If you are a DIY investor within two years of retirement, you’ve likely never had more money than you do right now. That also means the stakes have never been higher. Today, we’re going to talk about how to stress test your portfolio so you don't fall victim to a panic-driven mistake at exactly the wrong time.

Let's look at the tools you can use to see if your plan can handle the "punches" the market will inevitably throw. You can also watch my YouTube video on this topic here.

Why Stress Test? Chronic vs. Acute Risk

In the wealth management industry, people love to talk about "chronic" misallocation—things like being 1% under-allocated to international stocks over 30 years. While that matters, it’s not what blows up retirements.

What kills plans are acute events: compressed timeframes where the market drops 30% or 40% in a few months. I have seen real-life clients move 100% to cash during these periods because they hit a breaking point. By stress testing now, you prepare your "mental muscles" for the dollar-amount losses you’ll see on your screen.

Tool 1: Portfolio Visualizer (Free & Paid Options)

Portfolio Visualizer is a staple for DIY investors. It’s powerful, though many of its best features are moving behind a paywall.

• Backtesting Allocations: Go to the "Backtest Portfolio" tab. If you look at an all-equity portfolio back to 1972, you’ll see the "damage":

  • 1970s: -46%

  • Tech Crash: -44%

  • Great Financial Crisis: -51%

• The Math: Take your current portfolio value and multiply it by 1 - 0.51. If you have $2M and it suddenly becomes $980k, how does that feel? Understanding that dollar amount is the "stress test."

• Rolling Returns: This tool also shows you how far you might trail a benchmark for years. If your strategy underperforms for 3 years straight, would you have the discipline to stick with it?

Tool 2: The 4% Rule & The "Bottom-Up" Trap

The 4% Rule (pioneered by Bill Bengen) is the gift that keeps on giving. I recommend starting with your spending relative to this rule.

• If your withdrawal rate is below 4%, your Monte Carlo success rate will likely be fantastic.

• If you are above 4%, we need to look closer at the timing of your cash flows.

The Danger of Monte Carlo: Many DIYers start with a "Bottom-Up" Monte Carlo (listing every expense first). I find this dangerous because if the "percentage chance of success" drops from 95% to 80% during a market dip, you won't know why it’s happening, which leads to panic. Use it as a secondary check, not your primary compass.

Tool 3: Advanced Software (Boldin, RightCapital, Income Lab)

If you want to move beyond spreadsheets, there are several "pro-sumer" and professional tools:

• Boldin: Very popular with DIYers. It allows you to toggle "scenarios" (like different spending levels or social security timing) easily from a top bar.

• RightCapital: This is what I use in my practice. It’s primarily for advisors, offering secure document sharing and high-level tax modeling.

• Income Lab: This is a client favorite. It focuses on "Guardrails." Instead of a vague percentage of success, it tells you: "If the market drops 20%, we need to cut spending by $X." It treats retirement like a flight path that requires constant, small adjustments rather than a "set it and forget it" number.

Summary: Don't Underestimate the Breaking Point

As you get closer to retirement, you will be more focused on the news and your balance. Stress testing isn't about being a pessimist; it's about being prepared.

At Barrett FP LLC, we offer expert financial planning on an hourly basis. We can provide a second set of eyes on your stress test results to ensure your plan is as robust as you think it is.

[Ready to stress test your plan? Let’s see if we’re a good fit.