Retirement planning has become remarkably sophisticated.
We can model investment returns, inflation, life expectancy, property values, withdrawal rates and dozens of other variables. Put enough numbers into a spreadsheet and the result can look reassuringly precise.
But that’s exactly the problem.
While they all appear equally precise, not every number in your retirement plan can be relied upon equally.
Imagine these three numbers:
$500,000 — the value of investments you own today.
$500,000 — what you calculate those investments could be worth in ten years.
$500,000 — an inheritance you expect to receive.
Put them into a spreadsheet and they look identically reassuring.
They aren’t.
The first is something you know.
The second is something you can reasonably expect, based on assumptions about future returns.
The third may be something you have good reason to believe will happen — but it’s still an assumption about an event outside your control.
The spreadsheet doesn’t know the difference. You need to.
Because good planning doesn’t require us to pretend we know the future.
It requires us to understand what kind of information we’re making decisions with — and how much of our future we’re relying on each kind to support.
The problem isn’t making assumptions
Any plan that stretches years or decades into the future has to contain assumptions.
How long will you work?
What will your investments return?
How much will you continue to save?
What will inflation do to your spending?
What will your property eventually be worth?
If you own a business, what might someone eventually pay for it?
Will your children still need financial support?
You can’t build a retirement plan without making some judgement about the future.
So the answer isn’t to eliminate assumptions.
Nor is it to replace optimistic assumptions with pessimistic ones.
The problem begins when we forget which parts of the plan are assumptions.
“I intend to work until 65” gradually becomes “I will receive another 13 years of salary.”
“My business is worth around $2 million” becomes “I’ll have $2 million when I sell it.”
“My investments have historically produced this kind of return” becomes “my portfolio will be worth this much at 65.”
“My property has appreciated substantially” becomes “my house will provide this much money for retirement.”
Those aren’t necessarily bad assumptions.
Some may prove completely correct.
But notice what has happened.
Something we expect has become something we’re counting on.
And once it becomes a number in a spreadsheet, the distinction becomes remarkably easy to miss.
The mathematics may be flawless. The inputs may not be.
Try putting your retirement plan into three buckets
There’s a simple way to make these differences visible.
Take the things you’re counting on and separate them into three buckets.
Bucket 1: What do I know?
These are things that exist today.
The assets you own. The debts you owe. Your current income. Your current expenditure. The cash and investments you already have.
They can change tomorrow, of course.
But you’re not forecasting their existence today.
Bucket 2: What do I reasonably expect?
These are things that haven’t happened yet, but for which you have a reasonable basis in evidence.
Future savings.
Long-term investment growth.
Continued employment.
Pension or retirement income you’re on track to receive.
Continued income from an established business.
None is guaranteed. But neither are they guesses.
You’re making a reasoned judgement about the future based on information you have today.
Bucket 3: What am I assuming?
These are things that might well happen, but which depend substantially on circumstances you don’t control.
Receiving an inheritance of a particular size.
Selling a business for a particular price.
Your property reaching a particular valuation.
Remaining healthy and employable until a particular age.
Being able to extract a particular level of income from your investments.
Your children becoming financially independent when you expect.
There’s nothing inherently wrong with Bucket 3.
The mistake is treating Bucket 3 like Bucket 1.
Now ask the question that matters
Once you’ve separated the buckets, don’t stop there.
Ask:
Which expectations and assumptions does my future depend on most?
That’s where the exercise becomes useful.
How much of the retirement you envisage is already supported by Bucket 1?
How much still depends on Bucket 2 or Bucket 3 becoming true?
And, most importantly:
What happens if one of the things you’re relying on doesn’t happen?
Suppose you intend to work until 65.
That’s a perfectly reasonable plan.
But if your retirement calculation only works if you receive every one of those remaining years of salary, continued employment isn’t merely an expectation.
It’s a dependency.
Suppose you expect to sell your business when you retire.
Again, perfectly reasonable.
But “my business is worth $2 million” and “I will have $2 million available to fund my retirement” are very different statements.
There must be a buyer.
The valuation must hold.
The timing must work.
The terms must be acceptable.
A valuation is not liquidity.
The same applies to property.
A home worth $2 million doesn’t automatically provide $2 million to fund retirement. You may need to sell, downsize or borrow against it — and you need the property market and your own circumstances to cooperate when you do.
And investment projections inevitably rely on assumptions about future returns.
That’s not a reason to abandon them. It’s a reason to remember what they are.
A projection is not a promise.
Not every assumption deserves the same attention
This leads to an important distinction.
The assumption most likely to be wrong isn’t necessarily the one you should worry about most.
Imagine you expect to receive an inheritance someday, but your retirement plan works perfectly well without it.
The inheritance might be highly uncertain.
But it isn’t particularly important to the plan.
Now imagine you have every reason to expect you’ll remain employed until 65.
That may be considerably more likely.
But if retiring at 60 instead creates a large shortfall, those five years of employment matter enormously.
So the useful question isn’t simply:
“How certain is this?”
It’s also:
“How much am I relying on it?”
An uncertain outcome upon which very little depends may not matter very much.
A seemingly reasonable expectation upon which your entire plan depends deserves much more attention.
The less room you have for an expectation or assumption to be wrong, the more important it becomes to understand that dependency.
What happens if you’re wrong?
This is where I think retirement stress-testing becomes genuinely useful.
Don’t assume everything goes wrong at once.
That’s not planning. That’s simply pessimistic “doomsday” prediction.
Instead, take the important expectations and assumptions one at a time.
What if you stop working at 60 rather than 65?
What if your investments grow more slowly than projected?
What if you don’t receive the inheritance?
What if your property is worth less than expected when you need to access its value?
What if your business can’t be sold at the price or time you expect?
Then look at what changes.
If very little changes, good. You have room for that assumption to be wrong.
If the entire plan changes, you’ve discovered something important.
Not that the assumption will be wrong.
That you’re relying too heavily on it being right.
Those are very different conclusions.
The goal isn’t to predict better
Our natural response to uncertainty is often to seek another prediction.
Which investments will perform best?
Where will interest rates be in five years?
What will property prices do?
How long will this bull market last?
What will AI do to my profession?
But another forecast doesn’t remove uncertainty.
And someone else’s confident answer doesn’t turn Bucket 3 into Bucket 1.
Sometimes a much better response is to ask:
What can I do today that gives me more options if my assumptions turn out to be wrong?
That might mean saving more.
Reducing debt.
Diversifying what you own.
Changing how dependent you are on a single asset.
Building more flexibility into when you retire.
Or developing another source of income that isn’t entirely dependent on your current employer or portfolio.
The answer will be different for different people.
The principle is the same.
You may not be able to control what happens. But you can change how dependent your future is on any one thing happening.
Clarity is not certainty
None of this will tell you what markets will do next year.
It won’t tell you what your property will eventually be worth, how long you’ll work, what your business will sell for or whether you’ll receive an inheritance.
That’s not what clarity means.
Clarity is not certainty.
Clarity in this context is seeing what you know, what you reasonably expect and what you’re assuming — and knowing how much you’re relying on each.
Retirement planning will always involve uncertainty.
The goal isn’t to eliminate it.
It’s to make sure the future you’re planning doesn’t depend on too many uncertain things happening exactly as expected.
There is an enormous difference between not knowing what will happen and not knowing what you’re assuming will happen.
The first is unavoidable.
The second is fixable.
Because a robust retirement plan shouldn’t require you to predict the future correctly.
It should give you enough room to be wrong.