Retirement Planning Using Basic Actuarial Principles—Keeping it Relatively Simple

As noted in our post of April 11, 2021, the financial planning process recommended in this website (Recommended Financial Planning Process) is a relatively simple and straight-forward process. It is a “two-bucket” planning approach that involves establishing 

• a Floor Portfolio to fund your current and future Essential Expenses, where assets in this portfolio are invested in non-risky investments, and
• An Upside Portfolio to fund your current and future Discretionary Expenses, where assets in this portfolio may be invested in riskier investments.

Looking to Calm Those Retirement Spending Fears—Part 2

This post is a follow-up to our post of December 22, 2019 in which we said,

“We here at “How Much Can I Afford to Spend in Retirement” won’t tell you how much you should spend in retirement or how to spend it. We do understand, however, that the many uncertainties involved in retirement planning can and do lead to anxiety, stress and sub-optimal decisions. Managing uncertainty is an area where we believe we can help. And while our Actuarial Approach to personal financial planning will not eliminate uncertainties and retirement risks, it can give you robust tools and processes to manage these risks, calm your retirement spending fears and help you make better spending decisions.”

Achieving Your Financial Goals in Retirement

The purpose of our website is to help you achieve your financial goals in retirement. Unfortunately, there are several situations that may cause some households to fail to meet their goals. In a recent article, 7 Ways Clients Can Fail in Retirement, Financial Advisor writer Jacqueline Sergeant outlines some of the reasons for failure discussed by veteran advisor and author Greg Sullivan in a recent book he has written. This post will discuss these reasons and how you can use the Actuarial Approach and Recommended Financial Planning Process discussed in this website to try to avoid them. 

Using an Actuarial Balance Sheet to Develop a Better Retirement Plan

As advocates of using basic actuarial and financial economics principles to help people make better personal financial decisions, we are always pleased on those rare occasions when we run across articles from others (either actuaries or non-actuaries) advocating similar principles. In his June 1, 2021 ThinkAdvisor article, “Guaranteed Income Belongs on the Retiree Balance Sheet”, Dr. David Blanchett describes the potential financial planning benefits of including guaranteed income in the retiree balance sheet, a basic actuarial principle.

How to Modify Your “Retirement Paycheck” to Make it Work Better as a Spending Budget tool in Retirement

We frequently read articles encouraging retired individuals and couples to cobble together different sources of retirement income (or “design their retirement paycheck”) to meet spending needs in retirement. We call this approach the “Sum of Income Sources” (SOIS) approach. The theory behind this approach is that the sum of the income sources will replace some or all of the paychecks individuals and couples received while working; theoretically making it easier for them to manage their finances in retirement. And while this approach can work well in fairly simple situations, and in fact is promoted as a simpler alternative to other approaches (like the Actuarial Approach advocated in this website), it can fall short in many real-world situations unless it is properly modified. In this post, we will demonstrate the potential shortcomings of this approach and discuss how non-linear sources of income can be modified to make the SOIS approach work somewhat better.