3425: [Part 2] Dealing with Uncertainty in Retirement Calculations by Darrow Kirkpatrick of Can I Retire Yet

Summary

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Optimal Finance Daily – Episode 3425: [Part 2] "Dealing with Uncertainty in Retirement Calculations" by Darrow Kirkpatrick

Date: January 17, 2026
Host: Diania Merriam
Original Author: Darrow Kirkpatrick (Can I Retire Yet?)

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Episode Overview

In this episode, host Diania Merriam reads and reflects on Part 2 of Darrow Kirkpatrick’s article “Dealing with Uncertainty in Retirement Calculations.” Focused on the substantial unpredictability of retirement planning, the episode explores the impact that small changes in inputs (like inflation, investment returns, Social Security, and living expenses) can have on financial outcomes. Both Darrow’s analysis and Diania’s commentary emphasize embracing flexibility and making peace with uncertainty, offering listeners practical strategies for managing the inherent unknowns of retirement.

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Key Discussion Points & Insights

1. Magnitude of Uncertainty in Retirement Outcomes

(Kirkpatrick, 01:03 – 02:20)

• Altering retirement inputs by modest, realistic margins can drastically change long-term outcomes.
• The differential in net worth between the best- and worst-case scenarios at age 95 could exceed $1 million.
• Each variable contributes to this gap:
  • Increased inflation: 1.5%
  • Decreased investment returns: 34.4%
  • Reduced Social Security: 25.1%
  • Increased living expenses: 38.9%
• Investment returns, Social Security, and living expenses together account for most of the scenario spread.
• "It's sobering to realize we have little individual control over [investment returns and Social Security], while [living expenses] we control only partially." (Kirkpatrick, 01:54)

2. Limitations of Modeling and the Value of Scenario Analysis

(Kirkpatrick, 02:21 – 03:45)

• This analysis looks at “envelopes”—the outermost extreme possibilities, not all of which are likely to happen at once, but any combination can.
• Focusing solely on extremes or averages can mislead; what's within the probabilities is also worth considering.
• Tools like Monte Carlo simulations can estimate these “interiors,” but Darrow prefers the simplicity of best/worst/average case breakdowns.
• Quote: “Retirement modeling is best for studying and comparing different options... None of these scenarios requires an absolutely correct numerical answer as long as the alternatives can be compared reliably.” (Kirkpatrick, 03:18)
• Retirement models are "a compass, not a map"—they can show direction, not a precise endpoint.

3. Strategies to Reduce Uncertainty

(Kirkpatrick, 03:46 – 05:13)

• Annuitization: Reduces exposure to stock market volatility.
• Inflation protection: Options include inflation riders, bonds, commodities, real estate, and more stocks.
• Life expectancy uncertainty: Consider using annuities and an “infinite” time horizon—living off dividends and growth while preserving capital (flexible capital preservation)—especially apt for early retirees.
• Social Security reliability: Work longer to build up other assets; this boosts savings, raises Social Security benefits, and shortens the period you’ll need to rely on it.
• Staying flexible with work (even part-time or “fun” work) can mitigate retirement risks: "Working in some form at something you enjoy with pay being secondary resolves many retirement variables." (Kirkpatrick, 05:11)

4. Refocusing on Quality of Life

(Kirkpatrick, 05:14 – 06:34)

• Retirement decisions boil down less to “your number” and more to “your quality of life going forward.”
• The array of possible outcomes is vast; ultimately, decisions are based on some mix of calculations, personal values, and gut intuition.
• Quote: "The answer announced at the end of the telephone line is never what you expect. Same for retirement, but with a little knowledge and planning and some flexibility, you can still enjoy the game." (Kirkpatrick, 06:28)

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Reflection & Key Takeaways by Host Diania Merriam

(Merriam, 08:18 – 09:30)

• Drawing on conversations with retired friends, Diania observes flexibility as the central theme for portfolio drawdowns.
• "It's nearly impossible to come up with a drawdown strategy for the rest of your life because you'll never be able to accurately predict... what the market will be doing 30 years from now." (Merriam, 08:24)
• Financial planning is inherently uncertain; accepting that discomfort is key. Some may turn to annuities for security, but even those are imperfect solutions.
• "You must be open to the potential that you'll need to earn money in some way in the future… but you'll likely be in the financial position to be super picky about how you earn that money." (Merriam, 08:58)
• Flexibility can involve reducing expenses, reassessing plans, or leveraging one’s skills and curiosity—the true security lies not only in portfolios but also in adaptability and continuous problem-solving.

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Notable Quotes

• Darrow Kirkpatrick [01:54]:
  "It's sobering to realize that we have little individual control over [investment returns and Social Security], while [living expenses] we control only partially until it comes to healthcare or emergencies."

• Darrow Kirkpatrick [03:18]:
  "Retirement modeling is best for studying and comparing different options... None of these scenarios requires an absolutely correct numerical answer as long as the alternatives can be compared reliably."

• Darrow Kirkpatrick [05:11]:
  "Working in some form at something you enjoy with pay being secondary resolves many retirement variables."

• Darrow Kirkpatrick [06:28]:
  "The answer announced at the end of the telephone line is never what you expect. Same for retirement, but with a little knowledge and planning and some flexibility, you can still enjoy the game."

• Diania Merriam [08:24]:
  "It's nearly impossible to come up with a drawdown strategy for the rest of your life because you'll never be able to accurately predict... what the market will be doing 30 years from now."

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Important Timestamps

• 01:03 — Introduction to the impact of small input changes on retirement outcomes
• 03:18 — On the value and limitations of retirement modeling
• 04:00 — Strategies for reducing financial uncertainty in retirement
• 05:14 — Refocusing on quality of life rather than just “the number”
• 08:18 — Diania Merriam’s reflections on flexibility and managing uncertainty

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Episode Tone

Darrow’s writing is practical, grounded, and candid about the limitations of financial modeling. Diania’s commentary is reassuring and motivational, acknowledging the fears associated with uncertainty but urging listeners to take an adaptive, optimistic approach.

