Are You Over-Estimating Your Future Retirement Spending Needs, Part II?

This post is a follow-up post to our post of August 22, 2017.   In this post, we will discuss how you can use our Recommended Financial Planning Process to avoid over-saving/under-spending before and after retirement.

How Conservative Are Your Planning Assumptions About the Future Part II

This post is a follow-up to our post of May 19, 2020, where we encouraged you to play with our ABC workbooks to become more comfortable with how your results can vary by employing different assumptions about the future.  We hope that trying out a few “override assumptions” will give you a better sense for how conservative or optimistic your planning assumptions about the future might be.  Subsequent to that post, we made changes to our default assumptions (see our post of August 16, 2020) to make them more consistent with current assumptions used for hypothetical inflation-indexed annuity pricing.  The current default budgeting assumptions are:

• Annual investment return/discount rate: 3%
• Annual rate of inflation/desired future recurring budget increases: 2%
• Lifetime planning period(s): Planning horizon from Actuaries Longevity Illustrator, 25% probability of survival for non-smoker in excellent health

DOL Issues Disappointing LISE Guidance

On August 18, 2020, the Department of Labor issued an interim final rule (IFR) regarding calculation and disclosure of the Lifetime Income Stream Equivalent (LISE) amounts of current account balances for participants in 401(k) and other qualified defined contribution plans. Subsequent to the release of the IFR, there has been significant attention in the financial press regarding the proposed rules and the assumptions specified by the DOL (on an interim basis) for converting (or translating) defined contribution plan account balances into LISE amounts. This post will not repeat the new rules set forth in the IFR and discussed in the many published articles, but will instead focus on what we perceive to be the significant guidance shortcomings, particularly the requirement to disclose fixed dollar (non-inflation indexed) lifetime annuity payments rather than inflation-adjusted payments.