• Implementing Retirement Income Guardrails To Facilitate (The Right) Spending Raises And Spending Cuts
• Why Most Retirees Will Never Draw Down Their Retirement Portfolio
• Americans Are Retiring Later: Will This Trend Last
• Working Longer, Retiring Later
• A Review of Existing Measures of Retirement Well-being
• The Flexible Spending Strategies
• About 1 in 4 U.S. Adults 50 and Older Who Aren’t Yet Retired Expect to Never Retire
• Some Americans Who Plan to Retire Say They’ll Leave the Workforce Early
• Inflation Concerns Hit Americans’ Confidence About Retirement
• 2024 Retirement Confidence Survey

Welcome to the Stay Wealthy Podcast, I’m your host, Taylor Schulte, and today I’m tackling what might be the most expensive lie you’ve ever told yourself: “I’ll just work a few more years.”

This seemingly innocent backup plan has become the default solution for millions of Americans worried about their retirement savings.

But what if delaying retirement is actually one of the riskiest financial decisions you could make?

To view the research and articles supporting today’s episode, just head over to youstaywealthy.com/241.

The Retirement Confidence Crisis

According to recent studies, nearly 1 in 4 Americans expect to retire later than they planned just one year ago. Even more concerning, about 10% don’t believe they’ll ever be able to retire at all.

A recent Fidelity study highlighted a more pronounced decline, noting that only 67% of Americans expressed confidence in their retirement plans, down from 74% in 2024.

The reasons behind this retirement confidence crisis are unique to each person, but they are largely about fear. Fear of recessions, fear of running out of money, fear of not being able to afford the ideal retirement. And then market volatility comes along and throws gasoline on these fears, causing many to second-guess their plans and determine they need to work longer.

In other words, when markets swing unpredictably, it doesn’t just affect portfolio values—it affects major life decisions. For many, delaying retirement seems like the safest option, but it comes with hidden costs that are rarely discussed. For example, it’s well documented that extended careers can lead to increased stress, a decline in health, and lower job satisfaction. What starts as a financial safety net can turn into a trap that significantly diminishes your quality of life.

The psychological toll of delayed retirement is just as significant. In fact, workers who delay retirement often struggle with anxiety, feelings of inadequacy, and a loss of control over their future.

Retirement isn’t just an economic milestone—it’s a personal one. When people are forced to keep working—or convince themselves they have to continue working—they can feel stuck in roles that no longer fulfill them, leading to frustration and disengagement.

There’s also a practical reality that many don’t consider: transitioning into retirement becomes harder the longer it’s postponed. For example, workers who retire later have less time to adjust to a life without consistency and structure. Social circles shrink, energy levels decline, and the sudden shift from a career to open-ended time can be jarring.

The irony here is striking—by trying to secure their financial future, many people risk compromising the very years they’re trying to protect.

Understanding the hidden emotional and psychological costs of working longer is crucial. But the best question to be asking isn’t how much money you need to retire—it’s how much you can actually spend in retirement.

Before we get into how to answer that question properly, let’s briefly touch on the retirement spending dilemma and why retirement confidence might be lower than it needs to be.

The Retirement Spending Dilemma

It’s widely evident that most people worry about running out of money; however, the data shows most retirees actually end their lives with far more wealth than they started retirement with.

The financial industry often feeds this fear by pushing oversimplified spending strategies like the 4% rule, which can create unnecessary anxiety about “having enough” and convince people to work longer than they need to.

Let me break down why the 4% rule is misleading.

To start, academic research analyzing thousands of retirement scenarios dating back to the 1920s found that two-thirds of retirees following the 4% rule more than doubled their initial savings after 30 years of retirement spending. The median retiree ended their 30-year retirement with almost 3x their starting wealth, and, even crazier, one in six retirees ended with 5x their original nest egg.

The reality is that, historically, retirees following this popular spending rule were far more likely to die with a massive surplus than to run out of money. And this is primarily due to the 4% rule being designed to survive the worst economic conditions in history, like the Great Depression or the 1970s. In other words, it was built for catastrophe, not typical market conditions, yet the financial media keeps presenting the 4% rule as the gold standard, ignoring its well-documented flaws. This has created what researchers call a “consumption gap” – where retirees dramatically underspend compared to what their portfolios can actually support.

