Actuarial Budget Benchmark (ABB)—A Much More Robust Spending Algorithm

In our post of May 1, we talked about how the ABB differs from Monte Carlo models, and we sort of promised that we weren’t going to talk about this subject again for a while.  Subsequent to our post, our friend Dirk Cotton over at The Retirement Cafe also discussed this subject in his post of May 14, 2018.  Dirk did a very good job of explaining the different uses of these models (better than we did), so if you are still interested in this subject, we encourage you to read Dirk’s post.  We also recommend that you read it just because Dirk said some nice things about the ABB.  Because of our promise, however, we are going to keep this post very brief.

We Continue to be Baffled by the Two Primary U.S. Actuarial Organizations

One of the nice things about having your own website is that you don’t have to rely on the kindness of strangers to communicate your ideas.  Our mission at How Much Can I Afford to Spend is a simple one:   advocating the use of basic actuarial and financial economics principles to try to help reasonably intelligent numbers people make better financial decisions.  And while we include advice and free workbooks in our website in an attempt to fulfill this mission, we occasionally submit articles to other media to try to reach a larger audience.

The Search for Certainty in the Uncertain World of Personal Retirement Financing

This post is a follow-up to our last few posts discussing the pros and cons of stochastic modeling vs. the Actuarial Approach (including deterministic calculation of your Actuarial Budget Benchmark, annual valuations and periodic scenario testing).  Following our friend Dirk Cotton’s post of March 30 and our response post on April 6, we engaged in a number of very thoughtful and informative email discussions with Dirk on this subject, and Dirk added his post of April 23 outlining the limitations of simulations.  The substantive personal financing issues on which we and Dirk agree far outnumber the issues where we may have different viewpoints.  The purpose of this post is to bring this interesting discussion to a close on our end (at least for the time-being).  In order to avoid repeating a lot of what has been discussed in the recent posts, we will:

• Briefly summarize the stochastic model vs. Actuarial Approach discussion.
• Encourage you (or your financial advisor) to employ both models (or combine them) to facilitate better (more informed) financial decisions. 
• discuss new EBRI research and its implications, and
• attempt to tie these seemingly unrelated topics together.