Happy New Year! It’s the time of year that we ask you to perform your actuarial valuation to measure (or re-measure) your Funded Status. We encourage you to use the granular spending budget chart that we outlined in our post of December 25, 2024 to gather the estimated 2026 data to be inputted in this year’s Actuarial Financial Planner (AFP).
Last year, Congress enacted new legislation affecting personal income taxes. You may wish to revisit your assumptions for 2026 and future years’ tax expenses. Remember that your taxes may increase in the future for various reasons, including application of RMDs and sales of appreciated assets. You should factor these expected increases in the present value of your expenses when determining your Funded Status.
As part of the annual valuation process, we also encourage you to monitor the changes in your Funded Status from year to year and to make changes in your spending budget or your assets if appropriate. This may involve considering increasing your spending plans this year if your Funded Status is growing too large after three years of robust equity market experience.
This year, you can also stress-test your plan by changing assumptions used in the AFP to assess and manage risks that the assumptions used in the AFP may not be realized in the future.
In our previous post, we discussed the default assumptions used in the AFP. You can easily change these assumptions using the assumption override process outlined in the spreadsheet. We encourage you to refine and personalize the longevity planning period (LPP) assumptions you use in the AFP by performing the following three-step process:
- Step 1: Compare longevity estimates (50% probability of survival) for you and your spouse (if applicable) from three or four reliable internet longevity calculators with the 50% probability of survival LPPs from the Actuarial Longevity Illustrator (ALI)
- Step 2: Estimate an age set-forward or age set-back to make the 50% results between the internet calculators and the ALI consistent, and
- Step 3: Enter the adjusted ages from Step 2 in the ALI and select the LPPs from the 25% probability of survival to develop a personalized plan for living longer than your life expectancy.
We will be discussing this LPP-assumption-age adjustment process in more detail in a future post.
We recently saw that a fellow Fellow of the Society of Actuaries, Tonya Manning, recently wished actuaries on LinkedIn success in 2026 by saying, “May all your assumptions be reasonable and may all your Funded Statuses be strong.” We shamelessly pass along her pithy actuarial blessing to all our readers.
We hope you have a great new year. Happy budgeting and planning!
