Most retirement plans are built for average conditions.
Average market returns. Average life expectancy. Average healthcare costs. Average spending. And if your retirement is perfectly average, that plan will probably work just fine.
But here's the thing: retirement doesn't fail on average. It fails at the extremes. It fails when the market crashes in year two. It fails when one spouse needs long-term care for five years. It fails when you live to 97 and your money runs out at 88.
The question isn't whether your plan works in a good scenario. The question is whether it holds up when life throws something unexpected at it.
That's what stress testing is for. And it's something I believe every retirement plan should go through before you hand in your notice — not after.
Here are the three stress tests that matter most.
Stress Test 1: Longevity Risk. How Long Does Your Money Actually Last?
The most common planning mistake I see is underestimating how long retirement will be.
People tend to anchor on their parents' life expectancy, or on a round number like 85. But here's a sobering statistic: for a healthy 65-year-old couple, there is roughly a 20% chance that at least one of them will live to age 100 or beyond. One in five. That's not a tail risk, that's a meaningful probability.
If your plan is built to last 20 years and you live for 35, you have a problem. And the cruel irony is that the people who are most financially disciplined, the ones who saved the most, took care of their health, and planned carefully, are often the ones who live the longest.
How to run this stress test: Model your plan out to age 95 or 100, not just to your life expectancy. Ask: does the income still hold? Does the portfolio still have something left? If the answer is no, you need to either adjust the plan or identify the levers you can pull, working a little longer, delaying Social Security, trimming discretionary spending in the early years.
Here's a useful benchmark: working just six additional months has the equivalent planning effect of saving an additional 1% per year for the last 10 years of your working life. That's a powerful lever, and most people don't realize how much it moves the needle.
Stress Test 2: Sequence of Returns Risk. What Happens If the Market Crashes Early?
This is the one that keeps me up at night on behalf of my clients, because it's the most misunderstood risk in retirement planning.
During your working years, market volatility was mostly an inconvenience. Your portfolio went down, but you were still contributing. You had time to recover. A bad year was uncomfortable but not catastrophic.
In retirement, the math changes completely.
Here's a simple example: you have a $1 million portfolio and you're withdrawing $40,000 per year, a 4% withdrawal rate. The market drops 30% in year one. Your portfolio is now worth $700,000. But you still need that $40,000 to live on. Now you're withdrawing nearly 6% of a smaller portfolio. The shares you sell at the bottom are gone forever, they can never recover. And the compounding that was supposed to sustain you for 30 years has been permanently impaired.
This is what's called excess withdrawal risk, and it's the reason a market crash in year two of retirement is so much more dangerous than a market crash in year fifteen.
How to run this stress test: Model a significant market decline (30–40%) in your first two to three years of retirement. Does your plan survive? If not, the solution is time segmentation, building a "runway" of safe, liquid assets that covers your spending needs for the first several years, so you never have to sell growth assets at a loss to fund your lifestyle. The runway buys your portfolio time to recover.
Stress Test 3: Spending Shocks. What's Your Wild Card?
This one is the hardest to plan for, because by definition it's the thing you didn't see coming.
But there's one category of spending shock that's predictable enough to plan for, even if the timing and magnitude aren't: long-term care.
I had a client whose parent needed long-term care for five years. The total cost exceeded $400,000. That's not an outlier, at current rates, long-term care can run $10,000 to $15,000 per month, and the average stay is longer than most people expect. A single long-term care event can do more damage to a retirement plan than almost any market scenario.
And it's not just long-term care. Major home repairs. A child who needs financial help. A health crisis that isn't fully covered by insurance. These are the wild cards, the things that don't show up in the base case but have a real probability of occurring.
How to run this stress test: Ask yourself: what's the single most expensive thing that could happen to us in retirement that we haven't fully planned for? Then build a contingency. That might mean a larger liquidity reserve. It might mean a long-term care insurance policy. It might mean a home equity line of credit that you never intend to use but want available. The goal isn't to plan for every possible scenario, it's to make sure that no single event can derail the entire plan.
Why You Should Stress Test Before You Retire, Not After
Here's the thing about stress testing: the time to do it is when you still have options.
If you run these scenarios before you retire and find a gap, you have levers to pull. You can work a little longer. You can adjust your spending plan. You can restructure your portfolio. You can buy insurance. You have time to course-correct.
If you discover the gap after you've retired, after you've made the irreversible decisions, your options are much more limited.
I've seen people retire with what looked like a solid plan, only to discover in year three or four that they had a blind spot they never addressed. Not because they didn't plan, but because they planned for average conditions and life delivered something else.
The goal of stress testing isn't to scare you. It's to give you confidence. When you've run the hard scenarios and your plan still holds up, you can retire with a level of certainty that most people never achieve. You know what you're walking into. You know your plan has been tested.
That's what a real retirement plan looks like.
If you'd like to run these scenarios on your own situation, I'd love to help. Book a complimentary retirement brainstorm session and let's stress test your plan together, before you need to.
Jason Rindskopf is the founder of Two Waters Wealth Management and creator of the SMART Retirement Blueprint®. He works with high-achieving professionals and couples in the Charlotte, NC area who are within 10 years of retirement or recently retired. If you'd like to talk through your retirement plan stress testing, book a complimentary consultation here.