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  • Doug Oosterhart, CFP®

Three Variables That Affect Your Retirement Success

What are the most important variables to consider when planning for retirement?

Although each plan is different, there are a few common ones that apply to the masses. If you read retirement planning publications, you see a lot of headlines touting, "The Best Investment for Retirees" or "The Highest Returning Investment Retirees Should Know About."

These headlines lead people to believe that the most important determinant of success for retirement is the rate of return. Yes, the rate of return is important for a portfolio, but not for the reasons you may think. After all, can you really control your rate of return? Companies spend millions each year try to beat the market and get even a tenth of a percent more than the indexes. More on this later. We are going to focus on controlling what we can control first.

The Triple Whammy

Earlier this year, I spoke to a prospect that was thinking about modifying a few variables in their retirement plan. They were all things that they could control but were also the three most important levers in determining their chances of success.

  1. They wanted to retire early

  2. They wanted to spend more per month in retirement

  3. They wanted to move their portfolio to "safe" investments (aka mostly cash)

I called this the triple whammy on how to destroy their retirement success.

These are all items that one can control. Yet for some reason, people think that the tax environment, what the market did last week, or whether Social Security will get cut are what they should worry about.

In reality, a 20% market crash doesn't have as much impact as you'd think. Below is a stress test of a retirement plan with a baseline chance of success at 91% (55 year old with $1.5 million in assets). As you can see, market crashes, raised taxes, slashed Social Security benefits, etc. do not change the chance of success all that much.

But what about retiring at 60 instead of 62? What about spending an extra $1,000 per month? What about moving to a "conservative" portfolio (like 25% stocks, 25% bonds, 50% cash)?

Baseline success rate (same as above): 91%

Retiring at 60 instead of 62: 83% (not too bad)

Spending $7,000 per month in retirement instead of $5,000: 61% success rate

Moving half of the money to cash: 69% success rate

What if one were to do all three (retire early, spend more, move half to cash)?

A whopping 0% chance of success.

Compare that to the photo above - all the way to the right shows a combined situation where the market crashes, taxes go up, Social Security is slashed, the person lives 10 years longer than we expected, inflation goes up, health care costs continue to rise, and their money doesn't return the amount we project (the "Doomsday Scenario") - there is still about a 25% chance of success.

At the end of the day, controlling what you can control determines how successful you are. The old adage of "Stay the Course" is very boring, but it works. It also allows the investor/retiree to live with less stress.


Your savings rate (the amount you save) plays a bigger role than your rate of return.

Your spending rate (in retirement) plays a bigger factor than what tax policy is being proposed.

Moving your portfolio to cash is almost always a recipe for disaster long-term.

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