Guyton-Klinger is a withdrawal strategy that aims to maximize portfolio longevity. You can think of it as a modified Constant Dollar strategy.
What makes Guyton-Klinger different from Constant Dollar are what are called the three Decision Rules. These rules adjust how much you withdraw each year based on how the market is performing, and how much money remains in your portfolio.
One of the rules determines whether or not you should adjust your withdrawal rate for inflation in a given year. The other two rules increase or decrease your withdrawal based on the health of your portfolio.
Because of these Decision Rules, Guyton-Klinger is one of the most complicated withdrawal strategies.
- It responds to market conditions, increasing risk of success by reducing spending when the market is performing poorly and increasing spending when the market does well.
- It responds smoothly to market conditions, so that year-after-year changes to your withdrawal are small, unlike the Percentage of Portfolio strategy
- It has a low likelihood of exhausting your portfolio, even over long retirement lengths.
- Like all withdrawal strategies that vary based on market conditions, annual withdrawals can become too low without a minimum withdrawal in place.
- The Decision Rules make calculating yearly withdrawals quite complex.