Stress-Test Your Retirement Income: A Crisis Simulation You Can Run in 20 Minutes

July 04, 2025

Every federal retiree has a plan—until reality throws the first punch.

It might be a delayed pension check.

A spike in inflation.

Or your TSP balance shrinking right after you leave.

But here's the good news:

You can stress-test your retirement plan today—with nothing more than a pen, paper, and a few ChatGPT prompts.

Step 1: Simulate a “Crash Year”

Let’s say you plan to retire with $500,000 in your TSP and plan to withdraw 4% annually—about $20,000 a year.

Now simulate this:

  • TSP drops 25% right before your first withdrawal.

  • Your new balance is $375,000. A 4% withdrawal now gives you $15,000.

  • Can you still cover your planned lifestyle?

💬 Prompt to try:
“If I retire with $500,000 in my TSP and the market drops 25% in Year 1, how does that affect a 4% withdrawal plan?”

Step 2: Add an Inflation Spike

Now layer in elevated inflation—say, 5% instead of the usual 2%.

Suddenly, your expenses grow faster than your income.

  • Can your FERS annuity and Social Security keep up?

  • How does the COLA lag impact your real income?

💬 Prompt to try:
“If inflation is 5% but COLAs only rise 2%, how much will my federal retirement income lose in purchasing power over 5 years?”

Step 3: Account for Income Gaps

Many retirees are surprised by delays in OPM processing or FEHB premium bills that arrive before pension payments start.

Let’s simulate:

  • A 3-month pension delay

  • A $400–$600/month healthcare cost gap

💬 Prompt to try:
“If my monthly expenses are $4,000 and my pension is delayed 3 months, what’s a simple way to plan a financial buffer?”

This is where cash reserves (or short-term Roth IRA access) matter more than ever.

Step 4: Choose the Right Withdrawal Order

If markets drop, should you pull from your Roth IRA or TSP first?

The order can dramatically affect your tax efficiency and portfolio longevity.

💬 Prompt to try:
“In a retirement downturn, is it better to withdraw from my Roth IRA or TSP first?”

Step 5: Score Your Resilience

Let’s build a simple scorecard:

  • 🟢 I could handle these shocks and still meet my needs.

  • 🟡 I’d need to adjust or pause some plans.

  • 🔴 This would force me to make major cuts or go back to work.

💬 Prompt to try:
“Help me create a red/yellow/green stress test scorecard for my retirement income plan.”

If you land in yellow or red, don’t panic—plan.

Better to run the simulation now than experience it later.

And if you want to go deeper on when to expect turbulence—not just what to do—don’t miss this edition:

— FWR