Anyone use Guyton-Kinger's sustainable withdrawal rules?

GazzaBloom

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

zagfles

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

Probably not to a "financial planner" who wants a chunk of your pot to manage your drawdown for you

GazzaBloom

zagfles said:

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

Probably not to a "financial planner" who wants a chunk of your pot to manage your drawdown for you

I won't be handing a percentage of my pot to anyone to manage, "from my cold dead hands". I would however consider paying a one off fee for some tax efficiency planning advice should I get closer to the lifetime allowance

BritishInvestor

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

As Secret2ndAccount points out, there is the potential for nasty cuts in expenditure which I'm not sure people fully appreciate, especially if you hold a portfolio which is completely unrelated to the data used in the analysis.

Linton

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

I see no benefit in Guyton-Klingor as a strategy for actually managing your finances in retirement:
The data is dodgy:
1) SWR is a very misleading term - there is no guarantee of safety.  All there is is a demonstration that a given % withdrawal of initial pot increasing with inflation woulod have been sustainable  in barely 100% of cases in the 100-150 years up to the present.
2) It is based on US data in a time when the US was a rapidly expanding economy.  Most people in drawdown in the UK would or should be investing globally, largely in mature developed countries.
3) conditions were very different.  For example over half of all complete 30 year periods in 1884-2022 include at least one World War.
4) There is a lot of overlap in the data - there are only about 4 non-overlapping 30 year periods in the 1884-2022 time frame..

Dealing with reallity
1) After say 5 years your retirement pot could be sgnificantly larger or smaller than that driving the G-K model.  What do you do?  Carry on regardles in the confidence that an SWR means it will all work out in the end or recalculate your SWR?  The chances that you actually keep the same model through more than one boom/crash cycle must be small.
2) Can you really increase or decrease your spending by 10% on a year to year basis?  Do you want to?  If you book a world cruise for next year do you cancel it at say 6 months or less notice because G-K tells you that it is no longer affordable? Conversely if you are given 10% extra income for a year can you usefully spend it? Personally I am used to a particular standard of living.  Having to scrimp with my usual good wines would upset me whilst having extra income would not make me happier.  Stability of income is very important, especially as one ages.

What is G-K good for?
At some point you have to leap into the unknown and stop working.  After then you will have to make it work.  The purpose of planning as I see it is to give you the confidence to jump.  I was happy with a spreadsheet model based on what seemed to be pessimistic assumptions.  If a G-K model does that for you, fine.  But dont expect to actually use it.

GazzaBloom

Linton said:

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

I see no benefit in Guyton-Klingor as a strategy for actually managing your finances in retirement:
The data is dodgy:
1) SWR is a very misleading term - there is no guarantee of safety.  All there is is a demonstration that a given % withdrawal of initial pot increasing with inflation woulod have been sustainable  in barely 100% of cases in the 100-150 years up to the present.
2) It is based on US data in a time when the US was a rapidly expanding economy.  Most people in drawdown in the UK would or should be investing globally, largely in mature developed countries.
3) conditions were very different.  For example over half of all complete 30 year periods in 1884-2022 include at least one World War.
4) There is a lot of overlap in the data - there are only about 4 non-overlapping 30 year periods in the 1884-2022 time frame..

Dealing with reallity
1) After say 5 years your retirement pot could be sgnificantly larger or smaller than that driving the G-K model.  What do you do?  Carry on regardles in the confidence that an SWR means it will all work out in the end or recalculate your SWR?  The chances that you actually keep the same model through more than one boom/crash cycle must be small.
2) Can you really increase or decrease your spending by 10% on a year to year basis?  Do you want to?  If you book a world cruise for next year do you cancel it at say 6 months or less notice because G-K tells you that it is no longer affordable? Conversely if you are given 10% extra income for a year can you usefully spend it? Personally I am used to a particular standard of living.  Having to scrimp with my usual good wines would upset me whilst having extra income would not make me happier.  Stability of income is very important, especially as one ages.

