Skip to content

Case Study: Conservative Retiree

Interactive Version

Run this case study yourself: Open in Colab

Persona

Pat, age 60, nearing traditional retirement.

Parameter Value
Current age 60
Retirement age 65
Planning horizon to 95
Monthly spending $5,000
Current portfolio $700,000
Social Security $2,500/mo at age 67, 2% COLA
Allocation 70/30 stocks/bonds 
from monteplan.config.defaults import conservative_retiree_plan
plan = conservative_retiree_plan()

Key Findings

1. Social Security Is Transformative

The single biggest factor in Pat's plan is the $2,500/month Social Security benefit. It covers half of the spending need, reducing the portfolio withdrawal rate dramatically. Comparing with and without Social Security shows a large difference in success probability.

2. Glide Path Considerations

Pat can shift from 70/30 to a more conservative allocation over time:

Strategy Description
Static 70/30 Maintain allocation throughout
Glide to 40/60 Shift to 40% stocks by age 80
Glide to 30/70 Shift to 30% stocks by age 80

The more aggressive allocation generally provides higher expected outcomes but wider uncertainty bands. For Pat, with Social Security as a floor, maintaining some equity exposure may be appropriate.

3. Tax Model Matters

Pat's portfolio is heavily weighted toward a traditional 401k ($500K of $700K). With the US federal progressive tax model, withdrawals push income through progressively higher brackets. The difference between flat and progressive tax models can be meaningful.

4. Inflation Is the Key Risk

For a 30-year retirement, inflation is the dominant risk factor:

  • At 2% average inflation, the plan has strong success
  • At 4% average inflation, success drops significantly
  • The 2% COLA on Social Security offsets about two-thirds of the default 3% inflation assumption

Strategies for Pat

Conservative Approach

  • Glide to 40/60 by age 80
  • Use guardrails spending to adapt to market conditions
  • Delay Social Security to 70 if possible (benefit increases ~8%/year from 67 to 70)

Moderate Approach

  • Maintain 60/40 allocation
  • Use constant real spending at $4,500/month (slightly below desire)
  • Claim Social Security at 67

Aggressive Approach

  • Maintain 70/30 allocation
  • Spend $5,000/month as planned
  • Accept higher variance in outcomes for higher expected wealth

Takeaways

  1. Social Security is the foundation -- it provides inflation-adjusted guaranteed income that dramatically reduces portfolio risk
  2. Tax-aware withdrawal ordering matters -- draw from taxable first, traditional second, Roth last
  3. Inflation is the primary threat -- consider TIPS or I-bonds as a partial hedge
  4. Glide paths provide peace of mind but may reduce expected outcomes
  5. The plan is more robust than FIRE plans -- shorter retirement + guaranteed income = higher success rates