Will You Run Out Money in Retirement?

Everyone wants to know if they’ll have enough money to last through retirement. So, how can you tell?

The true value of a financial plan comes from testing its resistance under difficult conditions, much like we’re seeing today. To do this, financial advisors often conduct a financial “stress test.” The test examines how a financial plan will fare during a significant future event, such as a recession or major geopolitical crisis, and allows you to adjust accordingly.

Based on our experience conducting these tests, here are four areas to discuss to ensure your plan will hold up:

1. What’s the growth rate you’re using in my stress test?

Many financial advisors build a conservative growth rate into their projections—5% annual growth is commonly used. While changing the growth rate by even a couple of percentage points may seem irrelevant, it can monumentally alter the trajectory of your projection.

So, while using a 5% annual rate of return is generally feasible for a financial stress test, anything significantly higher becomes unrealistic for most investors. Also keep in mind that research1 has shown the average investor loses 4% or more of their annual returns as the result of simple mistakes stemming from investment selection, fee management and emotional trading. Not accounting for this principle in your plan’s growth rate assumptions may unrealistically inflate your projected future assets, ultimately leaving you with a financial shortfall.

Our approach: Lean toward conservative growth assumptions to ensure a financial plan can withstand the unpredictability of future market returns.

2. How are you accounting for inflation?

It’s not surprising that $100,000 had greater spending power in 1950 than it does today. This can be seen in something as simple as the price of milk, which in 1950 was about 83 cents per gallon. Today, the average price per gallon is around $4.00.

Some expenses experience higher inflation rates than others, such as health care or education, so accurately projecting inflation is important when developing your financial projections. Otherwise, your financial plan may misrepresent your future reality.

Our approach: Since the cost of living will rise in the future, we account for inflation in our financial projections. While there’s been a rapid increase in inflation during the past year or so, historically, it has ebbed and flowed with underlying economic conditions. To adequately capture purchasing power risk in our projections, we typically assume an annual inflation rate of 2.0% to 4.0% for most general living expenses.

3. Are my annual spending plans in retirement accurate?

Let’s assume a client reports to her advisor that she’s been spending around $120,000 annually, or about $10,000 per month. When this client is asked to map her annual expenses, the advisor discovers that it was actually closer to $140,000. The additional $20,000 per year came primarily from home improvement costs, roughly $500 a month on takeout orders and online shopping, and other miscellaneous expenses that were overlooked. Everyone will have their own “hidden” or unaccounted-for expenses, but you get the point.

If the client took no corrective action, this higher spending rate would’ve severely affected her income in retirement. Rather than lasting through age 95 (as many financial plans target), her assets could be depleted at a much younger age. Using this information, a Corient Wealth Advisor would work with the client to try finding ways of getting her back on track toward meeting her financial goals.

Our approach: Overestimate annual spending levels in anticipation of future unknown costs. While everyone’s lifestyle choices and spending situation are different, projecting an extra 5% to 10% in annual expenses allows the plan to cover unexpected costs down the road.

4. A whole array of other uncertainties

Stress testing your financial plan will help you plan for other uncertainties in the future. We know the stock market has been volatile in years past, causing concern for some investors. However, planning ahead for a 30% market dip provides peace of mind. A test can also simulate the financial impact of taking a dream vacation or providing gifts to your favorite charity, giving you more freedom to spend your money in retirement. Navigating from your expected financial plan to these “Plan B” scenarios can demonstrate the robustness of your financial plan against unforeseeable risks.

Our approach: As part of a financial stress test, we consider the impact of a worst-case scenario as well. People often make their best financial decisions when they understand the potential consequences that may arise when a plan doesn’t work out as originally thought.

Future events, often unforeseen, will have an impact on your finances. However, by using realistic growth assumptions and mapping out all relevant scenarios, you can help ensure that your plan can still deliver on your goals, even when these difficult and financially impactful conditions occur.


1 https://www.nasdaq.com/articles/why-the-average-investor-is-so-bad-at-investing-2019-08-13


Andrew Kobylski

Andrew Kobylski

Associate Wealth Advisor

Andrew is an Associate Wealth Advisor in our Atlanta office. He works closely with Small Business Owners, Dental Professionals, and Attorneys helping to create financial plans that align with each client's values and goals. By focusing on comprehensive investment and wealth planning strategies, he puts the pieces of the financial puzzle together that allow clients to focus on what matters most to them. Andrew joined legacy firm Brightworth in 2020. Originally from the Northern Virginia area, he attended Virginia Tech and graduated Summa Cum Laude with a degree in Finance under the CFP® Certification Education Option. He obtained both his CERTIFIED FINANCIAL PLANNER™ and Certified Investment Management Analyst® certifications in 2021.


This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice.  This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy.  This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice.  We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.

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