Assessing Your Retirement Readiness
Dana Anspach of Sensible Money describes a cash-flow-based projection model with a defined set of assumptions to administer three specific retirement readiness tests.
Key Takeaways
- Use detailed cash flow projections that model actual spending patterns (mortgage payoff timing, healthcare cost changes at 65, major home repairs, auto purchases) rather than broad assumptions to determine accurate annual withdrawal needs
- Apply a three-part retirement readiness test: Monte Carlo analysis (80%+ success rate), fundedness test (110%+ ratio using 4% discount rate), and historical back-testing (100% success in all scenarios since the Great Depression)
- Aim for a guaranteed income coverage ratio of at least 50% by age 70-72 through Social Security, pensions, and annuities—this baseline income provides security and actually allows retirees to spend more comfortably overall
- Start comprehensive retirement planning at least 5 years before your target retirement date to reduce stress, ease the transition, and identify optimization opportunities like Roth conversions or strategic Social Security claiming
- Test major retirement decisions mathematically (Roth conversions, IRA withdrawal sequencing, Social Security timing) to see if they improve outcomes on multiple dimensions: after-tax remaining assets, guaranteed income, fundedness ratio, and historical success rate
Assessing Your Retirement Readiness: Dana Anspach of Sensible Money describes a cash-flow-based projection model with a defined set of assumptions to administer three specific retirement readiness tests. For more Dana Anspach videos on finStream, please visit https://www.finstream.tv/featured/dana-anspach/ or visit Dana's company website: https://www.sensiblemoney.com/
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