Trying to Help Households Determine How Much They Can Afford to Spend in Retirement
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
23h ago
It’s been almost 14 years since our first post on How Much Can I Afford to Spend in Retirement? This post is our 498th post. As implied by the title of our website, our primary goal is to help individuals (or financial advisors for those individuals) determine how much they (or their clients) can afford to spend in retirement. Unlike most financial advisors, however, we attempt to do this by applying proven actuarial principles and processes to the decumulation problem. As noted on our Home Page, we receive zero direct or indirect compensation from visits to this website or from any activity ..read more
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Does Your Retirement Plan Have Spending Guardrails?
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
5d ago
Ongoing planning in retirement involves periodically assessing whether spending may be increased or must be decreased to remain on track. In his recent Kitces.com article, How Communicating Guardrails Withdrawal Strategies Can Improve Client Experience and Decrease Stress, Dr. Derek Tharpe says: “However, the results of these [Monte Carlo] simulations generally don't account for potential adjustments that could be made along the way (e.g., decreasing withdrawals if market returns are weak and the probability of success falls, or vice versa), making them somewhat less useful for ongoing planni ..read more
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Financial System Sustainability Superstars
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
1w ago
Actuaries measure and monitor the health of financial systems by systematically comparing assets and liabilities and making adjustments when necessary to ensure system sustainability. You can do the same thing for your personal financial system/retirement plan with assistance of the Actuarial Financial Planner (AFP) and by following the general actuarial process. For more discussion of the general actuarial process, see our post of August 23, 2023 ..read more
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Simplify Your Retirement Planning
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
2w ago
As discussed in prior posts, the key to successful retirement planning is to annually determine your Funded Status, monitor it from year to year and Adjust spending when your Funded Status falls outside pre-determined guardrails (suggested: 95%, 120%) In her recent Go Banking Rates article, Hanna Horvath outlines six key steps to building an effective retirement plan and spending budget. We agree that the steps outlined by Ms. Horvath are important, but each of these steps (and much more) is anticipated in the simpler process we recommend.  Why does simplicity matter? You are much more ..read more
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Simple Key to Retirement Planning Success
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
3w ago
Key: You should determine your Funded Status annually and monitor it from year to year. Why? Your Funded Status is a summary statistic that reflects actual experience and can keep you on track to meet your spending goals in retirement. For more discussion of the importance of determining and monitoring your Funded Status, and why doing so is superior to using the 4% Rule (and its many variations) or typical Monte Carlo models, see our post of April 16,2023. To determine your Funded Status, download and complete one of our Actuarial Financial Planners from the Spreadsheets section of our websit ..read more
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A Planning Process That Works
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
1M ago
You are responsible for your finances in retirement and need a plan that works. The Actuarial Approach, with its Funded-Status-focused process can help you: Grow your assets, Protect your assets, Spend your assets in a manner consistent with your goals, and Make better financial decisions. To read more about the proven actuarial process we recommend, including a few hints for using the Actuarial Financial Planning models we provide, see our post of January 5, 2024.  Check out our most recent Advisor Perspectives article if you are concerned about how future Social Security reforms may a ..read more
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Want a More Realistic Retirement Plan?
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
1M ago
If you (or your financial advisor) aren’t planning for non-recurring expenses in retirement, you probably don’t have a realistic retirement plan.  If you use a Strategic Withdrawal Approach (like the 4% Rule or its many variations) or your financial advisor uses a traditional Monte Carlo approach, your annual spending budget is usually expressed as a constant real dollar amount each year. Assuming constant real dollar spending for your entire period of retirement can either overstate or understate the assets you need to fund your retirement. This can occur because: Some non-recurring exp ..read more
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Time to Reduce Your Investment Risk?
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
1M ago
With the S&P creeping up over 5,000, it may be time for retirees to look into decreasing their investments in risky assets, especially if their Floor Portfolio of non-risky assets/investments does not cover the present value of their expected future essential expenses.  You can read more about what we consider to be the most important planning decision in retirement in our post of October 16, 2022 ..read more
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American Academy of Actuaries Reinserts Caveat Language into Their Social Security Challenge/Game
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
2M ago
Kudos to the American Academy of Actuaries (AAA) for reinserting the following caveat language in its Social Security Challenge tool.  “The following should be noted when interpreting results from the Social Security Game: The 75-year actuarial balance calculation used in the game does not consider significant revenue shortfalls expected to occur after the end of the 75-year projection period, and thus possible solutions illustrated in this game are generally not sufficient to achieve “sustainable solvency,” a concept discussed in the Trustees Report. The possible solutions assume immed ..read more
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It’s that Time Once Again for Retired Households to Perform Their Actuarial Valuations
How much can I afford to spend in retirement?
by How much can I afford to spend in retirement?
2M ago
At the beginning of each calendar year, we encourage our retired (or near-retired) readers to perform an actuarial valuation of their household assets and spending liabilities to see whether changes should be made to their financial plans. A household actuarial valuation involves calculating and comparing present values of household assets and household spending liabilities for the purpose of determining the household’s Funded Status. To do this, we suggest you follow the easy 5-step valuation process outlined below using our Actuarial Financial Planner (AFP) models. 2023 was a better year for ..read more
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