You will be able to build three scenarios and run your plan through them.
Jasmine's central drawdown map gets her to 95 with money to spare. It also assumes her investments earn exactly 5% every single year for thirty-six years, which has never happened to anyone. Real markets deliver bad years, bad decades and bursts of inflation, and a plan that has only been tested on smooth averages hasn't really been tested.
The fix is to run the plan through a few deliberately unpleasant futures, each built to attack a different weak point. This lesson builds three of them, and lesson 5.4, Run your plan through three scenarios, puts your plan through each one.
A scenario here is a year-by-year set of returns and inflation that replaces the central assumptions in your drawdown map. It isn't a forecast, since nobody knows which future you'll get. The aim is to see how your plan behaves if something like a past bad period happens again and starts at the worst time for you.
Use history for the shape, and round the numbers. The next crash won't repeat the last one to the decimal, and pretending otherwise gives the test false precision. Write every figure down as an assumption, with the past period it resembles, so you can explain later where it came from.
All three of Jasmine's scenarios start in the year she stops work at 60, because lesson 5.1, Why a crash early in retirement does more damage, showed that early trouble does the most harm.
What it tests: whether your cash bucket and your refill rules hold when shares fall hard just as you start drawing.
Jasmine's crash scenario: her investments fall 30% in the first year and 10% in the second, rise 20% in the third and 15% in the fourth, then return to 5% a year. Inflation stays at 2.5%.
The shape resembles the three-year fall in many share markets from 2000 and the recovery that followed, or 2008 and 2009 stretched over a longer period. After four years her investments are still about 13% below where they started, which is a realistic picture of a slow recovery. Her average return over the whole thirty-six years comes to a little over 4% a year, against 5% in the central case.
This scenario attacks the bridge years most. Her portfolio is paying for nearly everything from 60 to 64, so a crash then forces the question of whether her safe buckets are deep enough to wait.
What it tests: the floor and the flexible spending. High inflation raises the cost of everything in your plan while some of your income stays fixed in dollars.
Jasmine's inflation scenario: prices rise 5% a year for her first eight years without salary instead of 2.5%, then settle back to 2.5%. Her healthcare line rises faster still, by 2.5 percentage points above general inflation in those years. Her investments keep earning 5% a year, which means that after inflation they earn nothing for eight years.
The shape resembles the 1970s in many countries, when inflation stayed high for years and investors who were spending their savings saw their real income shrink. Singapore has had its own inflation spikes, most recently in 2022, and the Department of Statistics' CPI series on SingStat shows the history.
This scenario attacks her floor. Her CPF LIFE payout on a level plan is fixed in dollars, so every year of high inflation shrinks what it buys. It also attacks her spending, because prices that rise fast for eight years stay higher for the rest of her life, even after inflation calms down.
What it tests: whether your withdrawals are simply too high. A crash ends. A long stretch of poor returns grinds.
Jasmine's flat scenario: her investments earn 2.5% a year for ten years, exactly matching inflation, then 5% a year after. In real terms her portfolio goes nowhere for a decade while she keeps drawing from it.
The shape resembles US shares in the decade from 2000 to 2009, which ended close to where they started, or Japanese shares after 1990, which took far longer to recover. There was no single dramatic year to point to, just a long period in which withdrawals were never refilled by growth.
This scenario attacks the withdrawal rate. If you can only live on your plan when markets pay well, ten years without real growth will show it.
For each scenario, write a short line with the yearly return figures, the inflation figures, how long the bad stretch lasts, and the past period it resembles. Note which part of your plan it is meant to test.
Jasmine's notes fit in three lines:
Crash: returns of minus 30%, minus 10%, plus 20%, plus 15%, then 5% a year; inflation 2.5%; resembles the falls from 2000 and 2008; tests buckets and refill rules. Inflation: inflation 5% for eight years, healthcare 2.5 points higher, then 2.5%; returns 5%; resembles the 1970s; tests the floor and flexible spending. Flat: returns 2.5% for ten years, then 5%; inflation 2.5%; resembles US shares from 2000 to 2009; tests the withdrawal rate.
She will keep the same three for every yearly review, so she can see whether changes to her plan make it stronger or weaker against each one.
You might want a fourth scenario for a risk specific to you: a large medical bill, a parent who needs full-time care, or part-time work that ends early. Add it if it worries you more than the three above.
Now write your own three, with the figures you'll use and the period each one borrows from.
Write the yearly return and inflation figures you will use for each scenario and the past period each one resembles.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).