Achieve Retirement Success - How to Stress Test Your Plan Now

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My day “job” as a consultant is supporting NASA technology-development efforts. From time to time, I also support NASA flight projects.

If there’s one thing NASA excels at, it’s developing complex missions and making sure they succeed. 

Look no further than the recently launched JWST’s (photo above) near-perfect launch and commissioning (and no, I had no involvement with Webb other than taking the above picture from a balcony overlooking it — but it’s a cool photo!).

How NASA Mitigates (Reduces) Mission Risks

The first step in risk management and mitigation is to identify the risks you face.

Step two is to assess the likelihood and level of consequences should the risk turn into an actual problem.

Step three is to figure out what you can do about it. This could be to implement mitigation strategies (for example, if the risk is that a critical part may not be available when you need it, you can order it early and/or identify alternative parts and/or develop an alternative design that doesn’t require it).

If you can’t mitigate, you can keep an eye on the risk and see if its likelihood increases or decreases as time progresses. Finally, if the consequence isn’t too dire, you could decide to accept the risk.

Step four is to reassess the likelihood and level of consequence once you’ve mitigated risks you can mitigate.

After that, you just keep an eye on existing risks, retire them when they’re no longer a concern, and add new ones as they come up. Then rinse and repeat until launch.

What Does NASA’s Risk Management Process Have to Do with Your Retirement Plan?

There’s one thing all NASA missions do as a matter of practice to mitigate risk of equipment failures.


Project teams test components, subsystems, systems, and entire payloads, stressing them in every way imaginable to make sure that if they’re going to break, they do so early enough that the broken items can be fixed or replaced.

This includes testing them in vacuum, extreme cold and heat, vibration, acoustic shock, radiation, etc.

The mantra is, “Test as you fly, fly as you test!

To the extent humanly possible, you test things as close to how you plan to launch and operate them on orbit, and then fly a payload that’s as close as humanly possible to the configuration you tested.

If you want to be as close as humanly possible to certain your retirement plan will work as intended, take a play out of NASA’s playbook — stress testing to see how well your plan addresses retirement-plan risks.

Richard Archer, CDAA, CFA, CFP, MBA, Owner and President, Archer Investment Management emphasizes, “Stress testing any plan is key to avoiding unexpected failures when something inevitably goes wrong. Once you’re deep into retirement, catching up is challenging if you sustain an economic surprise that threatens your livelihood.

Stress-Testing Your Retirement Plan

To help ensure your retirement plan succeeds, Kevin Lao, CFP®, Founder and Director of Financial Strategies, Imagine Financial Security, LLC recommends four stress tests to help you sleep better at night.

  1. Bear market risk: How does your retirement goal hold up if you lived through another major recession or bear market, like 2007–2009?
  2. Prolonged low returns: We have been spoiled since 2009 with the longest bull market on record. This could mean a prolonged period of lower growth and lower returns…does your plan succeed or fail?
  3. Longevity risk: What if you or your spouse lives well past your life expectancy? Does the plan succeed or fail?
  4. Long-term care risk: What if you, or your spouse had a Long-term care need? How would that impact your financial plan?

Other tests you could consider include changes to tax laws, high inflation (very timely these days!), Social Security changes (e.g., benefit cuts, means-testing benefits, and/or delayed full-retirement age), etc. Richard Archer adds, “Immediate market drops, longevity, and healthcare.

How Financial Pros Stress-Test Your Retirement Plan

For the first two risks above, bear market(s) and/or prolonged low market returns, the pros run a so-called Monte Carlo test. This procedure, named after a European city that hosts famous gambling casinos, runs a thousand or more randomly generated (plausible, but allowed to be far worse than any real historic case) returns for each asset class. Another method is to test your portfolio’s ability to survive actual past market returns for all asset classes you may invest in.

For both procedures, they assess the likelihood that your plan will succeed (i.e., that you won’t run out of money while you’re still alive). Standard practice is to call it a success if there’s at least a 90-percent likelihood you won’t outlive your money.

However, that’s just the beginning.

I asked the pros how they carry out the other stress tests.

Archer replied, “We have sophisticated software that incorporates clients’ entire financial lives into our models and see if their retirements are robust. For each test, we model the impact of up to a 100% increase on clients’ retirement plans. We then review their probability of success vs. running out of money during retirement.”

What Do the Pros Do If Your Plan Doesn’t Pass their Stress Tests

If you have so much money set aside that you’d be fine short of a global financial meltdown, you may not need these pros. If you’re like most of us and have a little (lot) less than that, you probably need at least some help running stress tests, since pros have tools you’re not likely to have. Plus, your plan may very well be challenged by some of these tests.

If that happens, Archer would discuss options with you, “We discuss the benefits of Roth IRAs to defend against tax increases, buying no-load annuities, spending less in case Social Security fails, maintaining some equity risk and hard assets like real estate to help protect against inflation, etc.”

The pros may also recommend other possible adjustments:

  • Buying a so-called Long-Term-Care insurance (LTCi) policy
  • Increasing income so you can save more
  • Reducing expenses so you can save more (and likely need less in retirement)
  • Considering a reverse mortgage
  • Considering working longer, at least part-time

The Bottom Line

Stress-testing your retirement plan is a crucial step to reduce the risk that life will blind-side you and take you down. That means looking at all sorts of really bad possible situations, and seeing how they’d impact your retirement plan. Given how difficult it is to amass a large fortune, it may seem like this is an exercise in futility — that there’s no way to fully protect yourself from all these risks.

And you know what? That’s true. You can’t be 100 percent sure to do well under all possible scenarios.

All we can do is the best we can do. Then, we have to trust that if and when something bad happens, we’ll find a way to adapt and overcome. It’s just better to address as many risks as far ahead of time as possible.

And lest all the above makes it sound like you’re doomed, Archer reassures, “These days, it’s easy to predict continued economic doom and gloom. However, historically that’s not been the reality. We always recommend planning for the best and preparing for the worst. We’ll make adjustments together as life throws us curveballs along the way.


This article is intended for informational purposes only, and should not be considered financial, investment, business, tax, or legal advice. You should consult a relevant professional before making any major decisions.

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