Funded Status—A Better Metric for Managing Spending Decisions in Retirement

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.

Can Your Artwork Collection Fund Your Spending 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.

Personalize Your Lifetime Planning Period (LPP) Assumptions

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.

It’s All About the Present Values

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. 

Measuring and Managing Financial Risks in Retirement

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:

1. Measuring your Funded Status each year
2. Monitoring your Funded Status from year to year, and
3. Making changes in your assets or spending liabilities when your Funded Status falls outside a reasonable corridor (guardrails).

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. 

It’s Time, Once Again, to Measure Your Funded Status

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.

Default Assumptions for 2026 Actuarial Financial Planner

We’ve increased the default investment return/discount rate for risky investments/discretionary spending from 8% to 10%. All other assumptions are unchanged from those used last year. As with all the default assumptions in the spreadsheet, you can change them if you want by following the assumption change override process. You can also change them to stress test your plan.

How Long Do You and Your Spouse Plan to Live, Part 2

This post is follow-up to our post of December 22, 2024 and will again highlight the benefits of using the Actuaries Longevity Illustrator (ALI) to help you develop reasonable lifetime planning period (LPP) assumptions for your household. As we did in Part 1, we will also discuss the financial implications of planning for longer-than-life expectancy LPPs.

U.S. Actuarial Profession Develops a New Story Explaining Social Security’s Financial Decline Since 1983

After enactment of the Social Security Reform Act of 1983, Social Security actuaries determined OASDI’s (Social Security’s or the system’s) long-range actuarial balance (LRAB) to be .02%, meaning that the system was considered to be in actuarial balance for the “long-range,” which the actuaries defined as the next 75 years. Being in long-range actuarial balance in 1983 was an important consideration for congress in crafting the provisions of the new law, and some members of congress were not terribly happy with the actuaries back then when, just before passage of the new law, they increased the LRAB from -1.82% in 1982 to -2.09% to reflect passage of the Tax Reform Act of 1982. 

How Much More Can You Afford to Spend in 2026?

It’s not too early to start planning your spending for 2026 even though you haven’t yet determined your January 1, 2026 Funded Status. You or your spouse may be considering spending in 2026 on items that weren’t in your 2025 spending budget, such as an extra vacation, purchase of a new car or remodeling your kitchen, but you don’t know whether you can afford the “extra” spending involved. 

Fortunately, you are using the Actuarial Approach, its Funding Status metric and our suggested guardrails to manage your spending in retirement rather than a Strategic Withdrawal Plan (SWP) or Retirement Income Strategy (RIS) that is designed to slowly release your own money to you over time via something called a “retirement paycheck.” Therefore, if your Funded Status is sufficient and you are comfortable with a potentially lower Funded Status as of January 1, 2027, you may be able to increase your spending for 2026.

In this post, we will show you how easy the process is for determining how much more than your 2026 budget you may be able to spend. We will also show several examples illustrating the process for retired households with different Funded Statuses and tolerances for risk.