Choosing your strategy: criteria, comparison, worked case

Nine articles took the rules apart one at a time, and a tenth replayed them side by side on three retirements that actually happened (Seven ways to live on one portfolio). What is left is the decision. It is less technical than it looks from here. Good modern rules, properly set, land closer together than you fear. The gap between two good rules is almost always smaller than the one an input error opens: spending underestimated, a pension forgotten (The ten mistakes that wreck a FIRE plan).

But "close" is not "identical". Rules differ in the shape of the risk they make you live with, and in what they demand of whoever runs them. That is where the choice is settled: temperament, the floor, governance. This article walks the whole decision procedure: the five steps in order, the profile-to-rule matrix, the hybrids worth having, the summary table for the part, and one case run end to end in a simulator. The most useful of those hybrids is also the most overlooked: a different rule for each phase of the plan. The judging criteria themselves are set elsewhere, from the 5th percentile you read instead of the average to what regret and robustness are worth (Deciding under uncertainty: utility, Kelly, regret, and robust choices).

By the end you will have a rule that is written down, calibrated and tested: yours.

Step 1: the base, before any rule§

No rule can be chosen without three settled numbers (How much you need): the floor (the spending you can hold for five years, morale included), comfort (the life you are aiming at), and how much of the floor is covered from outside the portfolio, meaning a pension discounted to its start date, annuities and other near-certain income (Annuities and safety first: buying a floor; for what the US system actually promises, US health coverage and Social Security: the two ends of the gap). The ratio that decides everything fits in one question. What share of the floor does the portfolio have to fund, and for how many years (the uncovered phase, Horizon, life expectancy, and 50-year retirements)? Everything else follows from it. A floor 80% covered by guaranteed income opens every rule, even the most variable ones. A floor funded 100% by the portfolio for twenty years closes half of them.

Step 2: the admission test, family by family§

Every family has one eliminating test. You have met them all already. Here they are in one place:

• Fixed (Bengen, amended): is the initial rate at or below 3.5% (long horizon, expensive market), or offset by margins you have actually sized? If not, it is out: the cliff is too likely (The fixed inflation-adjusted withdrawal (Bengen): the benchmark rule).
• Percentage, VPW, CAPE rules: does the income under "stocks −50%" still cover the floor (the loss tolerance test, VPW, the Bogleheads' variable percentage withdrawal)? If not, it is out, unless a pension bridge or an annuity brings it back.
• Bounded corridor (Vanguard): does the lower bound compounded over six years (about −14% in real terms) stay above the floor (Floor and ceiling and the Vanguard rules: bounded flexibility)?
• Guardrails: is the cut floor (75 to 80% of the initial withdrawal) lined up with the real floor, and will the person running it actually take a 10% cut after three red years (Guyton-Klinger: the original guardrails, their power and their limits, Modern guardrails (Morningstar): the state of the art)?
• ABW/TPAW: is there a tool, someone to run it for life, and an acceptance that income will breathe by plus or minus 3 to 8% every year (Amortization-based withdrawal (ABW/TPAW): the actuarial approach)?

These tests take twenty minutes in a simulator, and they need only two outputs. The distribution of the spending actually delivered, year by year, settles the income and floor tests. A solver, which hunts for the limit value of a parameter at a given failure probability, settles the threshold tests. Those five questions usually knock out one or two families, and the decision gets simpler right away.

Step 3: the profile-to-rule matrix§

Among the families still standing, temperament and governance decide. The profiles as practice actually meets them:

Two things to keep in mind while you read it. First, the temperament that counts is the one you have in bad years, not the one the questionnaire records. People find themselves less flexible than advertised once the cut is real (Flexibility: myth and reality (what it can really absorb), The psychology of spending: why spending it is the hard part). When in doubt, take the steadier of the two rules on your shortlist. Second, governance is a first-order criterion, not a footnote. The best rule is the one still being applied twenty years from now, by the surviving spouse, in the middle of a bad decade (FIRE as a couple, and as a family). A "suboptimal" rule that gets run always beats an optimal rule that gets abandoned.

Step 4: the hybrids worth having, starting with the forgotten one§

Three combinations keep showing up among serious practitioners, and the third is often the right answer for a FIRE plan.

A guaranteed floor plus a free hand above it (safety first): an annuity, a pension or linkers up to the floor, then whatever rule you like on the rest. Already covered (Annuities and safety first: buying a floor), and it works with every line of the matrix.

The actuarial calculation with a smoothed display: ABW as the annual reference number, with a corridor of plus or minus 5 to 10% around it for the budget you announce to yourself. You keep the optimality of one and the comfort of the other. Plenty of TPAW users run it exactly this way (Amortization-based withdrawal (ABW/TPAW): the actuarial approach).

A different rule per phase. A FIRE plan has two lives (Horizon, life expectancy, and 50-year retirements, Accumulation, transition, withdrawal: the three lives of a FIRE plan). The uncovered phase calls for steered caution: an amended Bengen at a prudent rate, or guardrails with a floor. The portfolio funds everything there, and the fragile window is open. The covered phase, once your pension covers the floor, frees your hand: VPW, a CAPE rule or a generous ABW on what is left. Writing "guardrails until the pension starts, VPW after" on day one is smarter than hunting for the single rule that serves both phases. The two problems are different, so the two answers should be. Plan the switch itself at the annual review of the year the pension starts (The annual review: the retiree's checklist).

The summary table for this part§

Step 5: calibrate, test, write it down§

The final sitting takes an hour in front of a simulator. Set the candidate rule up with your parameters, not the ones from somebody else's blog post. Check the failure probability on the weight of the evidence: acceptable in the central case, tolerable on the broad sample, survivable in a lost decade (Historical windows, bootstrap, parametric: the three families of models). Then read the spending delivered in the worst quartile of paths, and make sure the life actually lived stays above the floor for stretches you could hold. Finally, run the candidate against the runner-up: same inputs, same market model, the rule the only thing that changes from one run to the next. That puts both finalists side by side on the decumulation frontier (Withdrawal strategies: the map before the territory). Then write down what matters: the rule, its parameters, its thresholds, the review date, the rule for the next phase, and the conditions for changing. You do not change rules in the middle of a crash. You decide it while calm, at the annual review, for reasons you wrote in advance. That one-page document is the final product of the whole of part IV, and Building your plan step by step folds it into the complete plan.

The essentials§

• You choose a shape of risk under the constraint of your floor, and it has to be runnable by the person who will really run it: temperament in bad years, then governance, then technique, in that order.
• Every family has one eliminating test (a rate at or below 3.5% for the fixed rule, "stocks −50% at or above the floor" for the proportional ones, the compounded lower bound for the corridor, an aligned floor for guardrails, a tool for life for ABW): twenty minutes.
• Hybrids are legitimate and often optimal, above all the forgotten one: two rules for two phases (steered caution while uncovered, proportional generosity once covered).
• The gaps between good rules are second order next to input errors and the initial rate: spend your attention in that order, and then choose calmly.
• The final product is one written page: rule, parameters, thresholds, review, next phase, conditions for change. Without it you do not have a strategy, you have an intention.

Going further§

• Early Retirement Now, Part 11 (scoring the rules) and the strategy Parts as a whole (ERN's Safe Withdrawal Rate series: a reader's guide); Morningstar, The State of Retirement Income (the annual comparison).
• Wade Pfau, Retirement Planning Guidebook: the most complete practitioner manual, and it covers both schools.
• The nine articles of this part, to go back to the detail of each candidate; then Building your plan step by step for the assembly, and The annual review: the retiree's checklist for the life of the rule.
• Step 5's sitting, walked through one control at a time: Using the FIRE simulator.