How to Live Off Your Investments and Stress Test Your Portfolio

How to live off your investments and stress test your portfolio - Roger Whitney

In this episode, we talk about how we can set our investments up so that we can live off them in retirement (whether it’s a traditional retirement or early retirement).

We also cover the important subject of how to stress-test our investment portfolio so that we can help ensure that we don’t run out of money in our retirement.

You can also use these tools to see (approximately) if you actually have enough to retire now (or to see how much more you need).

Our Expert Guest: Roger Whitney

Today’s guest is someone that has been mentoring me without even knowing it, in the field of financial planning. I say “mentoring” because I’ve learned so much from him, just by listening to his podcast for years.

His name is Roger Whitney, and he is known as the Retirement Answer Man.

He’s been a Certified Financial Planner for over 25 years, with many designations including CFP, CIMA, CPWA, and more.

The one caveat that I will say is that he is in the United States and so in this episode, I take the knowledge and best practices that he shares, and I translate it so that it’s applicable and relevant to us Canadians too.

Roger’s Amazing Educational Resources:

Roger’s Rock Retirement Club (applicable to Canadians)

Roger’s Book: Rock Retirement

Roger’s Main Site: Retirement Answer Man

Roger’s Podcast: Retirement Answer Man Podcast

New Tool: Get Your Credit Score Checked for Free

A big thanks to Borrowell for sponsoring the show and for building such a great free tool that we can use to check our credit score. It has saved me a lot of time when I want to quickly check the status of my credit score (for example, to ensure there has been no fraud or identity theft on my accounts). 

You also obviously want to make sure your score is as high as possible for any mortgages or other loans that you end up applying for (to ensure you get the lowest rate and get approved). 

Even if you aren’t looking for a loan, I ecourage you to at least pull your report for free to help ensure that there are no unauthorized transactions on your accounts. As a best practice, you should be doing this kind of check at least annually

Thanks again Borrowell for building a tool where we Canadians can finally get access to this data quickly and for free. 

Free Monte Carlo Simulation Tools:

To help ensure that you have enough to retire, we talked a lot about Monte Carlo analysis. Below are three tools that I use where you can run Monte Carlo simulations for free:

Questions Covered:

1. Let’s say you created a comprehensive financial plan with a client. You give them the green light to retire and they do so. A year later, we run into a 2008 scenario, or a large stock market decline. When you do your annual/semi-annual review with the client, what’s the process that you go through to determine if they are still okay, or if they need to make some adjustments?

2. I’ve noticed that you’re a heavy user of Monte Carlo simulations to stress-test whether someone has enough to retire. For somebody that hasn’t heard of this before, can you explain what it is?

There are free tools out there like and that let people run their own Monte Carlo simulations to see if they have enough to retire. Do you have any advice when using tools such as these? For example, are there any common mistakes that you see people do when using them?

3. I noticed that not all financial planners and financial planning software do Monte Carlo stress-tests like you do. The most common alternative that I’ve seen, is that in the financial planning software, the financial planner just enters what rates of return they expect the client to receive for the different years when doing the retirement projections. When using this alternate method, how should listeners of the show ensure that their financial planners are stress-testing their retirement projections to ensure that they still have enough to retire, even if they hit a major recession shortly after retirement? (i.e. they get hit by a bad sequence of returns)

4. After listening to your podcast for years, I got the sense that you are a fan of the bucket strategy. Can you explain what it is, and can you talk about the default bucket strategy that you like to start with, and then how do you adjust it depending on the client?
(i.e. In one of your episodes, you mentioned 2 years of living expenses in cash, maybe another 3 in safe investments, emergency fund, etc.)

5. Do you subtract dividends/interest from that “annual expenses” figure when determining how much cash/fixed income to have?

6. Do you have some sort of rule/process when it comes to refilling the buckets. For example: “If X happens in the markets then I’m selling off equities to generate cash to live from. If Y happens then I use a cash cushion or the bond portion and I refill it when markets are up by a certain percent”?

7. How would your bucket strategy differ when dealing with a traditional retiree (ex. Age 65), vs an early retiree (ex. Age 30s or 40s)

8. Do you have a preferred way(s) of helping clients deal with sequence risk? (please define it too for those that are new to this) 

9. When you’re working with clients and strategizing on what should be in the fixed income/safe portion of their portfolio, how do you determine how much they should put into bonds vs a high-interest savings account vs GICs? (GICs are the US version of CDs) Are there certain rules or processes that you like to follow to determine this?

10. A lot of the listeners of this show are do-it-yourself investors, and you’ve built a really great on-line community of do-it-yourself retirees as part of your Rock Retirement Club. Can you tell us more about the Rock Retirement Club, as well as a bit more about your podcast and where we can learn more from you?

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