Retirement is one of life’s biggest transitions, and it’s often filled with questions. How do you know when you’re ready to retire? Will your savings be enough? How much can you comfortably spend without running out of money? These are the same questions Robin, a 61-year-old professional, is asking herself as she approaches her desired retirement date in May 2025.
Robin’s story provides a valuable framework for understanding how to plan for retirement. While her specifics are unique, the principles and steps outlined here can guide anyone looking to create a secure and fulfilling retirement plan.
Understanding Robin’s Financial Picture
Robin has built a solid financial foundation over the years. Between her taxable investment accounts, an IRA, a Thrift Savings Plan (TSP), and a Roth TSP, she has accumulated $1.87 million. Her home, valued at $658,000, has an outstanding mortgage of $433,000 with a manageable monthly payment under $2,000. She also has $180,000 in cash reserves set aside for emergencies.
Her goal is to retire at age 62 with confidence that her savings and income streams will support her lifestyle. To make this work, she envisions spending $5,000 per month on essentials like food, utilities, and entertainment. On top of that, she wants to allocate $10,000 annually for travel through 2040, as she expects her desire for long-distance adventures to diminish by her mid-70s.
Additionally, Robin is planning for $500 a month in healthcare costs and has factored in the possibility of long-term care expenses later in life. For her, that means planning for $68,000 per year in home care during her final four years—a significant but necessary consideration in today’s financial landscape.
Robin’s Income Sources
After decades in the workforce, Robin has created multiple income streams to sustain her in retirement. Her $70,000 salary will end when she retires in 2025, but other sources will kick in:
- Pension: Starting immediately after retirement, she’ll receive $40,000 annually, or $3,300 per month.
- Social Security: At age 67, Robin will begin collecting $3,400 per month.
- Unused Leave: Upon retirement, she’ll receive a one-time payout of $16,000.
These income streams, combined with her investment portfolio, form the backbone of her retirement plan.
Can Robin’s Plan Work?
To determine whether Robin can retire comfortably, it’s essential to analyze her income, expenses, and the sustainability of her portfolio withdrawals. Her anticipated monthly spending of $5,000 is just the starting point. Inflation, healthcare costs, and one-time expenses like buying a new car in 2030 also need to be factored in.
Robin’s first full year of retirement (2026) provides a snapshot of her financial outlook. Her pension covers a significant portion of her baseline expenses, but the gap must be filled by withdrawals from her portfolio. This withdrawal rate starts at 6% of her portfolio value, decreasing to 5% in later years, with occasional spikes for larger expenses like travel and long-term care.
Understanding her withdrawal rate is critical. Financial experts often recommend staying near a 3% to 4% annual withdrawal rate to preserve assets over a 30-year retirement. While Robin’s initial rate is higher, it fluctuates and remains within a range that can be managed, especially given her diversified income streams.
Planning for the Unexpected
No retirement plan is complete without stress testing. For Robin, this means considering not only the average returns on her investments but also the sequence of those returns. Market downturns early in retirement, for example, could have a more significant impact than those occurring later.
To assess the viability of Robin’s plan, we use a Monte Carlo simulation—a tool that tests how her portfolio performs under thousands of different market scenarios. The results show that Robin has a 78% probability of having her money last through age 95, her expected life span. While this number suggests a strong plan, it also highlights the importance of monitoring and adjusting her strategy over time.
In the unlikely event her portfolio depletes, Robin’s pension and Social Security provide a solid safety net, covering her core expenses. Additionally, she holds equity in her home, which could be tapped if needed. These factors reduce the severity of potential financial shortfalls and give Robin peace of mind.
A Balanced Approach to Retirement
Robin’s journey underscores the importance of finding balance in retirement planning. On one hand, she wants to ensure she doesn’t outlive her money. On the other, she doesn’t want to be so cautious that she misses opportunities to enjoy her hard-earned wealth.
By breaking down her income and expenses, planning for long-term care, and stress-testing her portfolio, Robin gains clarity and confidence. This process allows her to identify areas where adjustments might be necessary. For example, she could reduce travel spending, work an extra year, or delay Social Security benefits to strengthen her financial position further.
Key Lessons from Robin’s Story
Robin’s approach to retirement offers valuable insights for anyone nearing this life stage:
- Start with a Clear Picture: Know your financial assets, income sources, and anticipated expenses. Understanding these basics is the foundation of any solid retirement plan.
- Plan for Inflation and Healthcare: Expenses will rise over time, so it’s important to account for these increases in your projections.
- Consider the “What-Ifs”: Unexpected expenses, market fluctuations, and health changes are inevitable. Stress-testing your plan helps prepare for these uncertainties.
- Monitor Regularly: Retirement planning isn’t a one-and-done task. Regular check-ins can help you make course corrections as needed.
Creating Your Retirement Blueprint
Robin’s story shows that retirement planning doesn’t have to be overwhelming. By following a structured process, you can transform complex questions—like “When can I retire?”—into actionable steps. Whether you’re planning for the next year or the next 30, the goal is to create a roadmap that aligns with your needs and aspirations.
If you’re unsure where to start, consider using financial planning tools or consulting with a professional. Retirement is about more than numbers—it’s about achieving peace of mind and the freedom to enjoy this new chapter of life. With careful planning, you can make that vision a reality.
