Withdrawal Rate

The rate that can be sustained depends on the horizon, the asset mix, the valuations at retirement and how much the spending can flex. A 4% rate calibrated to a 30-year retirement is a different proposition over 45 years, which is the case for anyone retiring in their forties.

Fixed and dynamic rules differ in where they place the risk. A fixed real withdrawal holds spending constant and lets the portfolio absorb everything, which is what makes early poor returns so damaging. Dynamic rules move some of that variability into spending instead.

Guyton and Klinger formalized one such approach in 2006 using guardrails: the withdrawal is adjusted when the current rate drifts a set distance from its starting point, cutting after portfolio declines and raising after gains. Promi implements these rules, and the tradeoff they make is explicit, since a higher initial rate is purchased with the possibility of a reduction later.