What is G-K good for?
At some point you have to leap into the unknown and stop working.  After then you will have to make it work.  The purpose of planning as I see it is to give you the confidence to jump.  I was happy with a spreadsheet model based on what seemed to be pessimistic assumptions.  If a G-K model does that for you, fine.  But dont expect to actually use it.

Thanks for your views, it kind of aligns with my thoughts, I have used my own spreadsheet for cashflow planning for retirement and also created a plan in Timeline that allows you to switch on Guyton's rules which improved the percentage chance of success so it's this that has lead to me looking at them more closely.

All I'm really getting from my spreadsheet and Timeline is a level of confidence a ballpark pot that should see us OK and I think I have that ballpark in mind now. I do question how these would actually work out in practice hence my post.

A 10% drop in drawdown for us would only really mean a relatively small drop in our discretionary spending "pocket money allowance" after tax and my fixed income DB pension, so would be acceptable. Plus when the state pensions kick in, drawdown should drop off considerably, to less than 1% a year based on a fairly conservative growth, to meet our day to day annual living expenses.

Obviously, as this year has shown, who the hell knows what's going to happen each year? 

Also, GK doesn't appear to allow for use of a cash buffer where drawdown could be paused for a couple of years completely or reduced significantly if required. 

gm0

While I don't agree with all of @Linton points the sceptical sentiment is fair enough (about drawdown rulesets in general as much as GK specifically which is far from the worst (c.f. data both US and international from McClung Living off your Money)

However one thing worse than using a "backtested" albeit arbitrary ruleset like GK or Prime is customising said rule set and then not retesting it. Relying on it being "similar" - that's just not valid - even within the limited scope of comfort provided by backtesting with actual, stressed (looped) or entirely simulated markets (montecarlo). 
Which as has been said don't guarantee that the future isn't different from or worse than the past or any arbitrary simulation of doom you happen to come up with.  I can always whatabout you with something a bit worse than that.

People often find the arbitrary edges and tuned parameters of these rules difficult to initially accept.  Mathematically having been adjusted to located the "edge of worst case failure at MSWR 100% or some other value.   Over fitting to historic (not to be repeated ?) markets is clearly a real risk - over tuning to the sample.  So one of the tests McClung runs in his book is to shortlist possible approaches with market data set A.  And then having picked "well behaved" better than the rest examples - tests again on market data set B - exactly in order to see if the "correlation" is an illusion tuned to data set A or is more generally useful and generally well behaved.  No these international and US equity markets are not uncorrelated 100% so there is never an absolute free lunch.  But the simple "it's US only" critique doesn't fully stand up. It is however the biggest and most available data series so a lot of work is to be found out there which has this limitation and runs the risks described

Pat38493

GazzaBloom said:

Linton said:

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

I see no benefit in Guyton-Klingor as a strategy for actually managing your finances in retirement:
The data is dodgy:
1) SWR is a very misleading term - there is no guarantee of safety.  All there is is a demonstration that a given % withdrawal of initial pot increasing with inflation woulod have been sustainable  in barely 100% of cases in the 100-150 years up to the present.
2) It is based on US data in a time when the US was a rapidly expanding economy.  Most people in drawdown in the UK would or should be investing globally, largely in mature developed countries.
3) conditions were very different.  For example over half of all complete 30 year periods in 1884-2022 include at least one World War.
4) There is a lot of overlap in the data - there are only about 4 non-overlapping 30 year periods in the 1884-2022 time frame..

Dealing with reallity
1) After say 5 years your retirement pot could be sgnificantly larger or smaller than that driving the G-K model.  What do you do?  Carry on regardles in the confidence that an SWR means it will all work out in the end or recalculate your SWR?  The chances that you actually keep the same model through more than one boom/crash cycle must be small.
2) Can you really increase or decrease your spending by 10% on a year to year basis?  Do you want to?  If you book a world cruise for next year do you cancel it at say 6 months or less notice because G-K tells you that it is no longer affordable? Conversely if you are given 10% extra income for a year can you usefully spend it? Personally I am used to a particular standard of living.  Having to scrimp with my usual good wines would upset me whilst having extra income would not make me happier.  Stability of income is very important, especially as one ages.