And this gap is understandable—the fear of running out of money is so widespread and powerful that people will sacrifice their golden years to protect against worst-case scenarios. Ironically, this conservative approach often backfires. In addition to ending life with a pile of unused money, retirees who follow the 4% rule have, historically, faced higher retirement tax bills due to required minimum distributions on oversized portfolios. They also miss opportunities to enjoy their money while they’re young and healthy enough to travel or pursue passions.

On top of it all, rigid withdrawal strategies ignore real-life spending patterns. For example, most retirees don’t spend uniformly every year – they typically spend (or want to spend) more in early retirement and then less as they age.

Fixed spending rules like the 4% rule don’t adapt to these common patterns…

They also don’t adjust to different market conditions. For example, when markets drop, retirees using a fixed withdrawal strategy might need to sell more of their investments at lower prices to fund their expenses. Conversely, in strong markets, they miss chances to withdraw and spend more money when their portfolio value is higher.

This lack of flexibility can cost people years of their retirement. As previously noted, nearly 25% of workers now plan to delay retirement due to financial fears, with many fixated on arbitrary savings targets or popular “rules of thumb.” But the research reveals that many people could likely retire earlier if they used a more flexible spending strategy that reduces risk and maximizes income rather than clinging to worst-case scenarios and outdated rules.

So, fundamentally, what does a strategy like that look like?

What “Good” Looks Like

For starters, it doesn’t lock you into rigid rules—it adapts. And recent market volatility reminds us why flexibility matters more than fixed formulas. Because, when major asset classes fall, the 4% rule directs retirees to withdraw the same scheduled amount, which can lead to selling more investments at a loss. Meanwhile, those with dynamic or flexible withdrawal strategies have a little more flexibility: in some cases, they might be able to spend from their properly designed war chest, avoiding the need to sell investments that have gone down. In other cases, they might temporarily reduce their withdrawal rate to preserve capital in the short term and maximize income in the long term. Over long periods of time, the difference in retirement success and confidence can be significant.

And what I love about flexible withdrawal strategies is that they recognize that retirement spending naturally fluctuates. As noted earlier, retirees typically spend more in early retirement—often 20% more than before they retired—on travel, hobbies, and family experiences. Spending then declines in the mid-70s before rising again due to healthcare costs.

A properly implemented flexible withdrawal strategy accounts for these real-world patterns rather than forcing equal annual withdrawals. It also adjusts for market performance, allowing more spending in good markets while preserving capital during downturns.

As a result, this approach to retirement spending can significantly reduce sequence risk—the danger of poor market performance in early years of retirement depleting your nest egg. In fact, research published by Wade Pfau concludes that retirees using flexible withdrawal rules have 30% higher success rates than those following rigid formulas.

The psychological benefits are well-documented and valuable, too. According to a Vanguard study, when retirees know their spending plan adjusts automatically to market conditions, they report feeling 45% more confident about their financial security.

This boost in confidence isn’t anything to overlook, as it directly impacts retirement timing decisions. In fact, it was found that people adopting flexible spending strategies retire 2-3 years earlier on average than those using fixed or static withdrawal rules like the 4% rule. The certainty of having pre-determined guardrails in place reduces the perceived need to keep working “just in case.”

And, surprisingly, flexible strategies don’t mean dramatic lifestyle cuts during market downturns. Most only require reducing discretionary spending by 5-15% temporarily, which might mean skipping a vacation or delaying a car purchase rather than slashing essentials.

Conversely, in strong markets, flexible strategies allow healthy spending increases while still maintaining the long-term safety of the plan.

This balanced approach prevents both underspending (leaving a pile of money behind) and overspending (risking depletion). Said differently, a flexible, balanced approach gives retirees the confidence to spend the money they worked so hard to save. And that’s exactly what MIT concluded – They tracked 1,200 retirees using flexible withdrawal strategies and found that they had 22% higher lifetime spending while maintaining the same probability of portfolio survival.

One specific approach that embodies this flexible spending philosophy is called the Guardrails Strategy, and it’s significantly improving how people think about retirement income.

