- 4% investment return
- 2% inflation
- 2% desired increases in future recurring expenses, and
- Lifetime planning periods based on 25% probability of survival for a non-smoker in excellent health from the Actuaries Longevity Illustrator (ALI).
Since our ABC workbooks use results from the ALI to determine lifetime planning periods, we have incorporated the new updated results. We also took this opportunity to reflect lower interest rates and investment return assumptions in annuity purchase rates. Therefore, the new default assumptions for 2020 budget calculations are:
- 3.5% investment return
- 1.5% inflation
- 1.5% desired increases in future recurring expenses, and
- Lifetime planning periods based on 25% probability of survival for a non-smoker in excellent health from the (updated) Actuaries Longevity Illustrator
The Good News - Somewhat surprisingly, LPPs at a given age and gender under the updated mortality table are generally either the same or one year shorter than under the old table. So, the good news is that you may have one fewer year of retirement to fund. The actual difference is probably closer to one-half year, but the ALI rounds to the nearest whole year.
If you have fixed income annuities or pensions, the present value of those investments will be somewhat higher under the new default assumptions compared with the old default assumptions.
These two changes tend to increase your spending budget relative to the spending budget developed under the old default assumptions.
The Bad News - The present value of your fixed dollar expenses may be somewhat higher under the new assumptions than under the old assumptions. Also, assumed investment return is lower. This change will tend to decrease your spending budget, all things being equal, especially for pre-retirees.
Summary - For the most retired users, the results of the revised model should not be significantly different from the results you would come up with under the old default assumptions. Pre-retirees, however, will generally find that the revised model will require them to save more in order to achieve their retirement spending goals.