we reduce our starting withdrawal to 4%, the best case has a final balance of over £14m!


The safe withdrawal rate is 3.2% (up from 2.9% for our 50/50 portfolio).


The safe withdrawal rate is 3.2% for our baseline portfolio
The safe withdrawal rate is 3.2% for our baseline portfolio


GK


We now move on to Guyton Klinger. We remove the capital preservation rules 15 years from the plan's end as GK specified. Timeline does not allow the prosperity rule to extend to the end of the plan, so we have set it at 40 years (five years from the end of the plan).


Guyton-Klinger configuration in Timeline.
Guyton-Klinger configuration in Timeline.

If we look at our three worries:


1. Running out of money.

2. Having to take reductions in retirement income.

3. Dying with too much money.


With a starting withdrawal rate of 5.2%, The GK approach appears to have solved worry 1 (running out of money), as the red line (investment balance) does not drop to zero, even for the worst-case historical scenario. GK also has a good stab at preventing retirees from dying with too much money (worry 3/challenge twelve (dying with too much money)), with the best-case (green line) reducing from over £11m (Bengen) to around £5m at the 45-year point.


The Guyton-Klinger approach can help reduce the risk of running out of money
The Guyton-Klinger approach can help reduce the risk of running out of money.

How has GK fared with worry 2 - having to take reductions in retirement income? If we view expenditure in nominal terms, we can see that ten years into retirement, income for the worst historical case (the 1917 retiree) drops by around 27%, from £52,000 to £37,835. Some may consider this a reasonable tradeoff for the increase in starting withdrawal compared to the Bengen approach.


While only taking minor cuts in (nominal) income in the worst case. Is there a downside?
While only taking minor cuts in (nominal) income in the worst case. Is there a downside?

However, examining real (inflation-adjusted) expenditures reveals where potential problems lie. Our 1973 retiree would've had to take over a 50% cut (£52,000 vs. £23,655 per month) in real income after the first decade! Furthermore, the allowed spending is below £30,000 (75% of David and Samantha's desired income) over a six-year period. Many retirees may find this unacceptable, especially those without other sources of secure income (e.g. state pension).


Unfortunately yes! Potentially significant cuts in real income!
Unfortunately yes! Potentially significant cuts in real income!

If we reduce our starting withdrawals to 4% (as David and Samantha desire), our spending in real terms in the worst case after the first decade will still be cut by almost 50, from £40,000 to £21,445, this time for our 1969 retiree. Note that the real income remains below £30,000 for over a decade!


Reducing starting withdrawals does not improve the situation.
Reducing starting withdrawals does not improve the situation.

This big issue with the GK approach is rarely addressed, with most literature focusing on its advantages compared to Bengen's approach. Karsten Jenske wrote a series of articles on his EarlyRetirementNow blog in 2017, concluding:


"If you want to use GK yourself, make sure you’re aware of the downside (literally!), i.e., be prepared to curb consumption by 50% if things don’t work out."


More recently, an article titled "Why Guyton-Klinger Guardrails Are Too Risky For Most Retirees (And How Risk-Based Guardrails Can Help)" was published on Kitces. It again highlighted the issue of potential cuts in real income, a 45% cut during the Great Depression, which was slightly less than the 50%+ our example U.K. retiree experienced in 1973.


GK guardrail strategy during the Great Depression
GK guardrail strategy during the Great Depression


Has GK addressed our 15 challenges?


How does the GK approach stack up against the fifteen challenges we covered for Bengen's strategy(see parts one, two and three)? We've already looked at Challenge 12 (dying with too much money). What about the rest?



Challenge One: U.S. data – 4% “rule” doesn’t necessarily hold for the U.K.


As demonstrated above, the GK approach does an excellent job of preventing a retiree from running out of money, even with a far higher starting withdrawal rate than Bengen's approach can sustain. That's not to say that you can't "break" GK. For example, increasing the starting withdrawal from 5.2% to 10% exhausts the money in the worst historical case within a decade, with the capital preservation rule unable to cut spending quickly enough.


Guyton-Klinger can still "fail" if the starting withdrawal rate is too high!
Guyton-Klinger can still "fail" if the starting withdrawal rate is too high!


Challenge Two: Asset allocation of 50% stocks and 50% bonds


Changing asset allocation can have a significant impact on cuts in real income. For example, using the U.S. total market for our portfolio leads (rather than 70% developed market stocks and 30% global bonds) results in dramatic cuts in real income in our 1969 example, from a starting amount of £52,000 per annum to £18,291 after the first decade.


Altering asset allocation can dramatically impact worst-case cuts in retirement income
Altering asset allocation can dramatically impact worst-case cuts in retirement income

Challenge Three: Limited historical data


Guyton & Klinger had the benefit of conducting their research around a decade after Bengen, so they benefited from a slightly larger dataset (1928-2004). They used Monte Carlo modelling, which allows for many more simulations (sometimes over 10,000) versus Bengen's approach of rolling thirty-year samples. While Monte Carlo modelling may appear to solve the challenge of using limited historical data, it comes with its own challenges (a blog for another day!), which is why we prefer to use actual historical data for our analysis in Timeline (which offers both approaches).



