Guardrails, Not Guesstimates: A Smarter Way to Manage Your Retirement Income
Many engineers work longer than they need to, not because they love their jobs, but because their spreadsheets “said so”. If you’re like most engineers approaching retirement, you’ve probably built at least one spreadsheet for your own feasibility study… maybe even a beautiful one. It tallies your investments, estimates growth rates, accounts for inflation, and tries to answer the big question: CAN WE AFFORD TO RETIRE?
Spreadsheets are a great starting point. But they usually rely on static assumptions, linear returns, and fixed spending. One scenario at a time. Change one input and the whole outcome shifts, not to mention all the latent variables and those that are virtually impossible to quantify—political unrest; a global pandemic; or future tax policy changes just to name a few. It’s a fragile way to make a lifelong decision.
To improve upon the limitations of spreadsheeting, many financial planners rely on Monte Carlo projections. This works by running your retirement plan, many known variable along with many more unknown (guessed) variables, through thousands of market scenarios. Then it calculates what percentage of those outcomes allow your money to last for the rest of your life. The results may read something like: “Your plan has an 87% chance of success.” This may sound like a weather forecast because it uses similar modeling.
Extending the weather forecast metaphor, lets assume that our future outlook predicts a 13% chance of rain (aka retirement failure or 87% chance of blue sky success). That forecast is based on satellite imagery, past climate data, and complex models. But it doesn’t tell you whether to cancel your hike, bring an umbrella, or wear a rain jacket. It’s informative, but not actionable. Similarly, your monte carlo success rate prediction of 87% is based on thousands of market paths and hundreds of assumptions, but it doesn’t tell you whether you can book a $12,000 trip to Italy; help your daughter with a down payment; or retire 3 years earlier than your spreadsheets predicted. The number is abstract. It doesn’t translate directly into a decision. And, like the weather prediction, can change day-to-day or even more frequently.
Optimistic Probability Average through Monte Carlo Simulation
Pessimistic Probability Average through Monte Carlo Simulation
During your working years (accumulation phase), a number like this can be incredibly motivating. Every wise financial decision— boosting your savings rate; reducing expenses, or investing consistently— will likely increase your probability of success projection. It feels like progress. And it is. But that same metric can become a source of anxiety once you retire or even begin to consider retirement within 5 years or so because it is just a metric, not a decision support system.
A Smarter Approach: GUARDRAILS
Imagine an engineer with a $2 million nest egg, a pension, and some rental income. With with ongoing monitoring and moderate income risk tolerance, their guardrails might look might look something like:
Spend up to $18,000 per month;
If the portfolio drops 25% to $1,495,000, consider reducing monthly spending by $800/mo (-4%);
But, if the portfolio grows 6% to $2,125,000, we would consider increasing monthly spending by $1,000 totalling $19,000/mo (+5%).
No guesswork. No panic. Just clarity.
We can’t predict the future with any accuracy without causing a temporal paradox (yes, we are also sci-fi nerds), so we rely on historical scenarios to fill in variables for forward-looking analysis. Of course, past performance is not indicative of future returns, but you have to start somewhere in a multivariable equation and since we monitor progress very frequently, those assumed variables don’t have as much influence as they would in long-term monte carlo projections.
Retirement using our guardrail system isn’t a fixed route. It’s more like a GPS-guided road trip. You don’t need to know every turn in advance—you just need a reliable system that keeps you headed in the right direction and adjusts when needed. Using the same guardrails from above and then assuming you started your retirement in 1975, right in the middle of one of the worst times imaginable in recent history, the Stagflation Era (1968-1982), then continue for the next 37 years.
At Five Cedars, we use a retirement income guardrail strategy that creates a responsive plan. One that is actionable and built to adjust with reality instead of forecasting a single feasibility. We define clear thresholds and predictable corrective actions. If your portfolio rises above a certain level, you get the green light to increase spending. If it drops below a certain point, we make a small spending reduction to stay on course. These rules are set ahead of time so that you don’t have to guess what to do in the moment.
Our retirement guardrails function as your financial GPS while navigating your journey through financial independence (aka retirement). Your destination is clear, but conditions may change. Traffic builds. Construction closes a route. You decide to take a detour to try a local restaurant or check out a neighborhood. The GPS doesn’t panic. It recalculates based on new constraints, gives you a new arrival time, and tells you what to do next. That visibility gives you confidence. You can be spontaneous and enjoy the journey without second-guessing every little twist and turn. Guardrails allow you the flexibility to spend when life invites it (travel, family, a new hobby) because you’re operating with guardrails, not guesstimates.
That’s what we build at Five Cedars. Not a single forecast, but a responsive plan. One that gives you room to live fully and spend wisely. And if it turns out you could retire two years earlier than planned? All the better. You don’t have to. But it’s good to know you could.
Ready to see what your retirement looks like with guardrails?
