Can I afford to retire?

Lesson 1 — What you actually need to answer this question

Most people approach retirement with a simple question: do I have enough? And most financial guidance gives them a simple answer: if you have 25 times your annual spending saved, you're fine. Withdraw 4% a year and you won't run out.

That answer is wrong. Not approximately wrong — structurally wrong. It treats your portfolio balance as the only thing that matters, when in reality your portfolio is just one piece of a much bigger picture.

The variables that actually matter

Whether you can afford to retire depends on the interaction of several things working together, not any one number in isolation:

• Social Security: When you claim matters enormously. Claiming at 62 versus 70 can mean a difference of 75% or more in your monthly benefit — for the rest of your life. For a couple, spousal benefit strategy adds another layer entirely.
• Taxes: Your retirement income is taxable. Medicare Part B premiums are income-dependent. Roth conversions, required minimum distributions, and capital gains all interact with your tax bill in ways that affect how much you actually get to spend.
• Longevity: A 65-year-old has a meaningful probability of living to 90 or beyond. Your plan needs to cover that range, not just your "expected" lifespan.
• Housing: Is your home paid off? Could you downsize? Housing equity is part of your economic wealth even if it doesn't show up in your brokerage account.
• Investment returns: What you earn on your assets — and the uncertainty around that — changes your sustainable spending level. A deterministic 6% assumption gives a different answer than a risk-adjusted simulation.
• Long-term care: One of the most underestimated risks in retirement planning. A serious care need in your 80s can cost $75,000 or more per year. Ignoring this doesn't make it go away.

Why the 4% rule misses all of this

The 4% rule was derived from historical stock and bond returns using a specific portfolio and a 30-year time horizon. It says nothing about your Social Security claiming strategy. It ignores taxes. It doesn't account for Medicare premiums. It treats your portfolio as your only resource, even if you own a home free and clear or have a pension. And it assumes a 30-year horizon regardless of your actual age or health.

It is a useful historical data point. It is not a financial plan.

The right framework: lifetime living standard

Life-cycle economics asks a different question. Not "will my portfolio last?" but "what is the highest sustainable living standard I can support across the rest of my life, given everything I own, everything I'm owed, and everything I'll owe?"

That framing forces you to account for all your resources — financial assets, human capital if you're still earning, Social Security, housing equity, any pensions — and all your obligations — taxes, healthcare costs, potential care needs, debt. It then asks what annual living standard that total picture can support, smoothed across your remaining years.

This is consumption smoothing applied to retirement: not feast in the early years and scrape later, not underspend forever out of fear, but find the level that holds up across your whole life and make decisions that support it.

How MaxiFi implements this

The math behind a true life-cycle retirement plan is complex — it involves taxes, Social Security rules, Medicare, borrowing constraints, investment returns, and demographic assumptions all interacting simultaneously. This is exactly what MaxiFi Planner is built to solve.

MaxiFi takes your actual household data and computes your optimal lifetime living standard. It estimates your tax liability. It models your Social Security benefits based on your earnings history. It accounts for Medicare Part B premiums. And it tells you not just whether you can afford to retire, but what your actual spending could and should look like — year by year.

In Lesson 2, we'll use a real household to show exactly how this works.

Lesson 2 — Meet the Maguires: running the baseline

Jenny and Bobby Maguire just turned 67. They spent their careers as commercial lines underwriters — that's where they met — and they're ready to trade spreadsheets for tennis and fishing tackle. Three kids raised, four grandsons, a home in Tampa they've owned since 1995. They're ready to retire. The question is whether they can afford to.

What they have

By conventional measures, the Maguires are solidly middle-class retirees. Not wealthy, but not starting from zero either:

• Jenny's 401(k): $680,000
• Bobby's 401(k): $620,000
• Brokerage account (cash and ETFs): $200,000
• Florida home: purchased in 1995 for $210,000, valued today at $500,000 — paid off
• Social Security retirement benefits: ready to claim for both, based on their earnings history
• No pension. No other debt beyond a small monthly credit card balance.

What they're spending now

Before taxes, the Maguires' current annual expenses total $56,700 — about $4,725 per month. Housing runs $10,500 a year (property taxes, insurance, and maintenance on a paid-off home). Food and dining is $14,400. Utilities are $10,200. The rest covers transportation, fitness, shopping, and entertainment.

Add taxes ($9,940) and Medicare Part B premiums ($4,193) and their total actual spending is $70,833 per year. That's the baseline.

The back-of-envelope approach — and why it falls short

A quick rule-of-thumb check would say: the Maguires have $1.5 million in retirement and brokerage assets, multiply by 4%, and they can spend $60,000 a year. That's less than they're spending now. Under the 4% rule, the Maguires look tight.

