What you suggest is what John Walton called “inverted withdrawals” in a series of articles in 2016 in Advisor Perspectives; though he doesn’t use CAPE or valuations, he takes a different approach. My general feeling is that it isn’t really necessary and comes at a pretty high cost.
In practice it would generate huge swings in income. CAPE will be high when the market is doing well, so you’re already withdrawing a lot. Then you’re tilting up and pulling even more. And CAPE will be low when markets are not doing well, so you’re already withdrawing very little. Then you withdraw even less.
See how in a 1969 scenario “inverted withdrawals” (using Walton’s version, not yours, since I already had his coded up) have you withdrawing as little as $16,000.
I think most people aren’t going to have that much flexibility in their spending…cutting over 60%. And I’m not sure the attempt at yet another lever for margin of safety is needed.
Plus, I kinda doubt any of us are going to see “low CAPE” in our lifetimes :) . It is starting to more and more likely that there was some kind of structural break with CAPE in the 1990s. Even in the depths of the 2008 crash we barely, briefly touched “normal”.
So on the downside, I’m dubious. On the upside (“spend more when times are good”) I think there’s a bit more opportunity. But I also think that, realistically, most people are already going to have a hard enough time loosening the purse strings in retirement just by following plain PMT. Tilting upward even more is likely going to be an even harder sell.
I’m retired and I don’t spend anywhere close to what PMT says I can. You should hear my laundry list of excuses :)