Retirement is a major milestone, but it often comes with lingering doubts. What if you live longer than expected? What if inflation stays high? What if your portfolio doesn’t perform?
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Their Situation
Mr. and Mrs. What If were in their 60s and planning to live until around age 90. Their retirement portfolio was expected to earn just over 5% based on their comfort level with investing.
They wanted to spend $7,000 per month in retirement, indexed to inflation. Based on those inputs, their plan showed they were in good shape. Their retirement was 105% funded, giving them a two-year cushion or room to spend slightly more if they wanted.
Their projected net estate at age 90 was just over $1.5 million, including real estate.
Stress Testing the Plan
At first glance, everything looked great. But retirement planning involves making assumptions—about inflation, market returns, and longevity. Even small changes to those assumptions can lead to dramatically different outcomes over a 20+ year plan.
At the time, Mr. and Mrs. What If had just under $1 million saved. If things played out as expected, they’d still have $127,000 left by the time Mrs. What If turned 90.
But what if their investment return was just 1% lower? In that case, they’d run out of money a few years before their expected life span.
What if inflation was 1% higher? Now the situation becomes more serious, they’d run out of money in their early to mid-80s.
And what if both happened? One percent lower returns and one percent higher inflation? Now the plan only covers 81% of their retirement needs.
Creating a Backup Plan
Option 1: Reduce Expenses Now
One solution was to reduce their spending today. If they cut their monthly spending by 16%, from $7,000 to just under $5,900, their money would last until age 90, even in a lower-return, higher-inflation scenario.
But they didn’t like the idea of cutting back now to prepare for something that might never happen.
Option 2: Downsize Later
Instead, they explored the idea of downsizing later. If their portfolio ever ran out, they could sell their home and rent for $3,000 per month.
In that scenario, the plan still worked. They’d have the cash they needed, and the stress of market returns or inflation wouldn’t derail their lifestyle.
This option felt better to them, especially since they figured they’d eventually sell the house anyway.
Final Thoughts
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