What Will Retirees (and their Financial Advisors) Do Now That The 4% Rule is Dead?

We have never been big fans of the 4% Rule. One of the major reasons we started this blog in 2009 was because we didn’t particularly care for the 4% Rule, and we thought we could help people make better financial decisions by suggesting a more dynamic (flexible) spending strategy based on fundamental actuarial principles. In 2014 alone, we posted four separate posts trying to convince our readers to ditch the static 4% Rule and adopt the dynamic Actuarial Approach that we recommend.

It’s Time to Perform Your January 1, 2022 Actuarial Valuation

Congratulations. You made it through 2021!

In our ongoing effort to turn you all into actuaries, this post will recommend that you perform an “actuarial valuation” based on your personal and financial data as of January 1, 2022. An annual actuarial valuation is part of our 7-step Recommended Financial Planning Process. As part of this process, we will also encourage you to prepare a brief “actuarial report” to document your thought-process and any planning decisions you make for this year.

Are Guaranteed Lifetime Income Products Part of Your Investment Strategy in Retirement?

As discussed in our post of November 27, 2021, balancing the sometimes-conflicting requirements to grow, protect and carefully spend household assets is an important element of a financially successful retirement plan.

How Much Did You Spend in 2021?

The first three steps in our Recommended Financial Planning Process involve estimating your annual recurring and non-recurring expenses in retirement and categorizing those estimated expenses as either “Essential” or “Discretionary.” In this post, we suggest that you begin this process for 2022 planning purposes by gathering your actual spending data for 2021. In a future post, we will encourage you (as we do every year around this time) to perform an actuarial valuation of your assets and spending liabilities using your estimated future recurring and non-recurring annual spending. 

How Will Your Spending Change During Your Retirement?

This post is a follow-up to our post of March 19, 2021, “What is Your Plan for Future Spending in Retirement?” Impetus for this post was the recent release of a retirement spending pattern research paper by Anqi Chen and Alicia Munnell from the Center for Retirement Research at Boston College entitled, “Do Retirees Want Constant, Increasing or Decreasing Consumption?”

We briefly discuss the results of Mses. Chen and Munnell’s research and possible implications for your financial planning in or near retirement.

There’s a Much Simpler and More Robust Financial Planning Tool for Retirees Than a “Risk-Based Guardrails Model”

In their November 24, 2021 Kitces.com post, Dr. Derek Tharp and Justin Fitzpatrick once again tout their risk-based guardrails financial planning model for financial advisors to use with their retired clients. In their post, they state,

“a risk-based guardrails model can provide clients with a more accurate picture of how much they can sustainably spend than can models based on static withdrawal rates or withdrawal-rate guardrails” and

“movement from withdrawal-rate guardrails to risk-based guardrails represents a significant improvement in planning quality for retirees!”

Feel free to read their post if you are interested in a risk-based guardrails planning concept. 

Growing, Protecting and Spending Your Assets in Retirement—Finding the Right Balance with The Actuarial Financial Planner

How much you can afford to spend in retirement (or leave to your heirs) is a function of how much assets you possess. Generally, the more assets you have, the more you can afford to spend. Most retirees need to invest (grow) their assets in order to maintain or increase their desired standard of living in retirement. At the same time, however, retirees need to protect their assets and watch their spending to ensure that:

1. sufficient amounts remain throughout the entire period of their retirement to fund at least a minimum (essential) standard of living, and
2. other spending goals are achieved.

Using the Actuaries Longevity Illustrator in Your Retirement Planning

The Actuaries Longevity Illustrator (ALI) has recently been updated to reflect mortality changes made in the 2021 Trustees’ Report for Social Security. We have therefore also updated our actuarial workbooks to reflect these changes. Like prior year changes, the changes in this year’s version were not major (no more than one year increases or decreases in lifetime planning horizons from the prior year) even though the 2021 Trustees report reflected the increased pandemic mortality experience in 2020.

Using the Actuarial Financial Planner for Retirees

In our last post, we introduced our new Actuarial Financial Planner (AFP) workbooks for Single Retirees and Retired Couples. Several of our readers had questions about the new workbooks, so we decided to address these questions with an example in this post. We will also take this opportunity to discuss a related topic--investment in bonds vs. purchasing lifetime annuities.

Our Favorite One-Tab Actuarial Financial Planner for Retirees and Near Retirees

We are happy to add two more Excel Spreadsheets to our toolbox of MS Excel actuarial spreadsheet tools—The Actuarial Financial Planner (AFP) for Single Retirees and the Actuarial Financial Planner for Retired Couples. These spreadsheets are very similar to our Actuarial Budget Calculators (ABCs), but differ in the following ways: