How to Model 'What If' Scenarios for Retirement

Picture this: You're 62, finally ready to retire, and then the market drops 30%. Or imagine you're cruising along nicely at 70, and suddenly you need $80,000 for long-term care. These aren't scare tactics. They're real possibilities that catch too many Americans off guard.

Here's the truth: the future is uncertain, but it's not unpredictable. While you can't know exactly what will happen, you can prepare for the most likely scenarios and many of the curve balls life might throw. That's where retirement scenario planning comes in.

Think of it like weather forecasting for your finances. Meteorologists can't tell you if it'll rain on June 15th, 2035, but they can model different atmospheric conditions to help you prepare. Similarly, modeling retirement what if scenarios helps you stress-test your plans and make adjustments now, while you still have time.

Most people plan for retirement using what I call the "straight line" method. They assume a 7% return, retiring at 65, living until 85, and spending the same amount every year. It's clean, simple, and almost certainly wrong.

Life rarely follows a straight line. Markets zigzag. Health situations change. Plans evolve. That's not pessimism, it's reality, and you can use it to your advantage.

Scenario planning lets you answer the questions that keep you up at night:

• What if I retire three years earlier than planned?
• What if my investments only return 5% instead of 7%?
• What if one of us needs nursing home care?
• What if we live to 95 instead of 85?
• What if Social Security benefits are reduced by 20%?
• What if inflation stays higher than the historical 3% average?

By modeling these situations now, you can make informed decisions about how much to save, when to claim Social Security, whether to work part-time in early retirement, or how to adjust your asset allocation. You're not predicting the future. You're preparing for multiple versions of it.

Not all variables deserve equal attention. Some have massive impacts on your retirement outcomes, while others are interesting but not game-changing. Let's focus on the heavy hitters worth modeling.

1. Retirement Age (The Biggest Lever You Control)

Working just two or three extra years can dramatically improve your retirement security. Why? You're accomplishing four things at once: continuing to save, giving existing savings more time to grow, reducing the number of years your nest egg needs to last, and potentially increasing your Social Security benefit.

Model retiring at 62, 65, 67, and 70. For each scenario, check your projected monthly income against your expected expenses. You might discover that working until 64 instead of 62 eliminates the need to cut your retirement budget by $1,000 per month. That's powerful information.

2. Investment Returns (The Variable You Can't Control But Must Prepare For)

Historical stock market returns average around 10% annually, but that's a terrible number to plan with because it hides enormous year-to-year variation. The sequence of returns matters enormously, especially in the first decade of retirement.

Try modeling these scenarios:

• Conservative: 5% average annual return
• Moderate: 6-7% average annual return
• Optimistic: 8% average annual return
• Early recession: A 25% drop in year one of retirement, then recovery

If your plan only works with 8% returns, you don't have a plan. You have a wish. A solid retirement strategy should survive even your conservative scenario.

3. Longevity (Planning to Run Out of Money is Not a Strategy)

According to the Social Security Administration, a 65-year-old man today has about a 50% chance of living past 84, and a 65-year-old woman has a 50% chance of living past 86. But here's what matters more: if you're married, there's a strong probability one of you will live into your 90s.

Model your retirement lasting until age 90, 95, and even 100. Yes, it feels excessive when you're planning at 55, but running out of money at 88 because you planned for 85 is a nightmare scenario worth avoiding.

4. Healthcare Costs (The Wild Card That Sinks Many Plans)

Fidelity estimates that a 65-year-old couple retiring today will need approximately $315,000 to cover healthcare costs in retirement, not including long-term care. And that's just the average scenario.

Model these healthcare situations:

• Baseline: Medicare plus supplemental insurance, normal health
• Major illness: Additional $50,000-$100,000 for serious condition
• Long-term care: $60,000-$100,000 annually for assisted living or nursing home

Don't forget that Medicare doesn't start until 65. If you retire earlier, you'll need to budget for health insurance premiums that could easily run $1,500-$2,000 monthly for a couple.

5. Inflation (The Silent Retirement Killer)

At just 3% annual inflation, your spending power gets cut in half over 24 years. A $50,000 annual budget today would need to be $100,000 in 24 years to maintain the same lifestyle.

Test different inflation scenarios:

• Low inflation: 2% annually
• Historical average: 3% annually
• Elevated inflation: 4-5% annually (what we've seen recently)

This is especially important for understanding how your fixed income sources (like a pension or annuity without COLA adjustments) will lose purchasing power over time.

Understanding which variables matter is half the battle. Now let's talk about how to actually model these retirement outcomes.

Step 1: Establish Your Baseline Scenario

Start with your current best-guess plan. This might include retiring at 65, investing for 6.5% average returns, living until 90, experiencing 3% inflation, and needing $60,000 annually in today's dollars. This becomes your reference point for comparison.

Document everything: your current savings across all accounts (401(k), IRA, Roth IRA, taxable accounts, HSA), expected Social Security benefits (get your estimate at ssa.gov), any pension income, and your projected annual spending in retirement.

Step 2: Create Your Three Core Scenarios

Now build three primary models:

Best Case: You retire at your target age, markets perform well (7-8% returns), you stay healthy, inflation stays moderate, and you live to your life expectancy. This scenario should make you feel confident and excited about retirement.

Most Likely Case: Use moderate assumptions. Maybe 6% returns, occasional health issues but nothing catastrophic, retiring within a year of your target date, and living 3-5 years beyond average life expectancy. This is your realistic planning scenario.

