Quantifying Spending Needs Versus Spending Wants – Example

This post will present and discuss another example of our Recommended Financial Planning Process. As a follow-up to our last few posts, we will compare results for an example couple under the Actuarial Approach with less satisfactory results obtained using two alternative approaches.

Focus on Retirement Spending, Not Retirement Income

We’ve recently come across a fair number of articles encouraging individuals and couples to cobble together Retirement Income Generators, or sources of retirement income, to meet their spending needs in retirement.  These sources of income are generally expected to commence at retirement and are also expected to last for the life of the person or couple.  The theory behind this approach is that the sum of these income sources will replace the paychecks individuals and couples received while working, and make it easier for them to manage their finances in retirement.  And while this approach can work in fairly simplistic situations, and in fact is promoted as a simple alternative to other approaches, it falls short in many real-world situations.

Comparison of Retirement Spending Budget Calculation Approaches

Since our blog is all about helping people develop a robust spending budget, in this post we are going to do a deeper dive into the approaches generally used today by retirees (or for retirees) to develop their spending budgets.  We acknowledge up-front that not everyone actually feels the need to calculate a spending budget, so this post is focused on comparing the approaches generally used by those who do.

Actuaries Release New Essay Collections of Effective Retirement Planning Ideas

The Society of Actuaries has released two new essay collections containing ideas to improve retirement planning.  We encourage you to read these collections (or, at least the ones we wrote).  The two essay collections are: