How to Stress Test a Retirement Plan Before Life Does

About one in three 65-year-olds may live to 90 or beyond. If your plan stops at 85, it is betting against a third of retirees (Social Security Administration, Retirement Information for Medicare Beneficiaries, 2026). That's what learning how to stress test a retirement plan comes down to. You break the plan on purpose, with bad markets, a long life, big medical bills and smaller benefits, so you find the weak spots now and not at 78.

The short answer: get a baseline probability of success, then add one realistic shock at a time and rerun it. After that, stack the shocks together. Watch which ones cause the biggest drop. Those are the parts of the plan to fix.

The rest of this guide shows how to do each step, with numbers.

Why an average-return projection isn't a stress test

A spreadsheet that grows your savings at a steady 6% or 7% a year tells you what happens if every year is average. No year is average.

That's why many planners use Monte Carlo simulation. In plain terms, it runs your plan through many possible futures. Some have early crashes, some have strong decades, some have long stretches of inflation. Then it counts how many of those futures still have money in the account at the end. The result is a probability of success, not a promise.

The gap between those two methods can be big. Advisor.guide describes a $2 million portfolio spending $100,000 a year. It looks fine in a straight-line spreadsheet but fails about 45% of the time in a Monte Carlo test (advisor.guide, Retirement Readiness Stress Test 2026).

How to stress test a retirement plan in seven steps

Step 1: Get your baseline

Start with three numbers: your age, what you've saved for retirement and what you spend each month. Run them through a Monte Carlo engine and write down the success rate. Every test after this gets compared to that number.

Step 2: Check your withdrawal rate against 3.9%

Divide your yearly spending from savings by your portfolio. That's your starting withdrawal rate.

Morningstar's latest research puts the safe starting withdrawal rate at 3.9%, up from 3.7% the year before. "Safe" means the highest starting rate that still left money after 30 years in 90% of simulated outcomes, for portfolios holding 30–50% stocks (Morningstar, The State of Retirement Income 2025, Dec 2025, via Financial Advisor magazine).

If you're well above 3.9%, expect the stress tests to bite harder.

Step 3: Crash the first year

The order of returns matters as much as the average. A loss in year one, while you're also taking money out, does more damage than the same loss in year fifteen. This is called sequence-of-returns risk.

To test it, model a 25% to 50% portfolio drop in the first year of retirement (Advisorpedia). For a harsher version, put the worst five to ten years of returns at the start (advisor.guide).

Step 4: Live longer than you expect

Morningstar's 3.9% assumes a 30-year retirement. If you retire at 62 and live to 95, that's 33 years. Extend the plan's end age and rerun it. A plan that only works if you die on schedule doesn't really work.

Step 5: Add the health care bill

Fidelity estimates that a 65-year-old retiring in 2025 will spend $172,500 on health care over retirement. That covers Medicare premiums, deductibles and prescriptions. It's up 4.5% from the year before and leaves out long-term care entirely (Fidelity Investments, 2025 Retiree Health Care Cost Estimate, Jul 2025). That figure is per person. A couple has two of them.

Fidelity updates this estimate each year, so check for the newest one. Then make sure health care is a real line item in your spending, not something you're hoping your monthly number already covers.

Step 6: Trim Social Security

The current listicles mostly skip this one. The 2025 Social Security Trustees Report projects that the main retirement trust fund runs out in 2033. Unless Congress acts, benefits would then be cut by about 23% (Bipartisan Policy Center). A later update says Social Security's chief actuary expects the July 2025 tax and spending law to move that date up to 2032 (American Academy of Actuaries).

Nobody knows what Congress will do. But running your plan with a 23% smaller benefit from the early 2030s on is a fair test.

Step 7: Stack the shocks

Real trouble rarely shows up one problem at a time. Picture a crash in year one, high inflation, then a health event, all inside the first decade or so (holdingcost). Run that combined scenario last. It's your worst realistic case, and seeing it calmly ahead of time is the point.

A worked example

Here's a hypothetical 62-year-old. These numbers are for illustration only.

