In this post, we discuss how you can use the Actuarial Approach and its funded status metric to help you feel more confident about your spending plan in retirement. It is a follow-up to our post of January 11, 2026.
Bottom line: Having a sufficiently high funded status can help you sleep better at night. The question we address in this post is just how high does this target funded status need to be for you—120%, 140% or higher?
We’ve all read the research about the “Go-go, slow-go and no-go” periods of retirement and decreased real-dollar spending as we age, but contrary to observed research, most decumulation strategies today don’t anticipate front-loaded spending in retirement. Instead, most anticipate constant real dollar spending throughout the entire period of retirement. One of the reasons for this is that most spending strategies don’t distinguish between essential spending and discretionary spending and therefore, treat both types of expenses similarly and assume that the investor will prefer a more conservative constant real dollar spending approach.
This post is a follow-up to our post of July 2, 2025. In that post, we talked about the possibility of future Social Security benefit cuts and how you can use the Actuarial Financial Planner to estimate the financial impact on your current Funded Status of possible future reductions in your benefit(s).
It is almost a year later, and we have no more certainty as to policy changes that might be implemented on or prior to the system’s forecasted trust fund exhaustion. We do know that this issue has gained significant attention in the U.S. as both political parties are proclaiming that they will be the party to “Save Social Security” and the other party will not. Unfortunately, no one knows exactly what that phrase means, except that it presumably involves policy changes that would prevent the trust funds from becoming insolvent. It is still unclear, however, how much of the projected funding gap would be closed through increased revenue or though reductions in benefit payments. In this post, we will discuss how much of the trust fund exhaustion problem can, or possibly will, be solved by increased revenue and/or benefit cuts.
The Actuarial Approach:
Your spouse wants to remodel your kitchen and several bathrooms in your house. You’ve received a quote for the work for about $100,000. Using a strategic withdrawal approach and a Monte Carlo modeling approach, your financial advisor has previously told you that you can only safely afford to spend about $110,000 per year in retirement, so it looks like paying for your normal annual expenses in addition to the remodeling job your spouse desires is simply out of the question at this time.
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.
One of the key determinants of how much you can afford to spend in retirement is the amount of assets you have accumulated. All things being equal, the greater your assets, the more you can afford to spend. This truism can readily be seen from the following basic actuarial balance equation for personal finance.
Present value of assets = Present value of future spending + Rainy day fund
This equation, of course, is the basis for the Actuarial Approach and the Actuarial Financial Planner models found in our website. The ratio of the left-hand side of the equation to the present value of future spending is the Funding Status metric we encourage you to use to measure, monitor and make changes to your spending plan.
In our December 31, 2025 post, we referred to a three-step process that we encouraged you to use to replace the default LPP assumptions in the Actuarial Financial Planner to refine and personalize your Funded Status measurements.
Last week, Advisor Perspectives published my article entitled, “Use This 3-Step Process to Develop Better End-of-Life Assumptions for Your Clients.” We include the three steps in this post from that article. A link to this article is also available in the “articles” section of our website.
In Episode 211 of their Retire with Style podcast series, Dr. Wade Pfau and Alex Murguia discuss the importance of using present values in financial planning for retirement. They conclude their podcast by saying that present values are “the heart and soul of retirement financial planning calculations,” and “It only took us 200+ episodes to get to the heart of the matter.” We agree.
In prior posts, we’ve discussed the three M’s that constitute the actuarial process for keeping your spending in retirement on track and consistent with your spending goals:
In this post, we will discuss two more M’s: Periodically Measuring and Managing your financial risks. If you have completed Steps 1 and 2 above as of January 1, 2026 and are contemplating increases in your spending plan this year, we suggest that now may be a good time to measure and possibly manage your financial risks before implementing your plan. Stress testing your assumptions is a relatively easy process using the Actuarial Financial Planner (AFP) to see what the results of changing assumptions or inputted data has on your Funded Status.