How To Use Retirement Income Guardrails To Keep From Running Out Of Money

Today, we're going to talk about income guardrails and how you might be able to use this as a tool to make sure that you don't run out of money in retirement. But before we start, I just wanted to introduce myself. My name is Warren Burger. I'm the owner of luminary financial advisors. We work with people that are nearing retirement or recently retired to help create a plan and then help them execute and stay on course throughout their retirement, really with an emphasis on saving money on taxes and retirement as well. So let's talk about income guardrails, and essentially in order to start the conversation, we we're going to go on the premise that you've already decided on what your withdrawal rate in retirement's going to be. And what that withdrawal rate is, is essentially the percentage of your investment accounts that you're going to plan on taking out each year.

And I have another video that discusses how to come up with that withdrawal rate. But for now, we're going to go on the the idea that you already have that withdrawal rate in place. And the income guardrails is essentially a way of having a dynamic distribution of your retirement funds throughout. In other words, what we're going to do is we're going to adapt to changing markets. So when you have a significant downturn in market, we might change the amount of income that you're taking in a year, just as when you were accumulating your assets and you, and you know, at different times in your life, you may have switched jobs. You may have lost a job. You adjusted your spending to make sure that you were still in line with what was coming in. And this is just a way for us to create a plan and be organized in the way that we're going to go about doing that.

So just like guardrails on the road, these are designed for times when your investment accounts may have changed enough that we're going to wanna recalibrate the course. The example that we use is a 20% change in your withdrawal rate is going to necessitate a change in the amount of income that you're going to be taking. So let me give you an example of that. So I hope this is right, but on your left, you should be seeing the example that we're going to use when markets go down and your investment account goes lower and we're going to make changes to the guardrails. In that example on the right, as an example of when markets go higher, we're going to adjust your income to a greater amount. So on the left hand side, we're going to start with an assumption that the person that we're dealing with has a million dollars in investible assets, and that we're going to be withdrawing starting out with an initial withdrawal rate of 5% of those invested assets per year, which would make for $50,000 per year. And that's going to be your income from your investments. Now we're going on the premise that you've already calculated what the appropriate withdrawal rate might be for this person. And that includes money that is coming from pensions, social security and things that are guaranteed income. So we have this $50,000 a year income. We have a year where the market has gone down to

830, 3000, which happens to coincide with the withdrawal rate increasing to 6%. So if the market was to go to $833,000, 50,000 a year worth of income would now represent 6% withdrawal rate. And so that would be a 20% increase in the withdrawal rate, and that's where our guardrails kick in. So in order to adjust for that change in what the markets have given us for our investment accounts, we're going to decrease your income by 10%, that guardrail gets triggered. We decrease the income by 10%, your annual income is going to go from $50,000 to $45,000. And we're just going to keep that in place until we see that the markets have come back, at which point we're going to be able to adjust back up to a level that's more appropriate, but all we've done in that situation has just been really cautious. And you can see, you know, that 20% change in the withdrawal rate.

You know, it's a big change from a million dollars to 830, $3,000. Now it's entirely possible. And we're not looking at that on a minute to minute basis. We're going to evaluate that once a year because markets can really go up and down within a year. But, you know, with within that year gauge, if we find ourselves in that position, let's be prudent, let's change the amount of income let's be dynamic in how we're spending. And it's really going to help ensure that we don't run outta money now on the other side of things. And this is the part that we, when this is when we really like to put the guardrails in place, or if the markets go up. So in this example, same million dollars invested. We're now looking at the market, going up to 1.2, 5 million. And in that case, that means our $50,000 a year has now decreased and is now 4% withdrawal rate based on that 1.2, 5 million.

And in that case, we're going to trigger the upper guardrail and we're going to increase your income by $5,000. Well, 10%. And in this case, it's $5,000. So now your new annual income is going to be $55,000. And so we're going to keep doing that and we'll do it from year to year to make sure, but we're always working off that initial 5% withdrawal rate, and that's what we're using to trigger guard rails. And then we can see if markets come back in the next year and we've triggered a down guardrail, we're just going to increase the income to accommodate the new levels that we're dealing with in the markets. So this is income guardrails. It's a pretty simple system. It does need to be monitored on a year by year basis, but it really helps to ensure that you are not going to run out of money in retirement. Now, I just wanna say, you know, not all of these solutions are right for everyone. So please make sure you're running this by your accountant or your financial advisor. You know, we don't want this to be specific advice for you, but more of an educational jumping off point for you to have more of a dialogue with somebody else that really does this on a regular basis. But by

Implementing these guardrails, you really stand a good chance of never being in a situation where you're running outta money. So I hope you find this helpful if you do, please subscribe to the channel. And you can like this video. Also, I have a number of resources below where number one, if you'd like you can schedule an appointment with me to have a complimentary discussion about your financial situation and whether it's working with me or not. I'll, I'll definitely make sure that you're getting put on the right track. And then I have a number of free resources that can help you with different aspects of your retirement. You welcome to go there, download them. I don't ask for your email. It's it's a pretty easy process. So thanks for listening. And I hope to see you again,