• Saved: $900,000
• Spending from savings: $3,500 a month, or $42,000 a year
• Starting withdrawal rate: 4.67%

At 3.9%, $900,000 supports about $35,100 a year, or roughly $2,925 a month. So this person has a few choices. They can spend about $575 a month less, save more first, work longer, or adopt a flexible spending rule (more on that below). Each one can be tested the same way.

How to read your success rate

A common rule of thumb among planners is to aim for an 85–95% success rate and to treat anything below about 80% as material risk (Dividend Vision). Use it as a guide, not a law.

Two things to keep in mind:

• A "failed" future usually doesn't mean going broke overnight. In real life, most people would see trouble coming and cut spending. A failed test shows where the plan could fall short. It doesn't mean retirement is off the table (Nasdaq).
• 100% isn't the goal. Getting close to certainty often means working years longer or spending much less than you could.

What to do if your plan breaks

Most fixes come down to a few levers:

1. Spend less, or start lower. A lower withdrawal rate is the most direct fix.
2. Work a little longer. Each extra year adds savings and takes a year off the retirement you have to fund.
3. Be flexible about spending. Morningstar's research found that flexible methods, which trim withdrawals after bad years, can push the starting safe rate as high as 5.7% (Boldin). The trade-off is that your income moves around.
4. Revisit your mix of investments. The 3.9% figure is tied to a 30–50% stock allocation. A different mix gives a different answer.

After each change, rerun the full set of shocks. If the fix only works in the baseline, it hasn't fixed anything.

The limits of any stress test

Be honest about what the model can and can't tell you. Many simulators assume market returns follow a neat bell curve. Real markets crash harder and more often than that (Dividend Vision). The results also swing a lot depending on the returns and volatility you assume (Hedge Fund Alpha).

So treat the output as a range of odds, not a forecast. Rerun it every year, or whenever your savings, spending or health changes a lot.

Your stress-test checklist

• Baseline success rate recorded
• Withdrawal rate compared to 3.9%
• 25% and 50% first-year drops tested
• Plan extended to at least age 95
• Health care costs listed as their own line item
• Social Security cut by 23% from the early 2030s
• All shocks stacked together
• Fix chosen and retested against every shock

Run your own numbers

According to the EBRI/Greenwald 2025 Retirement Confidence Survey, 48% of workers have never estimated what they'll need each month in retirement. A stress test only works once you have that first number.

At Monte Climb, you start with three numbers: your age, your savings and your monthly spending. We run them through 1,000 simulated futures and show what share stay funded. Plans run to age 95 by default, and you can push that further. The engine charges Medicare premiums and income-based surcharges year by year instead of using a flat guess. It runs in your browser, and nothing is saved until you say so.

Then try your own stress tests. Change the spending, change the age, and see how the probability moves. If you want to talk it through, ask William, our AI planner, questions like "Am I on track?" or "Can I retire at 62?"

It's planning software, not advice. It gives you a probability, not a promise.

Show my answer →

Frequently asked questions

What does it mean to stress test a retirement plan?

It means running your plan through realistic bad scenarios on purpose to see whether your money still lasts. Examples include a market crash early in retirement, living into your 90s, high health care costs and a cut to Social Security. The aim is to find weak spots while you still have time to fix them.

What is a good Monte Carlo success rate for retirement?

A common rule of thumb among planners is 85–95%, with risk becoming material below about 80%. Treat it as a guide, not a guarantee. A lower score shows where the plan could fall short, and usually means you'd need to adjust spending, not that you'd go broke.

What is a safe withdrawal rate in retirement?

Morningstar's research puts the safe starting withdrawal rate at 3.9%. That's the highest starting rate that lasted 30 years in 90% of simulated outcomes, for portfolios holding 30–50% stocks. Flexible spending methods can push it higher, up to 5.7% in Morningstar's analysis.

How much should I plan for health care in retirement?

Fidelity's 2025 estimate is $172,500 for a 65-year-old, covering Medicare premiums, deductibles and prescriptions over retirement. It doesn't include long-term care, and it's per person, so a couple needs to plan for two.

Should I include a Social Security cut in my stress test?

It's a reasonable test. The 2025 Trustees Report projects that the main retirement trust fund runs out in 2033, after which benefits would be cut by about 23% unless Congress acts. A later estimate moved that date up to 2032. Running your plan with a smaller benefit shows how exposed you are.