The correct adjustment is where you ended up. The last few millimeters of lift certainly should be by hand, squeezing the wires together. This makes sure the pin is actually taking the load of the motor (which is HEAVY). It would be not good at all to have the jack screw supporting the weight of the motor when pounding into a head sea. As you also noted, if the pin is not doing any actual lifting, it just falls out.
This adjustment also prevents the jack screw from "dead heading" against a excessive load. This would also be very bad for it.
This is one case where the correct adjustment is much easier to actually achieve than the wrong one!
Fort Lauderdale, FL