What is G-K good for?
At some point you have to leap into the unknown and stop working.  After then you will have to make it work.  The purpose of planning as I see it is to give you the confidence to jump.  I was happy with a spreadsheet model based on what seemed to be pessimistic assumptions.  If a G-K model does that for you, fine.  But dont expect to actually use it.

Thanks for your views, it kind of aligns with my thoughts, I have used my own spreadsheet for cashflow planning for retirement and also created a plan in Timeline that allows you to switch on Guyton's rules which improved the percentage chance of success so it's this that has lead to me looking at them more closely.

All I'm really getting from my spreadsheet and Timeline is a level of confidence a ballpark pot that should see us OK and I think I have that ballpark in mind now. I do question how these would actually work out in practice hence my post.

A 10% drop in drawdown for us would only really mean a relatively small drop in our discretionary spending "pocket money allowance" after tax and my fixed income DB pension, so would be acceptable. Plus when the state pensions kick in, drawdown should drop off considerably, to less than 1% a year based on a fairly conservative growth, to meet our day to day annual living expenses.

Obviously, as this year has shown, who the hell knows what's going to happen each year? 

Also, GK doesn't appear to allow for use of a cash buffer where drawdown could be paused for a couple of years completely or reduced significantly if required. 

I have played about with Timeline quite a bit - I did find that those type of rules that you can apply seem to throw it for a wobbly if you have put in a combination of DC and DB benefits because in some scenarios your spending gets reduced to the DB amount and therefore never changes from that time on and you end up with x million according to Timeline but living on a pittance for most of your retirement.  Make sure to look at the cash flow graph for the median scenarios if you have such combinations as you may get 99% “success” but when you look at the cash flow your available spending is massively less than you assume.

Also there is very little transparency about how Timeline models these x hundred scenarios over x hundred years of history - I would hope that it somehow takes into account recent economic history in some of the models, but if so it obviously would have to loop back around to prior years somehow.

Also I guess since Timeline is quite a new tool there are very few satisfied deceased customers who have managed their full retirement based on it!

However it seems like quite a good tool as long as you pay attention to the different reports coming out of it and understand what it’s telling you.

GazzaBloom

Pat38493 said:

I have played about with Timeline quite a bit - I did find that those type of rules that you can apply seem to throw it for a wobbly if you have put in a combination of DC and DB benefits because in some scenarios your spending gets reduced to the DB amount and therefore never changes from that time on and you end up with x million according to Timeline but living on a pittance for most of your retirement.  Make sure to look at the cash flow graph for the median scenarios if you have such combinations as you may get 99% “success” but when you look at the cash flow your available spending is massively less than you assume.

Also there is very little transparency about how Timeline models these x hundred scenarios over x hundred years of history - I would hope that it somehow takes into account recent economic history in some of the models, but if so it obviously would have to loop back around to prior years somehow.

Also I guess since Timeline is quite a new tool there are very few satisfied deceased customers who have managed their full retirement based on it!

However it seems like quite a good tool as long as you pay attention to the different reports coming out of it and understand what it’s telling you.

I agree, Timeline is quite a comprehensive tool for forward planning, noted on the cashflow chart, I will look at it a bit closer as it's easy to just see the legacy prediction and think everything is peachy but there could be some lean years with cash running unacceptably low to sustain lifestyle mid way through. I also agree that some transparency on the modelling data used to back test would be helpful.

My biggest challenge may be a poor sequence of returns in the first 9 years until state pensions start to kick in....or early death should that occur sooner 

Using Timeline has certainly helped me frame my thinking of a ballpark pot that feels about right to sustain a retirement, no-one knows what the future holds and as is often quoted "no plan survives first contact with the enemy" so some flexibility will certainly be required when leaping into the dark.

