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Jul 11 2011 12:00AM

Question


I am 52 years old and had plans on retiring at 50 if things hadn’t gone so wrong with my financial plan. I am now wondering how solid my new plan is and if I can weather another financial crisis. Do you have any good ideas on how to “stress test” my personal financial plan? I can’t predict the future, but I’d like to have a bit more confidence.

Answer


“One measurement that you might find useful in 'stress testing' your retirement plan is to project your withdrawal rate at four percent of your retirement assets,” said FPA member Roger Reed, CFP®, of TrustCore Financial Services, Inc. “If this rate supports the income you need in your retirement years, there are studies that have been conducted on withdrawal rates from Wharton and others that conclude this rate is sustainable. One other consideration is to withdraw four percent of the prior year ending balance for the current year. [When] using this methodology, the withdrawal dollars will vary each year based on the underlying performance of your portfolio. Please be aware that complete data has not been gathered, alternatives have not been considered and a financial planning engagement has not been established.”

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