Forget the 4% Rule: How Guardrails Can Help You Spend More in Retirement
If you’ve done any retirement planning research, you’ve probably heard of the 4% rule. It’s the idea that you can withdraw 4% of your portfolio in year one, adjust for inflation each year, and your money should last at least 30 years.
It’s a useful starting point. But it’s also a one-size-fits-all guideline that can lead to two very different — and equally problematic — outcomes.
The Problem with Rules of Thumb
The 4% rule assumes you’ll withdraw the same inflation-adjusted amount every year for 30 years, regardless of what the market does. But blindly following a static rule can lead to:
- Spending too much — A market crash early in retirement hammers your portfolio, and you don’t adjust spending before it’s too late.
- Spending too little — You were scared to spend money, so you die with a massive portfolio you never enjoyed.
Here’s how we think about it: running out of money is never an option. But living on rice and beans, never enjoying your wealth, and leaving behind a mattress stuffed full of money isn’t winning the game either.
You need a strategy that keeps you somewhere between those two extremes (overspending and underspending), no matter what the market does.
A Smarter Approach: Guardrails
Instead of locking into a fixed withdrawal rate, we use the guardrails strategy. It’s a dynamic approach that adjusts your spending based on how your portfolio performs.
Think of it like this: retirement income planning is really about asking, “What’s the most I can take from the golden goose without killing it?”
Picture yourself driving on a winding mountain road with barriers on both sides. Those barriers keep you from going off the cliff. That’s what guardrails do for your retirement plan — they keep you from the extremes of running out of money OR spending far too little and missing out on life.
Here’s how it works:
- Start with a reasonable withdrawal rate. Based on your portfolio, age, and other income sources, we establish your initial retirement paycheck.
- Set upper and lower guardrails. If the portfolio grows significantly, the withdrawal rate drops, triggering a “raise.” If the portfolio declines, the withdrawal rate rises, triggering a temporary spending cut.
- Make small adjustments along the way. Instead of drastic changes, you increase or decrease spending by 5-10% when you hit a guardrail.
The Research Behind Guardrails
This isn’t just theory. Research from Morningstar’s annual State of Retirement Income report has shown that dynamic withdrawal strategies like guardrails can allow retirees to start with a significantly higher withdrawal rate than static approaches without increasing the risk of running out of money.
Their 2025 research found that while a fixed withdrawal approach supports a starting rate of just 3.9%, the guardrails method supports a starting rate of 5.2% — more than 30% higher. When combined with delayed Social Security, flexible strategies can support starting rates as high as 5.7%.
Source: Morningstar, The State of Retirement Income: 2025
What would you do with a 30% income boost in retirement?
Two Prerequisites for Making Guardrails Work
The guardrails strategy doesn’t work in isolation. It depends on two critical foundations:
1. An Appropriate Investment Portfolio
You can’t just invest in whatever you feel like. Your portfolio needs:
- The right balance between growth (to fund a long retirement) and protection (to weather short-term volatility).
- The right types of assets. For example, high-quality bonds for stability, not high-yield “junk bonds” that crash alongside stocks.
- Diversification across asset classes, countries, and sectors so you’re not overconcentrated in any single area.
Retirement investing is NOT about hitting home runs.
It’s about avoiding strikeouts.
You don’t want to put yourself in a position where being wrong – like putting too much in the wrong sector, or only owning stock from a single country – can sink your retirement plan.
2. An Adequate War Chest
When you hear terms like “60/40 portfolio” or “70/30 portfolio,” it’s abstract. What does it really mean? Is 70/30 too aggressive? Too conservative? How do you know?
Instead of thinking in percentages, we encourage you to think about your portfolio in terms of time.
If you have 30% of your portfolio in cash and high-quality bonds, that’s roughly 6 years of portfolio withdrawals sitting in safer, more stable assets. This is the protection sleeve. 6 years of runway is there to ride out a market downturn, which gets you through the worst part – if not the whole thing.
For context, the average bear market recovery takes about 2.5 years – but they can certainly last longer. Having a 4- to 8-year war chest means you can weather even a prolonged downturn without panic.
This is what lets you sleep at night when the market drops. It’s your source of uninterrupted retirement income until the stock (growth) side of your portfolio recovers.
Why Guardrails Beats the 4% Rule
The 4% rule treats every retiree the same. Guardrails treats your retirement like the dynamic, evolving situation it actually is.
With guardrails:
- You’re not locked into arbitrary spending limits. You can take advantage of higher spending as your portfolio grows.
- You have an early warning system. You’ll know in advance what events would trigger an income adjustment, and how much that adjustment would be.
- You can spend more in your “go-go years.” The 4% rule often leads to underspending early in retirement, then a big surge when Social Security kicks in. But that’s backwards – most retirees want to travel and enjoy life when they’re healthiest, in their first 10-15 years of retirement. Guardrails smooths income to allow for higher portfolio withdrawals in those early years, then naturally adjusts to a lower portfolio withdrawal amount as Social Security comes online.
- You’re far less likely to leave too much on the table. Retirees following static rules often end up with far more money at death than when they retired – which means they could have enjoyed more along the way, with fewer regrets.
Research from retirement planning nerd Michal Kitces highlights how likely the 4% rule is to result in extreme underspending:
On average a 4% initial withdrawal rate results in the retiree finishing with nearly triple the original principal, on top of sustaining an initial withdrawal rate of 4% adjusted annually for inflation!
Real-Time Monitoring: No More Guesswork
Here’s the part most people miss: a guardrails plan isn’t something you set up once and forget about. It requires ongoing monitoring to track where the current portfolio is relative to the upper and lower guardrails, and making income adjustments as necessary.
At 7 Saturdays Financial, we monitor our clients’ guardrails plans in real-time. We’re constantly tracking three key variables:
- their plan
- their portfolio
- their retirement income
That way, they don’t have to check how the stock market did that day to decide if they can afford to order the bottle of wine with dinner. They already know exactly where they stand relative to their guardrails. If something needs to change, we’ll let them know before it becomes a problem.
That’s the peace of mind a real retirement income plan provides.
Is Guardrails Right for You?
The guardrails strategy works best for retirees who:
- Are willing to be slightly flexible with spending if markets decline
- Want to maximize lifetime spending rather than leave behind as much as possible
- Prefer a clear system over generic rules of thumb or a murky “probability of success” score
We find that for most retirees, the ability to spend up to 30% more over their lifetime is worth a little flexibility.
Ready to Build Your Guardrails Plan?
Our Retirement Roadmap is a complimentary, three-meeting process where we’ll walk you through your personalized guardrails strategy. You’ll see exactly where your guardrails are, what would trigger an adjustment, and how much income you can sustainably withdraw.
If you want clarity on how you can invest smarter, lower your lifetime tax bill, and maximize retirement income, book an intro meeting below.
About the author: Allen Mueller, CFA, CFP®, is an “engineer turned finance nerd” and founder of 7 Saturdays Financial, a wealth management firm based in Dallas, Texas.
The core focus of 7 Saturdays Financial is helping high performers retire with confidence and make the most of their 7 Saturdays a week.