It’s also helping to solve the retirement spending challenge by creating automatic withdrawal adjustments based on your portfolio’s performance.

The Retirement Guardrails Strategy Explained

Here’s a simplified explanation for how it works in practice: You enter into retirement with a baseline withdrawal rate, typically around 5.4% for portfolios with at least 65% stocks.

From there, if your annual withdrawal rate is ever more than 20% of your starting baseline rate, you’ll need to cut your withdrawal amount by 10%. If the withdrawal rate is ever less than 20% of the starting baseline rate, you get to increase your withdrawal amount by 10%.

Let me make a little more sense out of this by sharing an example in dollar terms.

Let’s assume you just retired with a $3M portfolio invested in 65% global stocks and 35% cash and bonds.

Following the Guardrails strategy, your first annual withdrawal would be $162,000, representing a 5.4% withdrawal rate.

But, unfortunately, toward the end of year one, the market hits a rough patch, and your portfolio value drops to $2.4M as you head into year two. If you took another $162,000 withdrawal in year two, your withdrawal rate would now be 6.75% (that’s $162,000 divided by $2.4M).

Since 6.75% is more than 20% higher than your initial 5.4% baseline rate, you would need to reduce your withdrawal amount by 10%, dropping your retirement paycheck by $145,800 in year two, a $16,200 reduction.

Although this pay cut is noticeable, you might notice that your withdrawal rate is still well above the overly conservative 4% rule.

And this formula works the other way around, too.

For example, let’s rewind and say that the market actually skyrockets during the first year of your retirement, and your portfolio value increases to $3.9M.

If you took another $162,000 withdrawal in year two from your $3.9M portfolio, your withdrawal rate would be 4.15% (that’s $162,000 divided by $3.9M).

Because this new withdrawal rate is more than 20% lower than your original 5.4%, you can increase your withdrawal in year two by 10%, bumping your retirement paycheck up to $178,000.

This dynamic strategy needs to be recalculated quarterly or annually to ensure that portfolio withdrawals always stay within the pre-established guardrails through all market cycles.

I briefly alluded to it earlier, but one important requirement for implementing this strategy correctly is creating and maintaining a proper “war chest” of cash and bonds, allowing you to cover several years of expenses when markets get rocky. During significant market declines, the rules will dictate that you spend from your war chest rather than selling securities with dramatic losses. Then, as the markets turn around and your portfolio recovers, the rules will guide you to systematically replenish your war chest by trimming stock gains.

This is one of a dozen nuances and rules that are required to enjoy the benefits of this strategy, which leads to the main drawback: complexity.

A flexible withdrawal strategy like Guardrails requires careful implementation, strict adherence to the rules, and ongoing monitoring. However, its ability to provide a higher starting withdrawal rate in retirement, while mitigating the chances of running out of money, highlights why it can help address the retirement confidence crisis. For those willing to trade overly-simplified fixed withdrawals for flexibility and adaptability, the guardrails strategy provides a mathematically sound way to retire on your terms and enjoy the money you worked so hard to save.

Conclusion

Hopefully, you now see why “I’ll just work a few more years” might be your most expensive lie. The financial cost of convincing yourself that you need to work longer often pales compared to what you lose in health, freedom, and irreplaceable time.

And now that you understand why retiring too late can be as financially and emotionally damaging as retiring too early, you can make a more informed decision about your own retirement timing.

You can also make a more informed decision about choosing a withdrawal strategy that aligns with your desires, needs, goals, and philosophy.

The guardrails approach is just one of many viable solutions. What is most important when turning your nest egg into a retirement paycheck is that you follow a rules-based, systematic approach supported by evidence and research.

Buying a few random low-cost index funds and blindly taking withdrawals from any investment account at any time without consideration for any other factors can be a recipe for disaster.

You could be triggering unnecessary taxes and fees, reducing your rates of return, or even worse, putting yourself at risk of running out of money.

So choose the strategy and approach that works best for you, one that you can understand and you can commit to implementing, and stick with it through the end of your retirement.

If you want to learn more about how my firm can help you create a retirement income plan using the Guardrails strategy, follow the link in the episode description or visit freeretirementassessment.com.

Once again, to view the articles and research referenced in today’s episode, just head over to youstaywealthy.com/241