The traditional **4% rule** assumes you increase your spending every year by inflation, regardless of how the stock market performs. While simple, this rigid strategy increases the risk of portfolio depletion during prolonged bear markets.
What are Dynamic Spending Rules?
Dynamic spending rules adjust your annual withdrawals based on market performance. One of the most famous models is the **Guyton-Klinger Guardrails**, which establishes rules to increase or decrease spending:
- Capital Preservation Rule: If your withdrawal rate rises 20% above your starting rate due to market drops, reduce your spending by 10%.
- Prosperity Rule: If your withdrawal rate drops 20% below your starting rate due to market gains, increase your spending by 10%.
This flexible approach significantly reduces the risk of running out of money and allows you to spend more during bull markets.
Guardrails vs Flat 4% Simulator
Ending Balance (Flat 4% Rule):
$0
Ending Balance (Dynamic Rule):
$0