Sunday, October 29, 2017

We Have Two New Actuarial Budget Calculator (ABC) Workbooks for Couples

Our website is all about using basic actuarial principles to help you (or your financial advisor) develop a reasonable spending budget designed to meet your personal financial objectives.  The first actuarial principle of personal financial planning (and budget development) involves balancing your assets with your spending liabilities.  Our readers are quite familiar with the Basic Actuarial Equation shown below, where assets are the items on the left-hand side of the equation and spending liabilities are the items on the right-hand side of the equation.

Accumulated Savings
PV Income from Other Sources
PV Future Non-Recurring Expenses
PV Future Recurring Annual Spending Budgets

Note that if you are comfortable performing the present value calculations and math required by the Basic Actuarial Equation, you may not need to use our Excel workbooks at all.  The ABC workbooks that we make available on our website have been designed to simplify these present value and math calculations, but may not be as robust in all situations as the results that can be obtained from directly applying the basic principle to your specific fact situation.   

Our previous ABCs for Retirees and Pre-Retirees involved using a single Lifetime Planning Period (LPP) to estimate the present values of income from other sources and the present value of certain future non-recurring expenses and recurring annual spending budgets.  This single LPP assumption made the calculations easier, but not as accurate, as the calculations required for a couple.  We discussed the complications involved in couple’s budgeting in our post of July 4, 2017.  After that post, we decided to create separate workbooks for retired couples and pre-retired couples.  The new workbooks are the result of that decision. 

Instead of using one LPP for a couple, the new ABC couple’s workbooks use four LPPs:  one for each person in the couple, one for the LPP while either person is expected to be alive and one for the LPP while both persons are expected to be alive.  These four LPPs may be obtained from the “Planning Horizon” section of the Actuaries Longevity Illustrator.  In addition to these additional LPPs, the new Couple’s workbooks require entry of the percentage decrease in the couple’s desired recurring spending budget upon the first death within the couple.

The new workbooks are titled, “ABC for Retiree Couples” and “ABC for Pre-Retiree Couples.” The original single LPP workbooks still reside in our website (with the new workbooks) in our “Spreadsheets” section and have been relabeled as “ABC for Single Retirees” and “ABC for Single Pre-Retirees.”

As part of the process of developing the new couple’s workbooks and renaming the old workbooks, we have updated the overview tab material describing each workbook.   We encourage you to read this material to obtain a better understanding of the workbooks.

We wanted to make these new workbooks available to you in time for your 2018 calendar year budgeting, and we encourage you to “kick the tires” on them.  We hope you will like the changes.  If you like the workbooks, please recommend them to other “intelligent numbers people.”  If you think they can be improved, please pass along your recommended changes to us as we are always interested in your feedback.

Happy Budgeting from all of us at How Much Can I Afford to Spend.