In order to compare the market value of your assets with the market value of your spending liabilities and help you develop a reasonable spending budget for the year, we recommend default assumptions that are intended to be consistent with assumptions currently used to price inflation-adjusted annuities. For 2019 spending budget calculations, these assumptions were:
Sunday, October 20, 2019
Tuesday, October 8, 2019
In this post, we will once again push back on those who believe the most important characteristic of a retirement planning approach is whether the model used in the process is “deterministic” or “stochastic.” We believe that the purpose of the calculations and the assumptions and processes employed in the approach are more important factors for developing a reasonable result than the type of the model. In this post, we will focus on why we believe the Actuarial Approach can be a better approach than Stochastic (or probabilistic or Monte Carlo) models for the specific purpose of developing a reasonable spending budget for individuals or couples, especially for DIYers. We also note that Social Security actuaries use a very similar approach to measure Social Security’s financial condition and the impact of proposed changes to the program. This post is a follow-up to several of our posts on this subject, including our post of April 6, 2018. Feel free to skip this post if you are just looking for a reasonable spending budget number and are not all that interested in diving into the technical details of spending budget calculation models.