Stress Test: Markets return only 5%, you face a major health expense, inflation runs higher than expected, and you live to 95. If your plan survives this scenario, you can sleep well at night.

Step 3: Run Specific "What If" Tests

Beyond your three core scenarios, test specific situations you're worried about:

• What if I get laid off at 63 and have to retire earlier than planned?
• What if we want to help our kids with a down payment?
• What if my spouse passes away early and I lose their Social Security benefit?
• What if we want to travel extensively for the first 10 years, then scale back?

These targeted tests help you understand which risks are manageable and which ones require mitigation strategies.

Step 4: Compare the Outcomes Side by Side

For each scenario, calculate these key metrics:

• Total projected savings at retirement
• Monthly/annual income from all sources
• Percentage of pre-retirement income replaced
• Age when portfolio depletes (if applicable)
• Surplus or shortfall at life expectancy

This comparison reveals your vulnerabilities. Maybe you notice that in every scenario where you retire before 65, you run out of money by 82. That's actionable intelligence.

Step 5: Identify Your Decision Points

Scenario planning isn't just about seeing possible futures. It's about informing today's decisions. Based on your scenarios, ask:

• Do I need to increase my 401(k) contributions now?
• Should I delay claiming Social Security beyond my full retirement age?
• Is it worth working part-time for the first few years of retirement?
• Should I shift to a more conservative asset allocation?
• Do I need long-term care insurance?
• Should I consider a Roth conversion strategy to manage future taxes?

You don't need fancy software to start scenario planning, though good tools certainly help. Here's what's available:

Free Online Calculators: The Social Security Administration's retirement estimator lets you model different claiming ages. Many brokerage firms (Fidelity, Vanguard, Schwab) offer free retirement calculators to their customers that allow basic scenario testing.

Spreadsheet Modeling: If you're comfortable with Excel or Google Sheets, you can build your own scenario models. Start simple with columns for different ages, income sources, expenses, and ending balances. The advantage is complete customization to your situation.

Comprehensive Planning Software: Tools like fidser. offer sophisticated retirement what if scenarios with Monte Carlo simulations that run thousands of potential outcomes based on historical market behavior. These show you probability ranges rather than single projections.

Professional Financial Planners: A fee-only certified financial planner (CFP) can create detailed scenario analyses using professional-grade software. This is especially valuable if you have complex situations like a pension, stock options, multiple properties, or small business ownership.

The best approach? Start with free tools to understand the concepts, then graduate to more sophisticated modeling as your situation requires.

Being Too Optimistic Across the Board: Your baseline scenario should be realistic, not best-case. Assuming 9% returns, perfect health, and dying exactly at life expectancy is setting yourself up for disappointment.

Forgetting About Taxes: A $50,000 withdrawal from your traditional 401(k) is not $50,000 in spending money. Model your scenarios using after-tax income. Remember that Social Security benefits can be taxed too (up to 85% of benefits if your combined income exceeds certain thresholds). Roth IRA withdrawals, however, are tax-free in retirement, which is why Roth conversions can be valuable to model.

Ignoring Required Minimum Distributions (RMDs): Starting at age 73, you must withdraw minimum amounts from traditional IRAs and 401(k)s whether you need the money or not. These RMDs can push you into higher tax brackets and affect Medicare premiums. Factor them into your later-retirement scenarios.

Treating All Retirement Years the Same: Most retirees spend more in their 60s (active years with travel), less in their 70s and early 80s (slowing down), and then more again in late 80s and beyond (healthcare costs). Model this reality rather than assuming flat spending for 30 years.

Running Scenarios Once and Never Updating: Your scenarios should evolve as your life does. Rerun them annually, or whenever something significant changes (job loss, inheritance, health diagnosis, market crash). Scenario planning is an ongoing practice, not a one-time exercise.

After running multiple scenarios, patterns will emerge. Here's how to interpret what you're seeing:

If you succeed in all scenarios: Congratulations! You're in great shape. You might even consider whether you're being too conservative. Could you retire earlier, spend more freely, or help family members without jeopardizing your security?

If you succeed in most scenarios but fail in the stress test: You're in a good but not bulletproof position. Consider building in additional buffers by working another year, increasing your savings rate, or maintaining flexibility to reduce spending if needed.

If you only succeed in the best-case scenario: You need to make changes now. This might mean significantly increasing contributions, planning to work longer, reducing expected retirement spending, or some combination. The good news? You're discovering this while there's still time to adjust.

If you're failing across all scenarios: Don't panic, but do take action. You may need to fundamentally rethink your retirement timeline, consider geographic relocation to a lower cost-of-living area, plan for part-time work in retirement, or explore ways to increase income now. A conversation with a financial planner can help you develop a recovery strategy.

Remember, the point of scenario planning isn't to achieve perfection. It's to identify vulnerabilities while you can still do something about them. Every scenario that highlights a potential problem is giving you a gift: the opportunity to prepare.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial advice. fidser. is not a certified financial planning firm, and we do not provide personalized financial advice. Every individual's financial situation is unique, and retirement planning involves complex decisions with long-term consequences. Before making any significant financial decisions, including retirement planning choices, investment strategies, or insurance purchases, please consult with a qualified financial advisor, certified financial planner (CFP), or other appropriate professional who can evaluate your specific circumstances and goals.