Ratcheting Rule: Mitigating the risk of dying with too much money

We spend a lot of time talking about the risk of running out of money in retirement. But one understated risk of spending conservatively in retirement is the risk of dying with too much money! Yes, that’s a thing.

In this video, we examine the Kitces Ratcheting Withdrawal Strategy which is designed to help mitigate this risk. This strategy was first described by financial planner Michael Kitces in his 2015 article.

Kitces’s main point is that Bengen’s baseline withdrawal rule is too conservative. This is because it’s based on the worst historical sequence of return. In reality, an overwhelming majority of market scenarios would support a higher withdrawal rate thsn the worst-case scenario.

So, Kitces proposed that a retiree starts out with the baseline withdrawal, but can increase their spending by 10% if the portfolio value exceeds 150% of the original value. There’s a caveat: these spending increases can only take place once every three years at most.

His rationale for this is very simple: ‘if the portfolio gets “far enough” ahead, spending can be increased – but not increased so quickly that the retiree might have to go backwards shortly thereafter.’

The strategy is most effective if the initial withdrawal rate is conservative in the first place. It doesn’t work so well if the initial withdarwal rate is agressive. Since the first 10 years of retirement are crucial, if the client experiences a good start, then they can increase withdrawal.

Abraham is the Founder and CEO of Timelineapp. He has authored the Beyond the 4% rule book, written several industry papers and delivered many talks. He holds a master’s degree from Coventry University and an alphabet soup of designations, including the Investment Management Certificate, Chartered Financial Planner and Chartered Wealth Manager.


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