But what if things you never anticipated happen? Retirement Test Drive lets you make those adjustments, and repeat your test drive. With the revised analysis, you can reconsider your retirement plans and make the necessary adjustments.

Retirement Test Drive: Case Study 1

Dr. Rusty Scalpel and his wife had just been working with their advisor on their retirement and estate planning. Much of the planning dealt with estate planning manners, as their retirements seem to be well funded. In fact, he had worked closely with the advisor to consider exactly when to retire. PlanLab’s Estate Tax Analysis was used to formulate an estate plan. Then Retirement Test Drive was used to see how it would work and the advantages and disadvantages of various retirement dates. The whole process was being finalized. Then the economic crisis of 2008 occurred.

Rusty and his wife became very concerned—would their plans still work? Should they take their losses and convert everything to cash? Did their plans allow time for the market to recover? Should they start over? It was time to take another Retirement Test Drive.

Their advisor modified their plan to reflect the current values of their investments and retirement plans. The results were favorable; the program showed that even after adjusting the values for the current market losses of almost 40% in the past year, their plan could still provide for the lifestyle spending they desired.

But October 2008 was a very scary time. Had the economy reach bottom? What would the new president and new Congress do? At what point would their plans not work?

The advisor, using alternative scenarios with their Retirement Test Drive analysis, made additional changes. The cost of living assumptions were adjusted upward in the event of increased inflation in the future. Values of investments and retirement plans were set to twenty-five percent (25%) of their 2007 values. Retirement Test Drive showed that their plans still could support their desired retirement lifestyle through year 2040, although their net worth would be significantly decreased and the net to heirs would be somewhat decreased. Rusty and his wife now felt confident that their plans did not need to be changed at this time.

Retirement Test Drive, with its scenario “what-if” planning features, can reassure clients when things change. Its graphics (Illustration 1) makes it simple to see the effects of changes. The second illustration (Illustration 2), using Monte Carlo Simulations, showed that the probability of success for the first ten years was about the same in both scenarios, but that continued success after that were less. The advisor was able to put some of their fears to rest—they did not need to make any immediate changes.

Retirement Test Drive: Case Study 2

Take the case of Robert and Andrea. Their planning had required considerably more adjustments in the initial planning. Using Retirement Test Drive last year, they were able to make a number of adjustments so that their retirement lifestyle could be met. They had not prepared for retirement to the degree of the Scalpels in the prior sample. However, they were able to make the adjustments that could meet expenditures for many years. Of course, in October 2008 their advisor received their panic phone call, “What should we do?”

By adjusting the values for the current market conditions, and using the revised scenario, they were able to retake their Retirement Test Drive. The results showed that for the next eight years (8), their plans would continue to work. However, unless the market recovered some of its recent losses, adjustments would have to be made. Again, a simple graph (Illustration 3) was used to show Robert and Andrea the effects of the current conditions on their plan. It showed when the shortfalls were likely to occur. By retaking their Retirement Test Drive from time to time, they would know when changes would be necessary.

Retirement Test Drive is not just a great tool for analyzing retirement plans, but it is a great tool for restoring a clients’ confidence in their retirement plans.  Retirement Test Drive can be used with any plan developed with one of PlanLab’s analysis tools. Retaking a Retirement Test Drive lets you see how your plans work in a world of changing conditions.

For example, a retirement calculator prompts for desired retirement income, years until retirement, and the amount of retirement savings. After adjusting for inflation and anticipated earnings, it determines that additional monthly savings of $1,000 are needed from now until retirement. This is a one-sided solution: if everything else remains the same, then this solution works. BUT, in real life, where does the $1,000 month come from?  Will other expenses or savings have to be reduced to save an additional $1,000 a month? In reality, expenses and/or discretionary spending must be reduced by $1,000 per month in order to save an additional $1,000 a month – that is the other side of the calculations.

A cash flow analysis considers not only the benefits of the solution, but also the costs of the solution. For the above example, a cash flow analysis would determine that the same $1,000 of additional savings is necessary, but it would also show the impact on other expenses and help determine which expenses needed to be cut, or other assets used to make the solution work. If assets that would have been used for retirement are now used for the additional savings, then it is not a solution. It would be the same as moving money from one pocket to the other with no net benefit.

Simple illustrations and calculators are great for providing pieces of the puzzle. This can be very useful in setting expectations of a solution. Only with a cash flow analysis can you show both the benefits of a solution and its impact on other financial items. Only with a cash flow analysis can you show the other side of the solution.

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