For the 2% Club, the Guardrails Approach and the 4% Rule Do Not Work: Here's What Works Instead

For retirees with a pension, traditional withdrawal rules could be too restrictive. A tailored income plan that divides assets into "paychecks," "playchecks" and "future money" could be a much more flexible and realistic approach.

By Joe F. Schmitz Jr., CFP®, ChFC®, CKA®

published 6 February 2026

in Features

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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)

The original 4% rule was built for people who don't have a guaranteed income. If a retiree needs $40,000 per year from their portfolio, the math works like this:

$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.

About Adviser Intel

The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

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:

Pension
Social Security
Any systematic monthly withdrawals if needed

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:

Roth conversions
Legacy planning
Charitable planning
Tax-efficient gifting
Long-term care protection
Growth-oriented investing

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.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joe F. Schmitz Jr., CFP®, ChFC®, CKA®, is the founder and CEO of Peak Retirement Planning, Inc., which was named the No. 1 fastest-growing private company in Columbus, Ohio, by Inc. 5000 in 2025. His firm focuses on serving those in the 2% Club by providing the 5 Pillars of Pension Planning. Known as a thought leader in the industry, he is featured in TV news segments and has written three bestselling books: I Hate Taxes (request a free copy), Midwestern Millionaire (request a free copy) and The 2% Club (request a free copy).

Investment Advisory Services and Insurance Services are offered through Peak Retirement Planning, Inc., a Securities and Exchange Commission registered investment adviser able to conduct advisory services where it is registered, exempt or excluded from registration.