Retirement Dress Rehearsal: Testing Your Financial Plan Before You Retire

Imagine trying to bake the perfect batch of chocolate chip cookies for your granddaughter’s bake sale. The catch? You’re using a recipe you’ve never tried before. Sure, there’s a chance they could turn out perfectly fine. But as any home baker will tell you, more often than not, that first batch is best considered a “tester.” You’ll still need to fine-tune the cooktime, adjust measurements, and perfect the end result before it really counts.

Retirement should work the same way, because everyone could use a practice round before “going live.” Think of a “retirement dress rehearsal” as your opportunity to preview how your financial plan performs in real life, while there’s still time to make adjustments.

Bring Your Paper Plans Into the Real World

You can spend years mapping out your retirement based on historical data, projections, and time-tested strategies. But until you take those numbers off the page and drop them into the real world, you really won’t know whether the plans you’ve created will actually work for the retirement you envision.

This is especially important if your strategy relies on general guidelines like the 4% withdrawal rule (which indicates it’s safe to withdraw 4% of your portfolio each year in retirement to ensure longevity). While such benchmarks can provide a starting point, they don’t account for your specific expenses, lifestyle goals, or the economic realities you’ll face up to and through retirement. A dress rehearsal helps you identify whether your plan is built for your version of retirement.

Start by Calculating Projected Income & Expenses

So, how do you conduct a retirement dress rehearsal? By living off your anticipated retirement budget for a few months now, so you can identify what’s working well (or what needs improving) before the big day comes.

Start off by writing down every source of income you’ll have access to in retirement. Here’s an example list to help get you started: 

• 401(k)

• IRA or Roth IRA

• Taxable investment account

• Checking and savings

• Social Security

• Pension plan

• Parents’ inheritance

• Real estate investments

• Part-time work 

As best you can, try and estimate how much of each income source you’ll have access to each month in retirement. This won’t be a perfect calculation, but try your best. You can use online calculators to estimate future values.

Next, try to calculate your monthly expenses (as best you can). Again, you’ll want to compile a list of anticipated expenses. Some examples include:

• Mortgage or rent

• Utilities

• Insurance premiums

• Subscriptions and memberships

• Car or transportation expenses

• Groceries

• Entertainment

• Travel

• Home repairs

• Gifts or financial support for kids and grandkids

Add them up. How do your expenses compare to your income each month? Are you happy with the results, or do you see a funding shortfall? If you do, don’t fret! That’s exactly what this exercise is designed to reveal. Identifying potential gaps now gives you the flexibility to adjust and improve while you’re still earning. 

Now, Test Your Retirement Projection

Once your anticipated retirement budget is in place, it’s time to put your planning to the test. For the next two months, try your best to live on the income you expect to have in retirement. If your projected retirement income is less than your current paycheck, practice living on that amount. If it’s more, consider temporarily dipping into your savings to simulate what your retirement cash flow might feel like.

While certain expenses may be different, try and stick as close as you can to what you project your expenses to be in retirement. For example, if you anticipate paying off your home before retirement, don’t count your monthly mortgage payment in this experiment. Conversely, if you expect new expenses, be sure to factor those in.

As you go, pay attention not just to the numbers, but to how you feel as well. Are you comfortable with your spending limits? Do you find yourself anxious, in denial, or tempted to overspend? Take notes on where you struggled or surprised yourself. These insights can help refine your plan later.

When your two-month trial ends, review your results honestly. If you found it challenging to sustain your current lifestyle, it’s a signal that adjustments are needed. But if things felt manageable (maybe even liberating), you may be well-positioned for a smooth transition to retirement.

Remember, Some Things Will Still Change Between Now and Retirement

Even with a thorough rehearsal, remember that your real retirement will bring new variables—including ones you won’t be able to anticipate. Factors like tax law changes, high inflation, or market volatility may require future adjustments.

Take the SECURE 2.0 Act of 2022, which enacted wide-sweeping changes for retirees. Or, the One Big Beautiful Bill, which solidified some notable tax changes. Even the best dress rehearsal can’t account for everything, but practicing ahead of time can help you stay flexible and better prepared for change.

The Importance of Stress Testing

Trying out your retirement budget in a no-stakes situation allows you to either confirm with confidence the plans you’ve already established or find opportunities to improve your savings strategy moving forward. 

The purpose of this exercise isn’t to feel guilty or neglectful about your retirement. Rather, it’s important to be realistic and give yourself the best chance at thriving when the time does come to wave goodbye to your paycheck for good.

If you’d like to work through your retirement dress rehearsal together, don’t hesitate to reach out to our team. We’d be happy to help review your current strategies and talk through the transition to retirement more.

Robert "Fenn" Giles III, CFP®, CAIA is a Managing Partner of Wealth Advisors of Tampa Bay and serves on the firm’s Management and Investment Committees. WATB is an independent Registered Investment Advisor (RIA) located in Tampa, Florida. Learn more about them at wealthadvtb.com.

This material has been prepared in collaboration with Crystal Marketing Solutions, LLC, and has been edited with the assistance of artificial intelligence tools. The information presented is based on sources believed to be reliable and accurate at the time of publication. This material is for educational purposes only and does not necessarily reflect the views of the author, presenter, or affiliated organizations. It should not be construed as investment, tax, legal, or other professional advice. Always consult a qualified professional regarding your specific situation before making any decisions.