A Flexible Retirement Withdrawal Strategy That Increases Your Income Over Time
What This Blog Is About
This post walks you through how a simple tweak to the traditional 4% rule helped Carolyn retire confidently — and how she avoided the trap of underspending or obsessing over “probability of success” percentages. You'll see how a smart withdrawal strategy, paired with better client framing, gave her both freedom and peace of mind in retirement.
Why Listen to Me?
In my experience advising retirees, I've seen that the math of retirement is only half the equation — perception is the other. Too many investors hear “you have a 70% chance of success” and think it means they’re going to fail. What I’ve found is that when you reframe the conversation around spending adjustments rather than failure risks, and use evidence-based rules like the ratcheting 4% rule, retirees sleep better at night and enjoy their money more.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Carolyn’s Retirement Story: Confidence with Flexibility
Carolyn retired at age 65 with a $1,000,000 portfolio. Her Social Security benefits would kick in at 67 and provide $30,000 per year. Following traditional advice, she planned to withdraw 4% annually — $40,000 in year one — adjusted for inflation.
But she had a concern: “What if I’m one of the unlucky 10%? Should I be worried?”
Her advisor walked her through a new framework: “Carolyn, you don’t have a 10% chance of failure. You have a 10% chance of needing to make an adjustment — and even then, it might be a minor one.”
This subtle shift in language helped reframe her mindset. Instead of being scared by Monte Carlo outputs, she was empowered to plan dynamically.
The Ratcheting 4% Rule in Action
Here’s how Carolyn’s plan worked:
Year 1–5: Carolyn withdrew $40,000/year (inflation-adjusted). The markets performed steadily, and her portfolio reached $1.35M after withdrawals by year five — not quite enough to trigger a change.
Year 6: Her portfolio grew to $1.52M. Now 50% above her starting point, this triggered her first spending ratchet. Her annual withdrawal increased by 10%, bringing her new baseline to $44,000/year, adjusted for inflation moving forward.
Year 9: After continued market strength, her portfolio reached $1.75M. Per the plan, and three years after her last bump, she raised her spending again — this time to $48,400/year. No stress. No guesswork. Just a well-timed lifestyle upgrade.
Why This Works Better Than “Set It and Forget It”
The traditional 4% rule is based on a worst-case scenario — and rarely plays out that way. What makes the ratcheting strategy superior is that it accounts for favorable outcomes, without increasing risk. If the market does poorly, Carolyn just stays on the original conservative track. If it does well, she benefits with increased income — no awkward lifestyle pullbacks required.
This also reduces the stress created by traditional Monte Carlo projections. Instead of saying:
“You have a 70% probability of success…”
Her advisor now frames it as:
“There’s a 30% chance you may need to slightly adjust spending. But if things go well, you’ll likely be able to increase spending — without ever going backward.”
People respond better emotionally when we talk about the probability of needing an adjustment rather than probability of success/failure. It makes planning feel realistic, not rigid.
What We Can Learn from Carolyn
She didn’t have to over-save to feel safe.
She didn’t need to lock into a fixed budget forever.
She didn’t panic when the market dipped, because she had clear thresholds in place for when spending would increase — and when it wouldn’t.
She didn’t need an annuity to feel confident, although guaranteed income like Social Security helped.
Want to Use This Strategy?
Here’s how to set it up with your advisor:
Start with a 4% withdrawal rate. It’s your conservative income floor.
Track your portfolio value annually. If it grows to 150% of your starting point, you're eligible for a 10% spending bump.
Limit bumps to once every three years. This avoids overspending during short-lived market rallies.
Keep adjusting for inflation annually. The ratchets are on top of regular inflation raises.
Final Thoughts
The ratcheting 4% rule is a dominant strategy in most historical scenarios. It lets you:
Spend freely when it’s safe
Hold steady when markets stall
Avoid lifestyle whiplash from unnecessary spending cuts
Reframe retirement with confidence instead of caution
In a world where retirees are often more scared of spending too much than running out of money, this rule gives you permission to spend more — with guardrails.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
FAQs
Q: What if my portfolio drops after I ratchet up my spending?
A: You never have to go backward. That’s the beauty of the rule. It only increases spending when you’re well ahead — and the 50% threshold gives enough buffer.
Q: Can this strategy work alongside Monte Carlo simulations?
A: Absolutely. In fact, framing it around the probability of needing adjustments instead of probability of success improves how clients understand and feel about their plan.
Q: What kind of portfolio works best for this?
A: It works well with a diversified 60/40 or growth-tilted portfolio. If you’re extremely conservative or using annuities for most of your income, the potential for upside ratchets is lower — but not zero.
Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.