The financial stress test to run before retiring

Retirement planning often begins with one attractive number: the balance in the accounts. But retirement is a cash-flow transition. Paychecks change or stop; spending continues; investment returns arrive in an unpredictable order. A useful test asks whether the household can keep meeting obligations if the first years are harder than the average year.

Start with an annual retirement budget: housing, food, utilities, transportation, insurance, taxes, healthcare, travel, family support, and irregular replacements such as vehicles or roofs. Separate essential spending from flexible spending. Then estimate dependable income, which might include a pension and an individually checked Social Security estimate. Subtract that income from spending to find the amount your assets or other work need to supply. This is a starting gap, not a safe withdrawal recommendation.