This post is a follow-up to our post of August 23, 2025 where we encouraged financial advisors and DIYers to ditch Monte Carlo modeling and its probability of success metric and adopt the Actuarial Approach and its funded status metric if they wanted to better manage spending decisions in retirement.
Apparently, even Michael Kitces, Chief Financial Planning Nerd at Kitces.com and advisor to many financial advisors agrees that Monte Carlo modeling with a probability of success metric used by most financial advisors today has its problems. In a recent LinkedIn post, Mr. Kitces called for financial advisors to “pivot away” from communicating the probability of success metric to communicating “a more accurate ‘probability of adjustment’ framework that relies on the concepts of overspending and underspending.”
It is important to note that Mr. Kitces proposes that Monte Carlo modeling using probability of success scores should still be developed, but the success scores should actually be withheld from clients and re-interpreted. We find his proposal to be bizarre and potentially confusing. A much simpler and straightforward solution is to use an approach like the Actuarial Approach that compares household assets to spending liabilities. The funded status metric developed by this approach directly measures underspending and overspending risks that can be easily communicated and understood by clients. We also suggest that advisors and clients discuss and adopt plans to implement specific “guardrail” spending adjustments when necessary.
But, there are some people who actually like to know their Monte Carlo probability of success score. And we have no problem with that. The Funded Status produced by the Actuarial Approach can provide users with approximately equivalent information (assuming consistent assumptions about future experience are made) as shown in the table below.
Monte Carlo | Actuarial Approach |
50% | 100% |
75% | 125% |
99% | 150% |
As discussed in our previous post, one of the many benefits of using the Actuarial Approach is that it is relatively easy to reflect all of the client’s asset resources and all of the client’s spending liabilities in the Funded Status calculation.
For the purpose of managing spending decisions in retirement, we continue to believe that the Actuarial Approach is superior to any Monte Carlo model or strategic withdrawal strategy out there. It uses the same basic actuarial principles and processes used to measure and monitor the sustainability of many other financial systems and can work equally well for household retirement systems.
