Tuesday, July 18, 2017

McLean Asset Management Endorses Basic Actuarial Principles for Personal Financial Planning

We are thrilled to see that McLean Asset Management Corporation (MAMC) has endorsed the use of basic actuarial principles for personal financial planning.  In his July 14 Retirement Researcher blogpost, Dr. Alex Murguia said “We are really fond of the Funded Ratio because it allows us to provide a numerical picture of your retirement income plan.”  The calculations involved in determining MAMC’s “Funded Ratio” are, for all practical purposes, the same as those required by the Actuarial Approach recommended in this website.  So, if you like MAMC’s Funded Ratio concept, you (or your financial advisor) can use our workbooks to develop your own “numerical picture of your retirement income plan.”

The MAMC “Funded Ratio” is

_________________an individual’s (or couple’s) total assets_________________
total aspirational liabilities
(the present value of spending liabilities based on the individual’s spending goals)

(the present value of spending liabilities based on the individual’s spending goals)

This “Funded Ratio” is to help the individual determine:

  • where he or she stands in meeting financial goals and 
  • how much the individual’s assets would need to be to meet these goals.
This aspirational funded status measurement (or measure of financial wellness) is easily calculated using the Actuarial Approach with the assistance of our Actuarial Budget Calculator (ABC) workbooks.  Our Budget by Expense Type tab in the ABC for Retirees can also be used to estimate the present values of desired essential and non-essential expenses in retirement.

As discussed in our summary Actuarial Approach – Using Basic Actuarial Principles to Accomplish Your Financial Goals, the comparison of one’s assets and liabilities is a “bedrock” actuarial principle.

Principle #1—Comparison of Assets and Spending Liabilities

The Actuarial Approach can be used to:

  • determine the assets needed to support aspirational spending liabilities (desired spending), 
  • develop an annual spending budget based on the existing assets, and 
  • help one make personal financial decisions.
We are pleased that MAMC has discovered the benefits of using basic actuarial principles in personal financial planning, and we encourage you to use these principles to make better financial decisions.  If you are a financial advisor who doesn’t work at MAMC, we encourage you to include these actuarial principles in your consulting toolkit to better meet the needs of your clients.