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“History doesn’t repeat itself, but it often rhymes.”

Mark Twain said that, and it’s maybe never felt more appropriate than today. Stress-testing your retirement strategy and portfolios against volatility in the market and changes in inflation, taxes and healthcare expenses is a great way to get a sense for whether or not your plan can sustain current and future conditions. The pandemic that we are living through is a great reminder of the importance of stress-testing your strategy. It can allow you to have more certainty in a time of confusion.

Step 1: Clarify Goals 

In order to get clarity on where you stand, you need to clarify your goals. You may have heard people refer to “Their Number,” which signifies the amount of assets that a person needs to be able to retire. This is a very basic way of thinking about retirement goals that may not fully encompass your unique lifestyle in retirement. Working part-time prior to fully retiring, extra vacations for the first 5 years of retirement, or gifting to grandchildren are a few examples of unique goals for which we have helped clients plan.

Step 2: Model Market Movement

With clarity on your desired retirement income, we will run some simulations and to determine how market volatility would affect your ability to reach your goals. We simulate events like a prolonged recession, a short recession, additional bear market activity, and more conservative bull markets to get a sense for how your portfolio would hold up and what your options are as it relates to risk. These simulations will help you understand how future events could affect you.

Step 3: Plan for Inflation + Taxes 

Politics aside, some of the recent monetary decisions from the Federal Reserve Bank will undoubtedly have an effect on future tax and inflation rates. It is important to stress-test the pressure those changes might have on your ability to retire and meet both your fixed and variable income goals. You should also have a plan to pay as little in taxes as possible during your retirement. This requires a strategic plan that you must implement prior to retirement.

Step 4: Evaluate + Plan for Health Care Costs 

An unfortunate reality of the average retirement age is that our health sometimes doesn’t stay with us for as long as we’d like. Maintaining healthy habits today doesn’t guarantee that we won’t experience a decline in health in our later years. Many times these changes in health can affect the cost of health insurance as well as medical expenses. It is important to plan for these potential additional costs.

Ultimately, our goal is to help our clients enter retirement with their eyes wide open. Having clarity on your reality and proactively addressing what could be around the corner – good and bad – can help you experience freedom from worry of the unknown. That freedom is what allows you to Live Life Beyond the Balance Sheet. 


Advisory services offered through Commonwealth Financial Network®, a Registered Investment Adviser. Read our Privacy Policy here.