I think this approach is usually used when you have a financial advisor. However, it’s very simple to calculate manually by yourself. Simply take the prior year’s draw, adjust for inflation, then divide the new draw by your portfolio’s value at the start of this year.

For example, say you set your baseline draw at 5%, with guardrails 20% above and below that, or 4% and 6%.

Then, you need just three numbers:

• Last year’s draw in dollars (say that was $50,000)
• Last year’s inflation in percent (say that was 5%)
• Your portfolio value at the end of last year (say that was $1 million)

Multiply last year’s draw by one plus inflation ($50,000 x (1+0.05)), which comes to $52,500.

Then, divide that new proposed draw by your portfolio value. In the above example that would be 5.25% ($52,500/$1,000,000).

Since that’s between 4% and 6%, you wouldn’t need to change your proposed draw.

However, say your portfolio value at the end of last year was actually $850,000, then the proposed draw would be 6.17% of your portfolio ($52,500/$850,000). Here, you’ve exceeded your upper guardrail of 6%, so you’d cut your draw by 10% to $47,250.

If instead, your portfolio had grown to $1,350,000, your proposed $52,500 draw would have been 3.89% ($52,500/$1,350,000), which is lower than your lower guardrail of 4%. Here, you’d bump your draw up 10% to $57,750.

Not too complicated — just three numbers and two rules (one for too high a percentage and the other for too low a percentage).

Monte Carlo studies show that on average you can expect to have to cut your draw about three times in a 30-year retirement.