Nice to see two more recent articles in the retirement income press discussing the advantages of dynamic retirement approaches like ours that use guardrails to adjust spending in retirement. These two articles are: “Why Guyton-Klinger Guardrails Are Too Risky For Most Retirees (And How Risk-Based Guardrails Can Help)” and ‘Probability of Success’ Doesn’t Mean What Your Clients Think It Means In the first article, the authors say: “We think including spending adjustments in retirement planning is a major step forward.” In the second article, the author says”: “Retirement planning that ..read more

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

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

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

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

In response to suggestions from several of our readers, we have added cells to the AFP models to permit inputting of additional non-recurring income and expense items. These new cells will enable you to estimate present values of items such as: Social Security survivor benefits Survivor benefits under Joint and Survivor annuities Future home sales Possible future Social Security cuts, and Many types of expected future non-recurring expenses Why is this important? Household income and expenses are typically not linear from year to year and can be front-loaded, back-loaded, or even middle-load ..read more

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

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

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

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