The actuarial profession has recently released two items that support the use of actuarial methods/tools for personal financial retirement planning. The American Academy of Actuaries (AAA) released an Issue Brief titled, “Actuarial Observations on Retirement Income Approaches” and The Society of Actuaries (SOA), in conjunction with Stanford Center on Longevity, issued, “Viability of the Spend Safely in Retirement Strategy.” While it should be noted that while neither of these two releases specifically endorses the Actuarial Approach advocated in this website, they do acknowledge that actuarial methods/tools can provide sound personal retirement planning analysis. This post will briefly discuss these two releases and our response to them.
Actuarial Observations on Retirement Income Approaches (AAA)
According to this Issue Brief, “Good planning requires sound analysis. Two approaches are [an actuarial or] ‘personal pension plan,’ which approaches the issue with straightforward techniques similar to those for a pension plan, and a ‘Monte Carlo’ simulation of many outcomes that profiles the risks and probabilities for success.”
Viability of the Spend Safely in Retirement Strategy (SOA)
In Section 7.1 of this jointly issued report, the authors note, “A more sophisticated and complex method for retirees to develop a retirement income strategy is to use an actuarial method. Such a method would solve for regular withdrawals from savings by equating the present value of future retirement income from all sources, including Social Security and pensions, to the present value of future living expenses from all sources.” This section also points the reader to our website “for more details on one application of an actuarial method and a calculator to help implement such a method.”
Our Response to These Releases
We are clearly pleased that our profession has discovered and publicized the benefits of using actuarial approaches for personal financial planning. This recognition is an important first step in validating the work we have done on this website for nearly the past 10 years. In our opinion, however, both actuarial organizations still place too much importance on whether the model employed in the development of a robust retirement spending budget is “deterministic” or “stochastic.” For our further thoughts on this topic, see our post of October 8, 2019.
