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Nearly all retirement planning is devoted to spotting potential disasters – a stock market crash! Unexpected inflation! Long-term-care bills! – and devising ways to reduce their possible damage.

This is all useful and good. But it means that nearly all of us ignore an intriguing question: What should we do if disaster doesn’t materialize and everything works out just the way we hoped?

Granted, this would be far from a catastrophe. But it is a fascinating puzzle, because a significant number of people who follow the standard rule of thumb may be restricting themselves unnecessarily in their golden years. Instead of running out of money, they have built up what retirement researcher Michael Kitces calls “excess wealth.” They’re living below their means, for no good reason.

Consider, for instance, what happens to the people who stick to the standard prescription of withdrawing an inflation-adjusted 4 per cent of their initial portfolio value every year. By Mr. Kitces’ calculations, they have a 10-per-cent chance of seeing their wealth soar to six times its initial value over the course of a 30-year retirement.

Yes, you read that right. If you happen to get a decent run of results, especially early in your retirement, you could wind up leaving an estate that is worth vastly more than the amount with which you began retirement. Good news for your heirs, maybe. But a bit galling if you’ve been pinching pennies to stay within the 4-per-cent limit.

This is the inevitable consequence of following a rule designed to prevent against disaster. The 4-per-cent formula reflects the withdrawal rate that would have allowed a retiree to withstand even the worst downturns in North American market history, like the epic stock market plunge of 1929.

Follow the 4-per-cent rule and you won’t run out of money over a 30-year retirement – at least not so long as history is any guide. In fact, based on the historical record, those who follow the 4-per-cent guideline face only a 10-per-cent chance of winding up retirement with less money than which they began.

The corollary of this safety-first approach is that the 4-per-cent rule leaves you with large amounts of unspent wealth if the market doesn’t tumble off a cliff. A typical retiree who follows the 4-per-cent rule will wind up with nearly three times his or her starting wealth after 30 years.

Mr. Kitces, a widely followed expert on financial planning, looks at some of the issues this raises in a recent post on his Nerd’s Eye View blog. If you’re anywhere near retirement, or in retirement, it deserves a close read.

For instance, it may surprise you to learn how much the sequence of returns matters. Just because a portfolio produces an average 6-per-cent return over the course of 30 years doesn’t mean you can tap it for 6 per cent a year. A bad run of returns early on in retirement can reduce the portfolio amount to a point where big returns later on don’t matter.

This is why the 4-per-cent rule seems so stingy to so many people. It is there to protect you against the possibility that the market will crash in the first few years after you quit work.

In planner’s jargon, this is known as sequence-of-returns risk. It’s the reason why it’s not possible to simply bump up the withdrawal rate at the start of a 30-year retirement. Based on history, someone who tried this, and attempted to withdraw an inflation-adjusted 5 per cent of his or her initial portfolio value every year, would have gone bust about a quarter of the time.

That is scary, but Mr. Kitces’ point is that sequence of returns risk can also be positive. Catch an early run of good returns and your portfolio can swell to the point where bad returns later on can’t put any significant dent in your retirement plans. In these cases, retirees may focus too much on the risk of having their retirement portfolio go to zero and not enough on the substantial chance it will soar to some large multiple of its original value.

One solution to ensure you’re not unnecessarily restricting yourself in retirement is to use a ratcheting rule that bumps up spending if you get a favourable sequence of returns. For instance, Mr. Kitces says, you might start with an inflation-adjusted 4-per-cent withdrawal rate when you retire, but give yourself permission to increase your spending by 10 per cent if the portfolio is up at least 50 per cent from where it started. You should then revisit this situation every three years.

To my mind, it can also make sense to do an annual checkup on the state of your finances and your sustainable withdrawal rate. If you don’t mind a bit of number crunching, the spreadsheets on the “How Much Can I Afford to Spend in Retirement?” blog run by retired actuary Ken Steiner are a great tool.

Either way, it makes sense to plan for good news as well as bad.

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