I recently read an online article titled “I've done the math: I can retire at 66 with $550,000 in the bank and not a penny more. How do I make it last?” Can you spot the problems with the statement and the question? First, the statement expresses confidence in starting retirement, but the question implies doubt about making it to the end of retirement. It would have been better to phrase the question: “Could I retire at 66 with high confidence of not running out over a long retirement, given the lifestyle I expect to live?”

If you think you’ve done the math, did it include a detailed list of retirement expenses and expected income? Do you know which expenses will go away and which new ones will arise after retirement? What are your expectations for lifestyle changes? Did you estimate retirement income from Social Security, pensions, and investments? Do you know how much income your investments could produce annually, and do you have a plan to draw down the balance? What assumptions about life expectancy and long-term care did you make? Did you stress-test your assumptions for higher expenses, higher inflation, and lower investment returns? If you did the math correctly and completely, you’re on your way to answering the “and not run out” part of the question.

Even the most conservative plan to draw down retirement savings still carries risks because of the length of time you may spend in retirement and the possibility of unexpected events. Let’s say you did the math at 64, two years before retirement, in 2020. The following two years of higher inflation resulted in ~8% higher expenses than you assumed. Inflation generally doesn’t go back to zero or return prices to their previous values, so your entire retirement, starting at age 66, will now be 8% more expensive. Think about that for a minute.

A stress test should account for 2 years of inflation right before retirement, include 10% or 15% higher expenses during retirement, and reflect higher-than-average inflation in future years. Then consider the increased risk of unexpected events the earlier you retire. For example, if you retire to the Southeast coast, retiring at 66 instead of 70 means four more hurricane seasons to get through, plus higher home insurance increases when you no longer have an income - that’s added risk. Unexpected event risks can be mitigated with a sufficient emergency fund, insurance, and by ensuring the spend-down leaves a substantial amount available for your old age. However, this risk mitigation must be built into your plan; otherwise, the risks are not addressed. Finally, the assumptions associated with spending retirement savings require understanding how retirement income is generated, its stability and reliability, and the risk of principal loss. In other words, you can’t assume an income portfolio yield of 7% because that’s a risky assumption, not just the high yield but also the possible loss of principal; 4.5% is a better assumption. Now you see the question at the beginning is not so easy to answer.

Unfortunately, like many online finance articles, the article mentioned above never really answered the question; rather, it repeated common retirement advice—delay Social Security, use a Roth to lower taxes, move to a lower-cost-of-living state, etc.—and left the reader with clickable links to financial services providers that can help. I’m not even sure the article was original when it was posted, or just a reformat of one from last month. I see many articles that pose similar questions about a savings number and age, and they invariably recommend a financial planner or advisor as the only way to get the answer. However, I’ll remind you that there are two equally good ways to answer the “Enough to Retire?” question: (1) hire a professional or (2) take the time to learn and do it yourself. Unfortunately, many follow the third option—ignoring the question as the years pass, eventually resulting in a less secure retirement than it could have been.

When browsing financial websites, always —and I really mean always— be skeptical that the advice is complete, unbiased, and suitable for you. You cannot answer a question like the one at the beginning by reading a few online articles because the work required to arrive at the answer for you is either work you pay someone to do or work you do as you learn over time. As you get smarter about money, you’ll recognize the shortcomings of these online articles and start to see them for what they are: paid advertisements designed so that a quick answer to your money problem is just a click away.

Read more about preparing for retirement in What Would Dad Do? - Volume 3: Top of Retirement Hill Though Old Age