How Should Future Social Security “Reform” Affect Your 2021 Spending Budget?

In the next few months, we will be encouraging you to perform an actuarial valuation of your assets and future spending liabilities to determine your spending budget for 2021. When you do your January 1, 2021 actuarial valuation, we ask, in this post, that you consider the possibility that future Social Security reform may decrease the future benefits you receive from the system and/or increase your future taxes in some manner. Thus, we are asking our U.S. readers to consider how future uncertain Social Security reform might affect your current spending budget. To help you do this, this post will discuss the estimated size of Social Security’s financial problem and several ways you can use our recently updated Actuarial Budget Calculator workbooks to reflect the potential impact of future system reform in your current financial plan.

Why the Actuarial Approach Blows the Sox off Strategic Withdrawal Plans, Part II

Subsequent to release of our previous post, we received a suggestion from one of our readers that we show Bill and Jim’s spending graphically, since pictures can frequently communicate better than words. We agreed. Therefore, this post will illustrate Bill and Jim’s expected future spending under the Actuarial Approach if all assumptions made in the calculations are realized and will compare the results with spending expected under the 4% Rule under the same assumptions about the future. Amounts are shown in today’s dollars.

Why the Actuarial Approach Blows the Sox off Strategic Withdrawal Plans (SWPs)

(Hint:  The Actuarial Approach focuses on how much you can afford to spend each year, not how much of your invested assets you can safely withdraw each year)

As discussed in our post of October 28, 2020, there is no shortage of recent articles claiming that the 4% Rule or the IRS RMD approach, or the seemingly infinite number of modifications of these SWPs, is the best approach for you to use to develop your spending budget in retirement.  Pardon our French, but we call “BS” on these articles.   If your goal in retirement is to structure annual withdrawals from your invested assets so that they are relatively stable from year to year and unlikely to run out while you are alive, then an SWP approach may be just what you are looking for.  However, if you are looking to structure your spending to meet your financial goals in retirement (including not running out of assets), you will want to check out the Actuarial Approach.