Planning for retirement can feel like trying to hit a moving target. Markets go up, markets go down, and the financial industry sometimes focuses too much on saving and growing money instead of on best to withdraw it. That’s why it can be hard to know exactly how much you can safely spend without running the risk of running out of money. That’s why we use a strategy called the BFG Modified Guardrail Strategy – a smarter, more flexible way to manage retirement income.

What is a Guardrail Strategy?

Imagine your retirement spending plan is like driving down a winding mountain road. Guardrails on either side help keep you from veering too far off course. In the same way, this strategy sets “guardrails” for your spending – helping you adjust your withdrawals based on how your portfolio performs over time.

How It Works

We start with a solid plan: we design your retirement income to have an 83% chance of success. That means, based on thousands of possible market simulations (via a tool called Monte Carlo analysis), you have a high likelihood of your money lasting throughout retirement.

But rather than set your spending in stone, we allow for flexibility based on how your portfolio is doing each year.

• If your investments do better than expected and your portfolio grows to the point you now have a 95% chance of success, then that’s a green light to safely increase your spending. You can increase your spending to the point that your probability of success is back down to the target of 83%. Don’t worry, we can help you do the math to determine what this means in dollars for your specific situation!
• If your investments underperform and your portfolio shrinks to the point you have only a 70% chance of success, then it is time to reduce your spending. Again, temporarily reduce your spending down to the point that your probability of success is back to the target of 83%.

Every year, we review your portfolio and update these numbers to keep up with inflation and changes in the market. When we work with clients, we don’t just give them the chances of success. We give them the dollar values that will trigger a spending change and the amount of the spending change. Ex. Your current portfolio is $1.5 million. If the value drops to X, then you’ll need to reduce your spending to Y.

Why is This Better Than a Fixed Withdrawal Plan?

Many retirement strategies suggest withdrawing a fixed percentage of your portfolio each year. But this ignores the reality that markets don’t move in straight lines, and neither should your income. The guardrail strategy gives you the confidence to spend more when times are good and the wisdom to pull back when needed.

It’s not about reacting emotionally to the market. It’s about having a disciplined, risk-aware system that helps ensure your retirement income is sustainable for the long haul.

Final Thoughts

Retirement is too important to leave to guesswork. By using the BFG Modified Guardrail Strategy to determine your spending, we can give you a spending plan that is flexible, responsive, and grounded in data – not just hope.

If you have questions about how this strategy would work in your retirement plan, let’s talk. We’re here to help you drive that mountain road with guardrails in place – so you can enjoy the journey.