The 4% rule sets the floor; the ratchet handles the upside

Two-thirds of the time, the retiree who lives by the 4% rule finishes with more than double the wealth they retired on, and about half the time the ending balance is nearly triple the starting one — all on top of a lifetime of inflation-adjusted spending. Those figures come from a Nerd's Eye View post by Michael Kitces, and they make the case against the 4% rule as a spending plan without ever touching the question of whether it is safe.

The rule was never built to maximize spending; it exists, as the post frames it, to set an income floor low enough to survive sequence-of-return risk — low enough that a client retiring into something as bad as the Great Depression or the stagflation of the 1970s still funds inflation-adjusted spending through a 30-year horizon. Come in above that, and the surplus is money the retiree never planned to touch, the premium on insurance against the tail.

What the post proposes instead is a ratchet: increase spending by 10% any time the portfolio rises more than 50% above its starting value, and leave it alone otherwise. On the analysis' own testing, the rule dominates the traditional 4% rule, equivalent or better retirement spending across all the scenarios tested while staying conservative enough that a market pullback afterward does not force a spending cut. The raise is deliberately small next to the gain that triggers it, which is what keeps the retiree from going backwards shortly after taking the money.

The asymmetry is the design. Nothing in the rule obliges a client to cut spending when markets fall, because the ratchet only ever ratchets up; the bad sequence is the failure the 4% floor already covers, and the ratchet adds no new exposure to it. A rule whose only action is to raise spending is an unusual thing to write into a plan.

The arithmetic is the least interesting part of the argument. Kitces concedes that a retiree riding a favorable sequence will "inevitably" sit down for a portfolio review and conclude, unaided, that it is safe to spend more. Grant that, and the ratchet stops being a better model and becomes a better process: the trigger is agreed years in advance, when nobody is anchored to a number, and it fires at a moment when loss aversion, identity, and anchoring are doing the talking. The mechanism is the same one behind the client who agrees to sell and still won't — the deferral is not a spreadsheet problem, so a spreadsheet will not fix it.

Almost every retirement income plan an advisor writes down specifies the downside — the dollar figure spending will not fall below — and the ratchet is the upside half of the same rule, a pre-committed answer to what happens when the plan is winning. A plan that names only the floor leaves every spending increase to be improvised in the least favorable room, with a client who has spent a decade treating the low number as the plan and an advisor who has to argue them out of their own caution.

The better practice is to put both halves in the investment policy statement, with the trigger and the size of the raise written as numbers rather than as a promise to revisit. An advisor who leaves the upside rule unwritten is choosing a discretionary process over a rules-based one at the one point in the relationship where the client's instinct reliably runs against their own interest.

There is a plumbing argument for doing this now rather than in 2015, when the post was published: model portfolios now hold most RIA client assets, with advisor-built and home-office sleeves accounting for 71% of model assets. A trigger expressed as a percentage of the starting portfolio is the kind of rule a centrally managed sleeve can compute and apply across accounts, which suggests the ratchet is easier to administer today than when it was written and more likely to show up as a platform default than as a bespoke engagement.

Kitces publishes from inside the industry's operational layer as well as its literature: he is head of planning strategy at Focus Partners Wealth, a firm with $181.9 billion in regulatory assets under management across 220,585 accounts and 1,915 employees, and a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, with Nerd's Eye View his own site. Methodology that emerges from a firm at that scale has a habit of migrating into planning defaults and advisor workflows, so the useful reading of the ratchet is as a candidate default rather than a blog post.

What the excerpt does not supply is the sensitivity behind the two parameters, or how the threshold resets after a first increase — questions an advisor adopting the rule has to answer, and a piece published in 2015 does not address the markets that followed it. Re-testing the 50% trigger and the 10% raise against a fresh run of sequences looks like the obvious next piece of work; whether the pair survives that exercise is unconfirmed.

The floor and the ratchet together are the small, mechanical rules that belong at the center of the last mile of retirement — decumulation, where the relationship is kept or lost, and where the safeguards are written down before they are needed. A ratchet that fires at 150% of the starting portfolio value is a decumulation nudge with a number attached, and in a good sequence the portfolio crosses that line whether or not anyone planned for it. The next data point worth watching is whether the parameters hold up when they are run again.