Retirement Income Planning
From Score to Strategy: Why Guardrails Beat Probability of Success
Research from Income Lab reveals a fundamental flaw in how advisors communicate retirement risk — and the framework that Act Wealth Strategies uses to actually answer the question clients are asking.
Based on research by Income Lab · Justin Fitzpatrick & Derek Tharp, published via Kitces.com
Ask a retiree what they want from their financial plan and you will almost never hear: "I want to know the statistical likelihood my portfolio survives across 1,000 randomized return sequences." Yet that is precisely what most planning software delivers — a number called “Probability of Success” — and it is the primary metric more than 70% of financial advisors use today.
Income Lab’s foundational research argues this is not just suboptimal — it is fundamentally wrong. At Act Wealth Strategies, we agree. The alternative we employ, risk-based guardrails, replaces an abstract percentage with something far more useful: a plan.
The Problem With “Probability of Success”
Monte Carlo simulation works like this: run a portfolio through a thousand randomized return sequences, count how many survive to the end of the plan, and express the result as a percentage. An 85% probability of success means 850 out of 1,000 simulated scenarios did not deplete the portfolio. It sounds rigorous. In practice, it answers a question nobody is asking.
“When you call us after a 20% market decline, a probability score only tells you your odds went down. With guardrails, we can tell you exactly where your portfolio stands, how far it would need to fall before anything changes, and precisely what we would do together if it did.”
The deeper problem: a high probability of success often signals a client who is dramatically underspending. A plan at 95% probability is almost certainly one where the client will die with far more money than they hoped — meaning, in retrospect, they worked longer than necessary and skipped experiences they could have afforded. The metric creates anxiety in down markets and false conservatism in good ones.
The Employee Benefit Research Institute found that a majority of retirees do adjust spending in response to market conditions, yet standard probability-of-success models assume fixed spending throughout retirement. A planning metric that ignores how people actually behave is an academic exercise — not a plan.
What Act Wealth Strategies Delivers Instead
Risk-based guardrails replace the percentage with three specific pieces of information: how much you can spend right now (a dollar amount), what portfolio change would trigger an adjustment (upper and lower thresholds), and exactly how much the adjustment would be. Act Wealth Strategies uses a framework that incorporates the full financial picture — investments, Social Security timing, pensions, tax brackets, longevity, and inflation — and monitors it on an ongoing basis.
| Traditional: Probability of Success | Act Wealth Strategies: Risk-Based Guardrails |
|---|---|
| Returns a percentage score | Returns a specific dollar spending amount |
| Assumes fixed spending throughout retirement | Adapts to real-world cash flow patterns |
| Doesn’t reflect Social Security timing, Roth conversions, or other cash flow changes | Incorporates the full plan: pensions, Social Security, taxes, longevity |
| No pre-agreed adjustment triggers | Pre-defined upper and lower thresholds agreed in advance |
| Raises anxiety during market downturns | Ongoing monitoring — alerts when an adjustment is actually needed |
| Encourages systematic underspending at high confidence levels | Allows spending up in good years, measured cuts in bad ones |
The Adjustment Logic: Asymmetric by Design
One of the more counterintuitive elements of the guardrails framework is how it handles adjustments asymmetrically. When the portfolio grows enough to hit an upper guardrail — meaning underspending risk is now too high — the plan recommends restoring spending 100% of the way back to the original target. Clients should fully embrace good news and a more abundant life when the math supports it.
Downward adjustments are handled very differently. When a lower guardrail is hit, spending is reduced only 10% of the way toward the more conservative baseline. The reasoning is behavioral: if market reversion is likely, a large cut now may be followed by a reversal within months, creating unnecessary disruption. Clients consistently prefer small, incremental adjustments over one large correction — and the 10% step-down structure honors that preference while keeping the lower guardrail close enough to remain a meaningful signal.
Two Clients, Two Completely Different Conversations
Scenario A
Linda & Mark, both 66 — $1.4M portfolio, $4,200/month Social Security
|
Probability-Based Answer
91% chance of success at $8,500/month spending
|
Act Wealth Strategies Answer
$8,500/month — portfolio must fall 23% before any adjustment
|
When Linda asks: “What happens if the market crashes?”
| “Your probability drops to 71%.” | “Nothing changes until the portfolio falls 23%. Here’s exactly what we’d do if that happened.” |
Scenario B
David, 63 & Rachel, 61 — $1.8M portfolio, aggressive early-spending preference
They want to travel extensively in the first decade of retirement and are willing to accept more adjustment risk in exchange for higher initial spending.
Guardrails can be set to an aggressive spending posture. David and Rachel accept a higher probability of needing to adjust downward because they value spending more now. The tradeoff is explicit, quantified, and agreed upon before retirement begins — not discovered mid-crisis.
Why Withdrawal-Rate Guardrails Still Fall Short
Not all guardrails are created equal. The widely-used Guyton-Klinger framework uses portfolio withdrawal rates — rather than total plan risk — as its trigger. Research by Fitzpatrick, Tharp, Pfau, and others shows this approach has a significant flaw: it assumes steady withdrawal rates throughout retirement that rarely occur in practice.
Real retirement spending follows what researchers call the “retirement distribution hatchet” — high early withdrawals while waiting to claim Social Security, followed by a sharp drop at claim age, then gradual real-dollar declines as retirees age. Withdrawal-rate guardrails also cannot account for planned tax strategies like Roth conversions that temporarily inflate portfolio withdrawals. The result: Guyton-Klinger triggers cuts in response to short-term volatility and can overcorrect severely, leading to the same underspending problem as probability-of-success models — just arriving there by a different route.
Historical simulations during the Stagflation Era showed Guyton-Klinger producing real spending reductions of more than 50%. The risk-based guardrails framework used by Act Wealth Strategies incorporates the full plan — not only withdrawal rate — and is built to avoid that kind of overcorrection.
“This isn’t a small refinement to the way we plan for your retirement — it’s a fundamentally different and better class of answer. You deserve to know not just whether your plan might work, but exactly what we will do together at every turn.”
The GPS Analogy
A simple analogy captures why probability of success fails clients in practice. Imagine driving to a meeting across town and hitting traffic. Your GPS, instead of rerouting you or giving turn-by-turn directions, simply says: “The chance of reaching your destination is now 50%.” Not helpful.
Guardrails-based planning is the turn-by-turn navigation. It doesn’t eliminate uncertainty — traffic still exists. But it tells you exactly what to do at every decision point, including what conditions would require a different route and what that route looks like. The destination — a funded retirement — stays the same. The path adapts.
At Act Wealth Strategies, plans are monitored on an ongoing basis and clients are alerted when their plan crosses a guardrail threshold. Instead of watching a probability score decline during a downturn with no clear understanding of when to act, clients see a specific dollar threshold they have not yet reached — and a pre-agreed, dollar-denominated response ready if they do. For the question every retiree eventually asks — “What do we do if things go badly?” — that specificity is the most valuable thing a retirement plan can provide.
Sources: Income Lab (incomelaboratory.com); Fitzpatrick & Tharp, “Improving Retirement Distribution with Risk-Based Guardrails” (2021) and “Why Guyton-Klinger Guardrails Are Too Risky for Retirees” (2024), via Kitces.com; Morningstar “The State of Retirement Income: 2023”; Employee Benefit Research Institute; Financial Planning Association advisor survey; LIMRA retirement confidence study; PGIM / David Blanchett research on front-loaded retirement spending.