The Guardrails method, also known as the Guyton/Klinger decision rules, consists of 4 different components.
- The first component is the Inflation Adjustment, which allows you to prevent an inflation adjustment on retirement expenses when portfolio return is negative.
- The second component is the Capital Preservation Rule. When the withdrawal rate exceeds the upper band, retirement expenses will be reduced by a specified %.
- The third component is the Prosperity Rule. When the withdrawal rate goes below the lower band, retirement expenses will be increased by a specified %.
- The fourth component is the Initial Withdrawal Rate, which allows you to use the calculated initial withdrawal rate in each plan, or to override this using a specified %.
Within RightCapital, our default Guardrails parameters will be as follows:
Inflation adjustment > Checked
Capital Preservation Rule > "Before age 80, if withdrawal rate is 20% greater than the initial rate, reduce spending by 10%."
Prosperity Rule > "Before age 80, if withdrawal rate is 20% lower than initial withdrawal rate, increase spending by 10%".
Initial Withdrawal Rate > Calculated
With the "Calculated" option selected for the Initial Withdrawal Rule, RightCapital will calculate the initial withdrawal rate based on the cash outflows in the first year of retirement for each client plan. This can be found within the Retirement > Analysis > Retirement Details tab, by switching to the Withdrawal Rate chart:
As with any of the other pre-loaded models, you can adjust the parameters for the Guardrails strategy within the Advisor Portal > Models > Retirement Spending tab.
