It’s not too early to start planning your spending for 2026 even though you haven’t yet determined your January 1, 2026 Funded Status. You or your spouse may be considering spending in 2026 on items that weren’t in your 2025 spending budget, such as an extra vacation, purchase of a new car or remodeling your kitchen, but you don’t know whether you can afford the “extra” spending involved.
Fortunately, you are using the Actuarial Approach, its Funding Status metric and our suggested guardrails to manage your spending in retirement rather than a Strategic Withdrawal Plan (SWP) or Retirement Income Strategy (RIS) that is designed to slowly release your own money to you over time via something called a “retirement paycheck.” Therefore, if your Funded Status is sufficient and you are comfortable with a potentially lower Funded Status as of January 1, 2027, you may be able to increase your spending for 2026.
In this post, we will show you how easy the process is for determining how much more than your 2026 budget you may be able to spend. We will also show several examples illustrating the process for retired households with different Funded Statuses and tolerances for risk.
4-Step Process for Determining Potential Extra Spending Amount:
Step 1: Using the Actuarial Financial Planner, determine or estimate your January 1, 2026 Funded Status (FS). Your FS is the present value of your assets (A) divided by the present value of your spending liabilities (L). We will discuss January 1, 2026 FS valuations in more detail in future posts, but be sure to revise your input items to try to accurately capture expected spending in 2026, including effects of inflation on recurring and non-recurring expenses and taxes. Also try to capture all current and future household assets and current and future spending liabilities to make the FS calculation as much of a “best-estimate” as possible.
Step 2: Determine the lowest Funded Status as of January 1, 2027 you would be comfortable with. Let’s call this FS*
Step 3: Develop an asset adjustment factor (AAF) as of January 1, 2027 based on your expectations for 2026 investment returns and spending versus default assumptions (or other assumptions you use) in the Actuarial Financial Planner. For example, if you think actual investment returns will be the same as the default assumptions and you will spend your spending budget for 2026 (before any extra spending), then your adjustment factor will be close to 1. If you believe equity returns will be less than assumed, you may use an adjustment factor less than 1 reflecting the proportion of your assets invested in such risky investments.
Step 4: Determine your potential extra spending for 2026 by solving the following formula:
Potential Extra Spending Amount = [A X (AAF)] – [L X FS*]
Where A is your January 1, 2026 Assets, AAF is your investment adjustment factor for 2026 experience, L is your January 1, 2026 Spending Liabilities and FS* is the lowest Funded Status you are comfortable with as of January 1, 2027.
Examples
Couple A
Step 1: Using the Actuarial Financial Planner, Couple A estimates their Funded Status as of January 1, 2026 to be 150%, consisting of Assets of $3 million and Liabilities of $2 million.
Step 2: Couple A is not comfortable with a Funded Status lower than 130% as of January 1, 2027
Step 3: Couple A assumes actual investment experience for 2026 will be the same as assumed, their non-extra spending be equal to the spending budget and their assumptions won’t change for 2027. Therefore, their asset adjustment factor is 1.0
Step 4: Couple A determines that they can afford extra spending for 2026 of $400,000 by using the potential extra spending formula above:
[$3M (1.0) - $2M (1.3)] = $400,000
Couple A doesn’t really want to spend an extra $400,000 in 2026, but they agree it is nice to know that, under these assumptions, they can afford to do so.
Couple B is more conservative than Couple A, but their assets, liabilities and Funded Status as of January 1, 2026 are the same. They also selected 130% as their lowest 2027 FS with which they would be comfortable, but they believe it is quite possible that there could be a stock market adjustment in 2026, so for the purpose of determining their potential extra spending in 2026, they chose an asset adjustment factor of 0.9. Applying the formula above gave them an extra spending amount for 2026 of $100,000
$3M (0.9) - $2M (1.3) = $100,000
Couple C’s January 1, 2026 Funded Status is 133% consisting of assets of $2 million and liabilities of 1.5 million, but they would like to make a significant purchase during 2026 and would be comfortable if their end of year Funded Status was above 110%. They also believe that there may be a correction in equities during 2026, so based on their mix of risky and non-risky assets, they have chosen an asset adjustment factor of 0.85. Applying the extra spending formula for this couple results in a potential extra spending amount for 2026 of $50,000.
$2M (0.85) – $1.5M (1.1) = $50,000
These couples understand that using this process does not guarantee that they won’t need to reduce their spending in the future, and that increasing their spending in 2026 will reduce spending in future years, all things being equal.
Summary
Your spouse has been thinking about remodeling the family kitchen during 2026. She has obtained an estimate for the project of about $55,000. Can you afford it? You can either input this project directly into the Actuarial Financial Planner and see how it affects your January 1, 2026 Funded Status, or you can use the formula in this post, which also permits you to factor in your estimate of investment experience during 2026, to use as part of your general spending decision-making process.
