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If you’re preparing for retirement, or you’re already there, you’ve probably heard the ongoing debate: Should you follow the 4% rule or the guardrails strategy when withdrawing from your investments?
For many retirees, these frameworks offer simple guardrails: Withdraw a steady percentage, adjust as markets move and hope the math works over a few decades.
But if you’re part of the 2% Club — those with pensions who have saved $1 million or more (I wrote a bestselling book just for you; you can request a free copy here), I’ll give you the bottom line up front: You may need a different income strategy in retirement.
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A pension means you’re already following the 4% rule (without realizing it)
- $1 million portfolio × 4% = $40,000 annual withdrawal
But if you have a $40,000 pension, you already have the income the 4% rule was meant to provide, except yours is guaranteed for life. Your pension (and likely your Social Security) covers your essentials, your “paychecks,” while your investments become optional money or “playcheck” money, as we call it.
This is why the 4% rule is simply too restrictive for most pension holders. They can enjoy more flexibility with their spending from their investments, knowing they have their pension to fall back on.
Why guardrails don’t fit a pension-based retirement
Guardrails adjust your withdrawals depending on market performance. But here’s the problem: As mentioned, most pension retirees aren’t taking systematic withdrawals in the first place. Their pension and their Social Security benefits cover the bills. Their investment withdrawals are for:
- Travel
- Large purchases (RV, boat, home upgrades)
- Helping kids or grandkids
- Giving to charity
- Funding Roth IRAs for adult children
- One-time big goals
The guardrails model doesn’t adjust for a year where you want to spend $80,000 on an RV or, like one recent client, $600,000 on an airplane. The algorithm simply wasn’t designed for real-life flexibility.
The right strategy for the 2% Club: Tailored income planning
People with pensions face a unique set of questions. It’s not “Will I run out of money?” but “Will I run out of life?” What this means is that they are looking for ways not to regret decisions on how they use their investments for income.
One client of ours once told me, “I do not want to regret not taking the trips or spending time with my loved ones in my 80s.”
We hear that often, and it is why we encourage clients in the 2% Club who have “financial freedom” to spend responsibly, but do not go without the things or experiences that they have more than enough money to afford.
You may want to spend more in the early years of retirement, called the “go-go” years, when you’re healthier and more active. You may want to leave a legacy for your family or gift or give during your lifetime. A pension gives you flexibility that these traditional investing frameworks do not account for.
What are your goals for the money? This determines everything. For example:
- Leave money to your kids or a charity? You may want a more conservative spending plan.
- Maximize experiences while you’re healthy? A higher early-withdrawal rate can make sense.
- Prepare for the widow’s penalty? You may want a tax-efficient plan to protect the surviving spouse.
- Never plan to spend your investments at all? You may be positioned for more growth since your pension covers income needs.
The right income strategy starts with your purpose, not a percentage rule or a cookie-cutter approach.
What’s the best way to handle large irregular expenses? This is where pension retirees differ most. A standard rules-based strategy can’t help you figure out:
- How to withdraw large amounts without triggering a massive tax bill
- Which accounts to pull from
- How many years to spread the withdrawals over
- How to avoid selling investments that are temporarily down
- How to take advantage of the One Big Beautiful Bill‘s lower tax rates while they last
In many cases, the question isn’t, “Do I have enough?” It’s, “What’s the most efficient way to do this?”
The paycheck, playcheck and future money framework
For the 2% Club, a more practical and realistic approach is dividing retirement assets into three clear buckets:
1. Paychecks
Guaranteed income covering your essentials. This includes:
This is the foundation.
2. Playchecks
Money you want to spend on experiences, fun, travel, gifts, upgrades or bucket-list items. This is where flexibility matters most.
3. Future money
The assets you probably won’t spend. This is where strategies such as the following come into play:
Once everything is categorized, retirees can clearly see what they can spend and enjoy now, vs what they should preserve for later.
Final thoughts
If you’re part of the 2% Club, your retirement income plan should be as unique as your financial situation. You’ve already done the hard work. Now the question is how to maximize the freedom you’ve earned.
You don’t need a “rule” — you need a plan.
