3 Retirement Withdrawal Strategies to Know: Guardrail, Total Return, and Bucketing Methods

Introduction

Planning for a secure and comfortable retirement requires a well-thought-out withdrawal strategy. While accumulating wealth is essential, how you withdraw from your retirement savings determines whether your funds will last throughout your lifetime. Three of the most effective retirement withdrawal methods are the guardrail method, total return method, and bucketing method. Each strategy offers unique benefits, depending on your financial goals, risk tolerance, and spending needs.

In this article, we’ll walk through these three strategies, helping you understand the benefits and differences between each method.

The Guardrail Method

The guardrail method is a dynamic withdrawal strategy designed to adjust spending based on market performance. Developed by financial planner Guyton-Klinger, this method allows retirees to increase or decrease their withdrawals depending on portfolio performance, thereby reducing the risk of prematurely depleting their savings.

How it Works

The guardrail method works by setting predetermined spending limits. If the portfolio performs well, retirees can withdraw slightly more, enjoying a better quality of life. However, if the portfolio declines beyond a set threshold, withdrawals are reduced to preserve capital. This method offers a structured yet flexible approach to retirement spending.

Benefits of the Guardrail Method:

1. Flexible Adjustments – Unlike static withdrawal rates, the guardrail method allows retirees to increase spending during strong market years and decrease withdrawals during downturns, helping to sustain their portfolio.
2. Longevity Protection – By adjusting withdrawals based on market trends, this method helps protect against outliving your savings.
3. Behavioral Advantages – Having predefined guardrails keeps retirees from making emotional financial decisions, such as overspending in bull markets or underspending in bear markets.
4. Reduces Sequence of Returns Risk – Since retirees adjust withdrawals in response to market downturns, they mitigate the risk of depleting assets early due to poor initial investment performance.

To dive deeper into the guardrail method, check out this article to see an example of adopting the guardrail method in retirement.

The Total Return Method

The total return method focuses on maintaining a diversified investment portfolio and withdrawing a fixed percentage based on total portfolio value. This method prioritizes overall portfolio growth rather than segregating assets into income and principal.

How it Works

Retirees utilizing the total return method withdraw funds based on a fixed percentage of their portfolio each year. The portfolio typically consists of a mix of stocks, bonds, and other assets to optimize growth. This approach ensures that withdrawals are proportional to the portfolio’s performance, preventing excessive depletion of assets during market downturns.

Benefits of the Total Return Method:

1. Maximized Growth Potential – With a diversified portfolio that includes stocks, bonds, and other assets, retirees can potentially achieve higher returns over time.
2. Simplicity and Efficiency – Since it relies on overall asset performance, retirees don’t have to worry about segmenting funds into different categories.
3. Sustained Spending Power – This strategy enables retirees to enjoy a steady withdrawal rate while maintaining their portfolio’s long-term value.
4. Inflation Protection – By incorporating equities, which historically outpace inflation, retirees can ensure that their purchasing power remains intact.
5. Tax Efficiency – This method allows retirees to manage tax obligations effectively by strategically withdrawing from taxable, tax-deferred, and tax-free accounts.

To learn more about the total return method, consider reading this article.

The Bucketing Method

The bucketing method (also known as the time-segmented strategy) involves dividing retirement savings into multiple buckets, each with a different time horizon and risk level. Typically, retirees have three buckets:

1. Short-Term Bucket (1-3 years) – Holds cash and cash equivalents to cover near-term expenses.
2. Medium-Term Bucket (3-10 years) – Includes bonds and conservative investments to provide moderate growth.
3. Long-Term Bucket (10+ years) – Contains stocks and higher-growth investments to sustain long-term spending needs.

How it Works

Retirees withdraw funds from the short-term bucket for immediate expenses while allowing the medium- and long-term buckets to grow. During strong market periods, they replenish the short-term bucket by selling assets from higher-growth buckets. This ensures that retirees have a buffer against market downturns and do not have to sell stocks when prices are low.

Benefits of the Bucketing Method:

1. Psychological Comfort – Retirees feel reassured knowing they have liquid funds available for immediate needs, reducing stress during market downturns.
2. Market Volatility Protection – By drawing from lower-risk buckets in bear markets, retirees avoid selling growth assets at depressed prices.
3. Customizable and Adaptive – This strategy can be tailored to individual risk tolerance and financial goals.
4. Reduced Sequence Risk – By using cash reserves during market downturns, retirees avoid withdrawing from equities at the worst possible time.
5. Better Budgeting – With funds categorized by purpose and time horizon, retirees can plan expenditures more effectively.

For a more detailed breakdown of this strategy, check out this article on the bucketing method.

Choosing the Right Strategy

Selecting the best withdrawal strategy depends on your personal circumstances, risk tolerance, and retirement objectives. Below are some key considerations:

• If you value flexibility and are comfortable adjusting your withdrawals based on market conditions, the guardrail method could be a good fit.
• If you prefer a growth-focused approach with steady withdrawals, the total return method could be the best fit.
• If you want to segregate your funds based on time horizons to mitigate market risk, the bucketing method offers structured security.
• If you want a hybrid approach, combining elements of different strategies may offer better security and growth potential.

Additionally, many retirees use a hybrid approach, blending elements of these methods to create a more personalized retirement income plan.

Final Thoughts

A well-planned retirement withdrawal strategy can significantly impact your financial security and lifestyle in retirement. Whether you choose the guardrail method, total return method, or bucketing method, each strategy provides distinct advantages to help manage risk, optimize income, and ensure long-term sustainability.

Most advisors view retirement as the end-zone, but at Abri, we understand that retirement is half-time. If you are approaching retirement, consider consulting an Abri advisor to tailor a strategy so you can take control of your retirement planning and enjoy a financially secure future.