Challenge Four – Starting stock market valuations are not taken into account.


GK did not address this.



Challenge Five: Zero fees


GK did not address this.



Challenge Six: 30-year retirement horizon


GK was based on a rigid 40-year retirement horizon, so this doesn't offer any additional flexibility over Bergen's research and may not reflect an individual retiree's requirements.



Challenge Seven: Not evaluating whether the money is likely to outlast the retiree


As with Bengen's work, the GK methodology focuses on portfolio longevity (40 years) and doesn't evaluate the likely chances of the retiree outlasting the retirement portfolio.



Challenge Eight: Not adjusting spending throughout retirement as remaining life expectancy changes


The GK logic removes the capital preservation rule within 15 years of retirement, but otherwise, it doesn't offer the facility to adjust 'allowed' spending based on remaining life expectancy.



Challenge Nine: Spending is assumed to increase with inflation each year


As shown above, with potential cuts in real spending, the GK approach leaves retirees vulnerable to poor markets and high inflation. It also doesn't allow for the option of a higher starting withdrawal with a periodic reduction in spending throughout retirement (e.g., reducing spending by 1% in real terms every year).



Challenge Ten: Does not allow for spending flexibility


Like Bengen, spending tends to be led by rigid portfolio rules rather than allowing flexibility to align with 'real world' retirement spending.



Challenge Eleven: Other income sources are not taken into account


As with Bengen, other income sources are not considered in the GK research, which could result in unnecessary cuts to early retirement spending.


For example, in our baseline case in early retirement, our 1973 retiree's income recovered to around £38,000 per annum twenty years into retirement (after falling to below £24,000 ten years into retirement).


If we add two state pensions into our plan, David and Samantha's reduction in real income will be far less after ten years into their retirement (£34,543 vs. £23,655) as David's state pension has just begun payment (reducing the withdrawal rate on the portfolio and therefore reducing the chances of downwards adjustments in (real) spending).


The impact of adding two state pensions is significant.
The impact of adding two state pensions is significant.

After twenty years, the income is now £49,000 (vs around £38,000 without their state pension). You could, therefore, argue that such severe cuts were not required in the early years, as the state pension would be available to support withdrawals for most of their planned retirement.



Challenge Twelve: Dying with too much money

Covered above



Challenge Thirteen: Not adjusting spending depending on how "lucky" your retirement outcome is


This is where GK shines. In contrast to our 1973 retiree, who was unfortunate enough to have to reduce their spending to £23,655 a decade into retirement, our 1921 retiree has increased their initial annual spend to £104,172 at the same point!



Challenge Fourteen: Assumes perfect Investor Behaviour


Both Bengen and GK's rules are merely tools and do not account for potential (mis)behaviour. In our blog, "Using Risk-Based Guardrails for Retirement Planning," we discuss the value that an adviser can bring by helping clients "stick to the plan".



Challenge Fifteen: Being able to cope with drawdowns


Over short timescales, the GK model outcomes don't differ significantly from Bengen, with some inevitable short-term drawdowns, as illustrated in our 1973 example below (a decline in the portfolio value of over 30% two years into retirement). This is not a criticism of the GK model, as there is a limit to what it can achieve in the short term (cutting expenditure has little short-term impact when markets are falling heavily).

Guyton-Klinger does not necessarily protect the portfolio from short-term drawdowns.
Guyton-Klinger does not necessarily protect the portfolio from short-term drawdowns.

However, over the longer term, and provided the initial starting rate is not too high, GK does a good job of maintaining a reasonably steady nominal investment balance, even in the worst historical cases.


But is much better over longer time periods.
But is much better over longer time periods.

Positives


As with Bengen's work, we may seem overly critical of the GK logic. That is deliberate - we only get one chance at retirement, so it's worth fully understanding the downsides to ensure no nasty surprises once you enter retirement and decide how much of a 'worst case' you want to plan for.


As an example, Timeline offers the following scenario outcomes.


Timeline scenarios
Timeline scenarios

If we look at the lower bound of likely (30% percentile) outcomes, we can see that real spending has reduced from £52,000 to £44,464 per month a decade into retirement, a much better outcome than the £23,655 per month for our 1973 retiree. A retiree may be comfortable with this being a reasonable 'not great, although not terrible' lower bound and base their planning around this.


What range of scenario outcomes are you happy with?
What range of scenario outcomes are you happy with?

Conclusion


In this article, we examined GK and its advantages and disadvantages in comparison to Bengen's approach. As with Bengen's work (perhaps more so), we believe that real-world challenges mean that the GK approach should perhaps remain an academic concept rather than something that a retiree should implement, particularly with risk-based guardrails becoming a more established alternative. We'd suggest GK is, therefore, an example of retirement planning ideas that sound good in theory but not in practice.



Want to find out more?


If you would like to know more about designing and implementing a robust withdrawal strategy, please get in touch.


About us


The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide financial advice on pensions, investments, and inheritance tax.

Our office telephone number is 01932 645150.


Our office address is No 5, The Heights, Weybridge KT13 0NY.


Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.





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