Today we’re talking about how you can do a five-minute stress test focusing on just one area of your plan. As you know, there are three key areas you want to get right: the income plan, the investment plan, and the tax plan. If you can coordinate those three things to work together, you’re going to be in good shape for retirement.
Under each key area, there are different strategies, principles, and tactics you need to follow in order for them to work. We’re going to focus on the income plan today, and a specific thing to pay attention to so that it works for you. The concept here is to run through different what-if scenarios related to spending.
Step One: Build Out the Plan
Step one is to build out the plan, and I like the new retirement software. If you’ve already built the plan, the stress test should just take five minutes. You might have your interest piqued and find places you want to pay a little extra attention to and work on a bit more. Set a timer for five minutes, and then here’s what you want to do.
Take that first guess as to what the expenses are going to be in retirement. The second thing you want to do is put in some of those what-if scenarios – take a high guess at what expenses could be for those things you haven’t planned for. What if we traveled four times a year? What would that look like? Or what if we bought that warm weather house for the winters? What would that cost? What if we supported that cause that we care about in a greater way? What if we paid for a down payment for the kids’ first house, or something like that? Whatever come to mind, plug it in.
If you can’t think of anything, I take your first guess and then add 20% to it and see what happens to the plan. You might be in a great spot and it might not make an impact at all. Everybody has an individual plan, everyone’s got individual scenarios; the important thing is to do the test, run through it, see what happens, and then go from there.
Step Two: Plan for Any Low Expenses
The second step is to look at what the low expenses would be. Give your best guess and go forward with changes and what you think is going to happen. In the plans themselves, with the software we linked above, it’s really nice to just run through all these different things that could happen. Maybe it’s a lesser amount that you spend on traveling, or maybe it’s just a few one-time wedding expenses. There are some other things out of our control, like inflation rates, or an extended bear market scenario. What impact is it going to have before you actually get to that scenario? It doesn’t hurt to think and plan that way.
The end result of doing all of this is just to feel more confident and secure as you move into this next stage. This could be the best, most exciting stage of your life. I hope this is helpful and you get to test out various expenses, the higher and the lower scenarios – it can’t hurt to do it all.
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Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.