But this misses Social Security entirely. It ignores the $500,000 home. It doesn't account for how taxes will actually work in retirement. It doesn't model returns carefully. The 4% rule isn't giving you a financial plan — it's giving you a rough check that leaves out most of what matters.

What MaxiFi finds

Run the Maguires through MaxiFi with their actual data — both retiring at 67, Social Security filed at 67 for both, retirement accounts withdrawing from this year forward, max age 90 for Jenny and Bobby, a deterministic 6% return on retirement assets and 0% real return on regular assets — and the picture changes dramatically.

MaxiFi estimates the Maguires' optimal discretionary spending at $129,597 per year. Their total optimal spending — including housing, taxes, and Medicare — is $154,230.

Their current actual spending is $70,833. The gap is $83,397 per year.

The Maguires aren't just able to afford retirement. They are significantly underspending relative to what their lifetime resources can actually support. They could more than double their discretionary living standard and still be fine.

Why such a big gap?

Three things drive the result. First, Social Security: the Maguires have meaningful earned benefits that, once they start collecting, cover a substantial portion of their living expenses. Second, the paid-off home: $500,000 in housing equity that the 4% rule ignores entirely. Third, the optimization: MaxiFi finds the spending level that uses resources efficiently across their lifetime rather than applying a conservative rule of thumb designed to cover worst-case scenarios for a generic investor.

The life-cycle model doesn't ignore risk — it prices it. The 4% rule just avoids thinking about it.

In Lesson 3, we add the risks that can change this picture: long-term care and investment uncertainty.

Lesson 3 — What changes: long-term care, investment risk, and the trade-off space

The Lesson 2 baseline told a good story for the Maguires. But it assumed a clean retirement: no major care needs, and a deterministic 6% return on their retirement assets. Neither of those is guaranteed. This lesson layers in the two risks that can most change the picture — and shows you what the life-cycle model does with them.

Adding long-term care

Long-term care is the retirement risk most people underestimate. The probability that one or both members of a couple will need significant care — assisted living, memory care, in-home nursing — is not small. And the cost is not small either.

Add a long-term care scenario to the Maguires' plan: $75,000 per year in LTC costs (in today's dollars) beginning at age 80 through their max age of 90. MaxiFi builds new savings to fund this and recalculates the optimal spending plan.

The result: optimal discretionary spending drops from $129,597 to $93,943 per year. Total optimal spending falls to $118,576 — down about $35,000 from the baseline.

That's a meaningful reduction. But here's what matters: even with a serious long-term care need priced in, the Maguires' optimal spending is still $47,743 above what they're actually spending today. Retirement is still clearly affordable. The LTC scenario doesn't reverse the answer — it sharpens it.

Adding investment risk

The baseline used a deterministic 6% return. Real life has variance. MaxiFi models two risk scenarios for the Maguires, using simulation rather than a single assumed return:

• Lower risk: Both retirement accounts invested 80% Total Bond Index / 20% Total Stock Index. Same allocation as regular assets.
• Higher risk: Retirement accounts invested 50% Total Bond Index / 50% Total Stock Index.

For each allocation, the model traces 25th and 75th percentile spending paths from age 67 to 90. The result is a cone of uncertainty — four lines showing the range of outcomes the Maguires might experience depending on how markets perform.

The higher-risk allocation (50/50) shows more upside and a comparable downside. The lower-risk allocation (80/20) narrows the range but caps the potential. Both cones center around the $93,943 baseline from the LTC scenario.

The choice between them isn't about which is "right" — it's about the Maguires' tolerance for variance in their living standard year to year. That's a personal decision. What the model tells them is: under either allocation, they can target $93,943 in the first year of retirement with confidence that the plan holds up.

What this means for your own household

The Maguire case makes three things clear that the 4% rule never could:

• The answer is specific to your household. The Maguires' optimal spending is what it is because of their Social Security history, their paid-off home, their 401(k) balances, their expected longevity, and their care risk. Change any of those inputs and you get a different answer. A rule of thumb can't do that.
• Risk can be priced, not just feared. The LTC scenario and the investment risk cones don't say "you might be in trouble." They say "here's what your living standard looks like under these specific conditions." That's actionable. Fear isn't.
• Underspending is a real cost. The Maguires are leaving $83,000 per year on the table relative to what their resources can support. For a couple that worked their whole careers and built what they built, that's not caution — it's a failure of their financial plan to tell them the truth.

Your next step

The quiz below checks your understanding of the life-cycle retirement framework. Score 7 or higher and you unlock a 1:1 Zoom session with Professor Puelz — focused entirely on your retirement situation, not a generic answer.

And when you're ready to run your own numbers: MaxiFi Planner is what the Maguires used. It's available to anyone, and it's the only consumer tool built directly on the life-cycle economic model.