The Actuarial Approach Addresses the “Big Flaw” in Most Decumulation Approaches

Recently, in her Motley Fool article, A Big Reason the Famous 4% Rule May Not Work for Your Retirement, Maurie Backman confirmed what we have been telling our readers for years—you aren’t going to solve the decumulation problem in retirement by assuming you (or your client) will spend the same real dollar amount each year in the future. While Ms. Backman focuses on the 4% Rule, her criticism applies to most different types of Strategic Withdrawal Plans (SWPs) and even many Monte Carlo simulation approaches typically used by financial advisors today.

The Only Other Spending Rule Article You Will Ever Need?

A little more than ten years ago, the Financial Analysts Journal released “The Only Spending Rule You Will Ever Need” by M. Barton Warning and Laurence Siegel. Recently, Stefan Sharkansky has updated and changed the Strategic Withdrawal Plan (SWP) set forth in Waring and Siegel’s article with a different SWP in an article entitled, “The Only Other Spending Rule Article You Will Ever Need.”

Front-Loading Spending in Retirement

As discussed in our previous post of September 28, 2025, there are lots of levers in the Actuarial Financial Planner (AFP) that can be pulled to make your spending plan in retirement more or less conservative. In that post, we indicated that we thought most retirees would prefer to err a little on the conservative side by spending somewhat less initially to avoid future spending reductions. Subsequent to releasing that post, however, we came across a Think Advisor article by Michael Finke entitled, “Most Retirees Want to Front-Load Their Spending.” Since we aren’t researchers, we aren’t going to fight Dr. Finke over what most retirees actually want. 

In his article, Dr. Finke says that “Advisors need to help clients enjoy their savings during early retirement while protecting against inflation and other long-term risks.” Therefore, in this post we will briefly discuss how the AFP can be used to help households front-load their discretionary spending in retirement while at the same time protecting their essential spending.

How Conservative is Your Decumulation Plan?

If the assumptions used in your retirement decumulation plan (including the important assumptions that the assets you plan to receive, and the expenses you expect to incur in the future) are exactly realized, your Funded Status should remain approximately the same from year to year. If your (or your financial advisor’s) assumptions are too conservative, future experience will be more favorable than assumed, and your Funded Status will increase over time. Conversely, if your assumptions are too aggressive, future experience will be less favorable than assumed and your Funded Status will decrease over time.

Most retirees prefer to be somewhat more conservative than aggressive in the funding of their retirement liabilities. They prefer the possibility of future spending increases to future spending decreases, even if such spending decreases involve discretionary expenses that presumably are not as critical as essential expenses. On the other hand, most retirees don’t want to be overly conservative and prefer to enjoy increased spending early in retirement if at all possible. This conflict of preferences and the uncertainty of the future make retirement planning difficult. Some financial advisors attempt to address this issue by administering risk tolerance questionnaires and by asking clients to select between spending strategies that have varying “probabilities of success” or “probabilities of future changes.”

In this post, we will attempt to quantify how conservative certain sets of assumptions are when using the Actuarial Financial Planner (AFP) with different Funding Status targets. We will do this by using an example hypothetical individual and comparing calculated withdrawal rates for this individual with withdrawal rates under the 4% Rule.

Using the Actuarial Approach to Avoid Financial Traps in Retirement

Like you, we read many articles on the Internet that dispense financial advice to retirees. This one entitled, “11 Financial Traps Retirees Don’t See Coming” recently caught our attention. While we hope that most of our readers are aware of these financial traps and are planning for them, it doesn’t hurt to revisit them from time to time.

In this post, we will summarize and briefly discuss the eleven financial traps (or risks) set forth in the article and how almost all these risks are relatively easily addressed by applying the Actuarial Approach. We will also add a few to the author’s list.

Self-Insuring Your Long-Term Care? What is the Present Value of Your Future Long-Term Care Expenses?

At How Much Can I Afford to Spend in Retirement? we encourage retired households to periodically compare the present value of their retirement assets with the present value of their spending liabilities to determine their Funded Status. Unlike other approaches that frequently ignore long-term care costs or assume that these costs will be met through insurance or from other assets, our approach encourages users to estimate the present value of these future uninsured expense liabilities just like any other retirement expense. 

No Reason to be so Conservative, Dr. Pfau

In his Rethinking 65 article, Slow and Steady Wins the Retirement Funding Race, Ed Prince outlines Dr. Wade Pfau’s “conservative formula for guiding clients to a secure retirement.” Dr. Pfau’s approach is essentially the same as the Actuarial Approach recommended in this website, with one fairly significant difference—it assumes all household investments earn the same conservative bond-like rate of return. And while you can change the default assumptions in the Actuarial Financial Planner to accomplish this same level of conservatism if you like, we believe higher assumed rates of return on risky investments/assets can be justified. 

Ditch Monte Carlo Modeling and Embrace the Actuarial Approach

Thanks to Kitces.com and Justin Fitzpatrick for once again informing financial advisors and retired DIYers that there are better metrics and processes for managing spending in retirement than the probability of success/failure metric typically used in Monte Carlo modeling. Mr. Fitzpatrick’s thoughts are summarized in the section of the August 23-24 Weekend Reading For Financial Advisors titled, Reframing “Risk In Retirement As ‘Over- And Under-Spending’ To Better Communicate Decisions To Clients, And Finding A "Best Guess" Spending Level.”

Measuring Retirement Risks

This post is a follow-up to our post of September 2, 2023, Manage Your Financial Risks in Retirement Like an Actuary, and is in response to the following recent quote from a well-known retirement researcher, “The No. 1 risk in retirement, hands down, is longevity risk.”

Passage of OBBBA Deepens Social Security’s Funding Hole

This post is a follow-up to our post of June 18, 2025 in which we addressed the magnitude of Social Security’s long-term funding hole based on results of the 2025 Trustees Report and their “intermediate assumptions.” Last week, Karen P. Glenn, the Chief Actuary of the Social Security Administration (SSA) updated the primary 2025 results in a letter to Senator Ron Wyden reflecting SSA’s understanding of the tax provisions in the One Big Beautiful Bill Act (OBBBA).