Enter each Guard group and press the button dismiss. You have to unequip them.
Name Level Class Health Spirit --- Town Guards group 1
Guard 18 _str_ranger
Here I have only the options to
Equip Guards and
View Battles. I don't even have a stash so he has no equipment.
Maybe it is because he is the only guard?!?!
May I ask why would you want to dismiss them?
I mean, you pay them only when they "do their job".
You are right, I could leave him there. But if/when real guards will be hired, a tier 2 guard will be useless:)