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Summary

This episode of Optimal Finance Daily dives deep into the unpredictable nature of retirement planning. Both guest writer Darrow Kirkpatrick and host Diania Merriam stress the limitations of exact retirement projections. Instead, they advocate for using models as a comparative compass, not a crystal ball, and urge listeners to cultivate flexibility—financially and mentally. The path to retirement isn’t about reaching a magic number but about embracing change, preparing to adjust, and focusing on life quality—making room for unexpected joys and challenges along the way.

Transcript

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[Daro Kirkpatrick]

This is optimal Finance Daily Dealing with Uncertainty in retirement calculations part 2 by Daro Kirkpatrick of caniretireyet.com what's the takeaway in bracketing the key input variables to the retirement equation by modest realistic amounts, we've seen dramatic differences in retirement outcomes years later. In fact, the difference in ending net worth between our best and worst case scenario at age 95 is, well more than $1 million. Here's how the different variables contribute to that gap between the scenarios. Increased inflation 1.5%, decreased investment returns 34.4%, reduced Social Security 25.1% and increased living expenses 38.9%. Investment returns, which get so much attention here and elsewhere, are critical to this particular couple's retirement trajectory. Most of the difference between the best and worst case scenarios is accounted for by investment returns, Social Security, and living expenses, and it's sobering to realize that we have little individual control over the first two of those factors, while the last one expenses, we control only partially until it comes to healthcare or emergencies. Keeping Perspective before panicking Remember, this scenario isn't your retirement, and though I wasn't using outlandish numbers, this is still an analysis of extremes. That's because it's unlikely that all variables would be at their worst or best value simultaneously, but it isn't impossible. Ever had more than one thing go wrong at once? How about two or three? It happens more frequently than we'd like, and that's when serious problems begin. In analyzing these extremes, we're looking at the envelope of retirement possibilities. Monte Carlo simulation with output in percentiles would communicate the interior of that envelope better than I'm attempting here, but I lean to simplicity. I'll usually start with the best, worst and average cases. Just know that focusing only on the extremes or the averages could be deceiving. There's also value in pondering the probabilities of the interior what can we really hope to learn from a retirement simulation? There are so many variables so far into the future. If you seek precise answers, the complexity may deceive you. Frankly, retirement modeling is best for studying and comparing different options. What if my child goes to a private college versus the state school? How does converting my traditional IRA into a Roth impact taxes? What happens if I downsize my family house versus Retiring in place? None of these scenarios requires an absolutely correct numerical answer as long as the alternatives can be compared reliably. And when it comes to those absolute answers to the big questions when can I retire? How much money will I leave behind? Retirement models simply cannot reliably predict your endpoint. They can only give your direction. A retirement model is a compass, not a map. It can tell you where you're going, but not if and when you'll arrive. Decreasing uncertainty in retirement plans don't like those uncertainties? Then you can try eliminating some of the variables. If you don't like the uncertainty and volatility of the stock market, you can annuitize some of your assets. Concerned about inflation? You can add inflation riders to your annuities or hold assets like inflation protected bonds, commodities, real estate, or more stocks. And if you can't get a handle on life expectancy, then in addition to loading up on annuities, you can use an infinite time horizon for your planning. Living off dividends and growth without touching principal. This is an approach I've called flexible capital preservation. It's especially wise if you retire early and expect to live a long time. If you're going to rely on Social Security and don't trust the government to make good on its promises, then you can work longer to build other assets. This pays off in multiple ways, increasing your life savings and your eventual Social Security benefit and reducing the time you'll rely on it. Working in some form at something you enjoy with pay being secondary resolves many retirement variables. Conclusion Ultimately, the retirement decision is less about your number and more about your quality of life going forward. The range of possible outcomes is huge, and no matter how many numbers you throw at the decision, you or an advisor will ultimately be making a gut determination based on numerical probabilities, personal values, and what you want out of life. The answer announced at the end of the telephone line is never what you expect. Same for retirement, but with a little knowledge and planning and some flexibility, you can still enjoy the game. You just listened to part two of the post titled Dealing with Uncertainty in Retirement Calculations by Daro Kirkpatrick of caniretireyet.com.

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[Daro Kirkpatrick]

My friends who are actively drawing down from their portfolios, the theme I keep hearing over and over again is the need to be flexible. It's nearly impossible to come up with a drawdown strategy for the rest of your life because you'll never be able to accurately predict right now what your expenses are going to be or what the market will be doing 30 years from now. Financial modeling and planning is based on a ton of assumptions, and there is inherent uncertainty baked into the process. That reality makes many people very uncomfortable, so opting for something like an annuity can feel safer. But Darrow explained in another article that I read why that isn't necessarily true. And if I learned anything from my retired friends is that it's possible to become comfortable with uncertainty while also diligently planning for the future. It boils down to flexibility, especially if you retire young. You must be open to the potential that you'll need to earn money in some way in the future. But you'll likely be in the financial position to be super picky about how you earn that money. You must be open to reducing your expenses or making adjustments or going back to the drawing board and reassessing your Plan B, C and D. Your financial security is not only found in your investment portfolio, it's also in your intelligence, curiosity and access to different tools and solutions. In the face of an uncertain future, it's possible to set yourself up to pull different levers at different times, depending on what the situation calls for. And that's another episode of Optimal Finance Daily in the books. I'll be back with more posts for you tomorrow, so have a great rest of your day and I'll catch you on the Sunday show where your optimal life awaits.