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Inflation in Timeline Planning
Inflation rules - Guyton Inflation Adjustment
Inflation rules - Guyton Inflation Adjustment

Description and example of the Guyton Inflation Adjustment rule in Timeline Planning

Gonzalo Podgaezky Folguera avatar
Written by Gonzalo Podgaezky Folguera
Updated over a week ago

Summary

  • We adjust your withdrawals for inflation each year except after a negative portfolio return


Description

The Guyton inflation adjustment approach is a withdrawal strategy that modifies the withdrawal amounts according to inflation annually, with one key exception: in the years following a negative portfolio return, the withdrawal amounts are "frozen" or kept the same as the previous year. This strategy combines the benefits of maintaining purchasing power with the added safety measure of not increasing withdrawals during periods of investment downturns.

Example

Suppose you withdraw £40,000 in the first year. If the inflation is 3% the following year and your portfolio had a positive return, you would increase your withdrawal to £41,200 (£40,000 * 1.03). However, if your portfolio experienced a negative return the next year, you would keep your withdrawal the same, at £41,200, even if the inflation rate was positive.

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