BritishInvestor

GazzaBloom said:

Linton said:

GazzaBloom said:

BritishInvestor said:

GazzaBloom said:

Is anyone using the Guyton-Klinger rules for annual drawdown adjustments to their starting SWR? If so how is it working out?

• The withdrawal rule: Increase withdrawal in line with inflation in the previous years, unless the previous year’s portfolio total return was negative. 

• The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.

• The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.

• The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. 

Hopefully not

Why not? do you not see any benefit in them?

I see no benefit in Guyton-Klingor as a strategy for actually managing your finances in retirement:
The data is dodgy:
1) SWR is a very misleading term - there is no guarantee of safety.  All there is is a demonstration that a given % withdrawal of initial pot increasing with inflation woulod have been sustainable  in barely 100% of cases in the 100-150 years up to the present.
2) It is based on US data in a time when the US was a rapidly expanding economy.  Most people in drawdown in the UK would or should be investing globally, largely in mature developed countries.
3) conditions were very different.  For example over half of all complete 30 year periods in 1884-2022 include at least one World War.
4) There is a lot of overlap in the data - there are only about 4 non-overlapping 30 year periods in the 1884-2022 time frame..

Dealing with reallity
1) After say 5 years your retirement pot could be sgnificantly larger or smaller than that driving the G-K model.  What do you do?  Carry on regardles in the confidence that an SWR means it will all work out in the end or recalculate your SWR?  The chances that you actually keep the same model through more than one boom/crash cycle must be small.
2) Can you really increase or decrease your spending by 10% on a year to year basis?  Do you want to?  If you book a world cruise for next year do you cancel it at say 6 months or less notice because G-K tells you that it is no longer affordable? Conversely if you are given 10% extra income for a year can you usefully spend it? Personally I am used to a particular standard of living.  Having to scrimp with my usual good wines would upset me whilst having extra income would not make me happier.  Stability of income is very important, especially as one ages.

What is G-K good for?
At some point you have to leap into the unknown and stop working.  After then you will have to make it work.  The purpose of planning as I see it is to give you the confidence to jump.  I was happy with a spreadsheet model based on what seemed to be pessimistic assumptions.  If a G-K model does that for you, fine.  But dont expect to actually use it.

Thanks for your views, it kind of aligns with my thoughts, I have used my own spreadsheet for cashflow planning for retirement and also created a plan in Timeline that allows you to switch on Guyton's rules which improved the percentage chance of success so it's this that has lead to me looking at them more closely.

All I'm really getting from my spreadsheet and Timeline is a level of confidence a ballpark pot that should see us OK and I think I have that ballpark in mind now. I do question how these would actually work out in practice hence my post.

A 10% drop in drawdown for us would only really mean a relatively small drop in our discretionary spending "pocket money allowance" after tax and my fixed income DB pension, so would be acceptable. Plus when the state pensions kick in, drawdown should drop off considerably, to less than 1% a year based on a fairly conservative growth, to meet our day to day annual living expenses.

Obviously, as this year has shown, who the hell knows what's going to happen each year? 

Also, GK doesn't appear to allow for use of a cash buffer where drawdown could be paused for a couple of years completely or reduced significantly if required. 

"A 10% drop in drawdown for us would only really mean a relatively small drop in our discretionary spending "pocket money allowance" after tax and my fixed income DB pension, so would be acceptable."

The drop in real income in poor scenarios can be far more than 10%.

"Also, GK doesn't appear to allow for use of a cash buffer where drawdown could be paused for a couple of years completely or reduced significantly if required. "

Surely you'd include that cash buffer within your asset allocation and given that it would be the "least worst" perfoming asset during periods such as the 1970s, periodic withdrawals would be taken from there, leaving bonds and equities alone (at least until the cash buffer ran out).