With everything going so well, maybe it’s time to stress test your money. The time for a stress test is when everything is running smoothly. Every major bank undergoes an annual stress test by federal regulators, even if it is not expected to fail. When you reach a certain age, your cardiologist may prescribe a stress test – just to make sure you don’t have any hidden symptoms that could cause a heart attack.
Now if we look at the economic situation, personal financial problems seem to be relatively calm. The stock market continues to reach all-time highs, unemployment remains low (despite fears that AI will take jobs), corporate profits are rising rapidly, and personal bankruptcies are only increasing moderately at 8% annually.
In fact, despite geopolitical disruptions, domestic political challenges, rising gasoline prices and relatively high interest rates, there is very little public concern about the future of the economy. The baby boom generation is retiring with record-high 401(k) account balances and low mortgage balances.
Of course, many people are financially stressed, but general economic problems don’t make headlines on the evening news. And let’s hope it stays that way. But what if this is the calm before the storm? This possibility is certainly something to consider. And that’s how you come up with the idea of the stress test.
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What is a stress test?
For all your economic assumptions, ask yourself “what if.” The real question is, “What happens if something goes wrong?” Most people don’t want to think about that.
It’s simply easier to assume that the laws of inertia of physical matter can also be applied to our financial lives. You remember learning in high school science, “A thing in motion tends to stay in motion, while a thing at rest tends to stay at rest.”
Unfortunately, this doesn’t apply to your personal finances. And if you assume that everything will continue to go well just because it has been that way in the recent past, you can be putting yourself at dangerous risk. It’s time for a risk check of your personal finances.
Your retirement money
The obvious place to start is with your retirement planning. We’ve basically had a 45-year bull market, with some interruptions. Just buying the basic S&P 500 stock index fund instead of hot tech stocks has resulted in a significant amount of retirement assets. It’s tempting to divide that balance by your life expectancy and assume everything will be fine.
Memories are short. The S&P 500’s total return (including dividends) in 2023 was 26.29%. In 2024 it was 25.02%. In 2025 it was 17.88%. And so far in 2026 it is close to 10%. No wonder your account balance is skyrocketing. The index’s 18% loss in 2022 has long been forgotten.
And from a broader perspective, the average annual return of the S&P 500 stock index over the past 60 years has been 10.5%, including dividends. Since averages consist of big wins and big losses, you should ask yourself what lies ahead?
When it comes to stress testing, averages don’t worry you. Instead, you worry about your own current situation and future needs. In these 60 years, there have been four bear markets, each with a decline of almost 50%. Long-term investors have weathered them all and have the profits to prove it.
However, your financial stress test must take into account your own future needs when you retire and the years you will live on your accumulated investments. Can you survive a decline that lasts a few years while withdrawing your living expenses annually? Or are you overwhelmed by stress and panic that pushes you to sell at a loss?
Stress tests for your home
Home values continue to rise due to a shortage of new single-family homes and homeowners’ unwillingness to give up their existing low-interest mortgages to purchase a newer home. Ask yourself: Has your home insurance kept up with the increasing value of your home?
You may have replacement value for your furnishings, but have you documented your home’s interior (preferably on video)? Is it time to increase your insurance coverage but offset these higher costs with a higher deductible?
And is it time to consider general liability insurance to increase the limits of your personal liability since your success has made you a target for potential litigation? This could cause a lot of stress!
Take a stress test on your debt
If you have “manageable” debt (you can easily make the minimum monthly payment), your debt isn’t causing you any stress right now. But with news that 20% of federal student loan borrowers are currently in default or “in late stages of default,” it’s apparent that 9 million borrowers are facing their own stress test.
And with a record $1.25 trillion in credit card debt — and untold billions in outstanding “buy now, pay later” debt — the potential stress of an economic slowdown cannot be underestimated.
When the economy is doing relatively well, it is easier to anticipate stress and act in advance by cutting expenses and taking on extra work. Likewise, assessing your retirement income needs and risk-adjusting your investment portfolio can ease future stress.
This is what a stress test is all about. And that is the wild truth.
(Terry Savage is a registered investment advisor and author of four best-selling books, including “The Savage Truth on Money.” Terry answers questions on her blog at TerrySavage.com.)
https://www.chicagotribune.com/2026/07/29/terry-savage-stress-test-your-money/
