Forecasting Future Investment Returns

To help you develop a reasonable annual spending budget, we provide you with Actuarial Budget Calculators (ABCs) that employ default assumptions for future investment returns, future inflation and your expected lifetime planning period.  These default assumptions are selected to be approximately consistent with assumptions used by insurance company actuaries in pricing current inflation-adjusted life annuities (net of expense loads and profit).  Thus, the Actuarial Budget Benchmark (ABB), which uses the default assumptions, provides you with a lifetime spending plan that could theoretically be fully funded through the purchase of relatively low-risk inflation-adjusted annuities at current market rates (the market value of your future spending liabilities).  The default assumptions currently are:

Yes, Determining How Much You Can Afford to Spend in Retirement is More Difficult than Saving for Retirement

Last week, Thomas Heath, a business reporter for the Washington Post concluded that, “Saving for retirement is hard.  Knowing how to spend it down is harder.”  We agree.  On the other hand, as discussed in our post of August 31, 2014, managing spending in retirement is not rocket science.  In order to get it right, you need to periodically:

Crunching the Numbers on Pension Lump Sums—Part II

This post is a follow-up to our post of February 18, 2015 encouraging individuals who are faced with the decision of electing either a lump sum or a lifetime income form of distribution from a defined benefit pension plan to crunch their numbers in order to make a more-informed decision.  The impetus for this post is the recently released guidance in IRS Notice 2019-18 indicating that the IRS would not issue guidance prohibiting  limited period “windows” offering a lump sum option to retirees who are already receiving their pension benefits, and an excellent article on this subject by fellow actuary, Elizabeth Bauer entitled, “What You Need to Know About Pension Lump Sums.” And, while we don’t necessarily see lots of limited period lump sum windows opening up as a result of this IRS guidance, this post may also be of interest to individuals who are offered a lump sum option from a pension plan on termination of employment or retirement as part of their plan’s normal operations.

Building Your Floor Portfolio with Extra Low-Risk Investments

Our last few posts discussed reasons why individuals may wish to consider building a portfolio of relatively low-risk investments to fund their future expected essential expenses (the floor portfolio) with the remainder of their assets invested in more risky assets to fund their non-essential expenses (the upside portfolio).  While there are a number of investments that can lessen investment risk, there are just few types of investments that can also lessen longevity risk by guaranteeing payment for life.  For purposes of this post, we will focus on these relatively low-risk, lifetime guarantee investments as a way to increase one’s floor portfolio.  These strategies/investments (which we refer to as “Extra Low-Risk Investments”) include:

There Are No Guarantees if You Self-Insure Your Retirement—Part 2

This post is a follow-up to our posts of August 8, 2018 and February 26, 2019 and discusses another way that you can use our Actuarial Budget Calculator (ABC) tools to help you better manage your investment and longevity risks in retirement.  We humbly claim that you are unlikely to obtain this level of sophisticated help elsewhere (at least at this price), and we provide an example to support this claim and to give you a guide to performing your own calculations. 

How Much of Your Retirement Assets Should be Allocated to Your “Floor” and “Upside” Portfolios?

As former pension actuaries, we aren’t going to tell you how you should invest your retirement assets.  Our Actuarial Budget Calculators (ABCs), however, can give you a pretty good idea of the value of assets you should currently have to cover your expected future essential expenses.  This information can be useful in helping you decide how much risk you may want to take in your current investment strategy.  

You Need to be Flexible and Have a Plan to Win the Retirement Game

We all enter the “Retirement Game” with our pot of assets to invest and spend.   Many of us are just content to finish the game without running out of assets.  Some of us want to maximize our spending and not leave too much on the table at the end of the game.  Others of us want to leave large amounts to heirs.  Some of us don’t want to have significant spending fluctuations from year to year.  Winning the Retirement Game clearly depends on one’s goals, but it is safe to say that most Retirement Gamers would rather finish their game with too much rather than too little assets.

300th Post—We’ve Added a Smoothing Tab to the Actuarial Budget Calculators (ABC’s) for Retirees

Hard to believe that this is our 300th blogpost.  Almost all of these posts have encouraged our readers to employ the same basic actuarial principles we learned as pension actuaries to help them develop a reasonable spending budget.   During these past nine years, we have continuously refined our messages and improved our tools, but the basic actuarial principles we advocate haven’t changed.  More importantly, we continue to passionately believe that the use of these principles can enable individuals like you to make better financial decisions.

Pension Actuaries to Discuss Solutions to the Lifetime Income Challenge

We’re excited to see that a panel of pension actuaries will be discussing decumulation of retirement savings at the upcoming 2019 Enrolled Actuaries Meeting.  According to the session description:

“Pension actuaries are well positioned to play an important role in developing solutions to the lifetime income challenge.  In this session we explore emerging solutions and strategies to optimize the effectiveness of retirement savings.”

If You Aren’t Separately Budgeting for Non-Recurring Expenses, You Probably Don’t Have a Robust Retirement Spending Budget

We here at “How Much Can I Afford to Spend” are all about the annual spending budget.  But we don’t tell you:

• how to invest your assets;  
• how much of your assets you should actually spend each year, or 
• how you should spend your assets.