Market uncertainty is the rule—not the exception. Interest rate hikes, inflation pressures, and political noise aren’t going away anytime soon. If you’re nearing or in retirement, ask yourself:
“How would my retirement plan hold up if markets took a hit?”
This is where a retirement plan stress tests comes in. It’s not about pessimism—it’s about preparation.
What Is a Retirement Plan Stress Test?
A retirement plan stress test helps you evaluate how your finances would perform under challenging scenarios like:
- A steep market downturn
- Prolonged high inflation
- Unexpected longevity
- Surging healthcare costs
The goal isn’t to predict the future—it’s to prepare your plan to handle uncertainty with confidence.
What If Markets Drop Early in Retirement?
Sequence of returns risk is one of the most critical (yet overlooked) risks in retirement planning. It’s the danger of receiving poor investment returns early in retirement—right when you’re starting to withdraw from your portfolio. Even if average returns are the same over 30 years, the order of returns can make or break your plan.
Ways to better protect yourself:
- Build a cash buffer: Set aside 12–24 months of living expenses in cash or short-term bonds. This allows you to draw income without selling investments in a down market.
- Reduce discretionary withdrawals temporarily during downturns: Instead of withdrawing a fixed dollar amount, consider reducing your spending during years when your portfolio is down. Simple “guardrail” rules can improve success rates.
- Reduce risk before retirement: Adjusting your asset allocation can soften the impact of a market downturn and help your plan stay intact, even if early returns aren’t favorable.
- Avoid Emotional Reactions: Selling everything after a bad quarter locks in losses. Stay disciplined and ensure your allocation matches your risk tolerance before volatility hits.
What If Inflation is higher?
High inflation can slowly erode your purchasing power—especially over a 20- to 30-year retirement.
Steps to take:
- Use realistic assumptions: Plan for 3–4% inflation instead of outdated 2% estimates.
- Own inflation-sensitive assets: TIPS, dividend growers, and real assets can help protect purchasing power.
- Review your plan annually: Adjust spending and withdrawals as needed to stay on track.
What If You Live to 95 or Beyond?
Many retirees unintentionally plan for a shorter lifespan—and risk outliving their savings.
Plan for longevity by:
- Run projections to age 90–100: Better to plan long than fall short.
- Assess lifetime income sources: Pensions, annuities, and Social Security can provide stability.
- Stay invested for growth: Keep part of your portfolio positioned for long-term returns.
What If Healthcare Costs Spike?
Healthcare costs often rise faster than general inflation—and long-term care can create unexpected strain.
How to prepare:
- Budget separately for healthcare: Include long-term care in your projections.
- Review Medicare annually: Stay ahead of plan changes and IRMAA surcharges.
- Set aside a medical fund: Use tax-advantaged options like Health Savings Accounts (HSAs) to prepare for future expenses
The Takeaway
A well-built retirement plan isn’t designed for smooth sailing—it’s designed to withstand turbulence.
Stress-testing is how you identify weak spots, make adjustments, and avoid costly surprises. In a market where volatility is always lurking, that’s not just smart—it’s essential.
Curious How Your Plan Would Perform?
At Pure Portfolios, we go beyond generic financial advice. We run custom retirement plan stress tests to help our clients retire with clarity and resilience.