Stress-Testing Your Retirement Plan for Rising Interest Rates/Inflation, Part II

One of the three basic principles of the Actuarial Approach to personal financial planning is periodically stress-testing of significant assumptions made in your plan to assess the risks that these assumptions may not be realized in the future and to determine if you want, or need, to take actions that may mitigate these risks. In this post, which is a follow-up to our post of March 16, 2021, we once again look at the importance of future inflation and resulting future expected increases in expenses in retirement.

Not Spending Enough in Retirement? Plan to Spend More

Many researchers have concluded that retirees frequently underspend their available assets in retirement. And while we are not pushing you to spend more than you want, we don’t want you to underspend if that is not part of your plan. In our post of June 19, 2021, we discussed how failure to spend assets during retirement (underliving wealth) can prevent you from achieving your financial goals. In our post of June 23, 2021, we noted that “the many uncertainties involved in retirement planning can and do lead to anxiety, stress and sub-optimal decisions,” and we suggested facing financial fears in retirement by developing a robust plan to mitigate and/or address future contingencies.

Hey Retirees; What Percentage of Your Retirement Assets Should be Invested in Stocks?

In his recent Advisor Perspectives article entitled, “Is It Still Worth Investing in Stocks?” Fellow actuary Joe Tomlinson outlines the potential positives and negatives for retired households of investing in stocks in today’s low-interest rate, high-stock valuation environment. He concludes that there are tradeoffs associated with taking stock market risk, and different households will “put different weights on the positives and negatives.” We suggest you read Mr. Tomlinson’s excellent article.

What Will Retirees (and their Financial Advisors) Do Now That The 4% Rule is Dead?

We have never been big fans of the 4% Rule. One of the major reasons we started this blog in 2009 was because we didn’t particularly care for the 4% Rule, and we thought we could help people make better financial decisions by suggesting a more dynamic (flexible) spending strategy based on fundamental actuarial principles. In 2014 alone, we posted four separate posts trying to convince our readers to ditch the static 4% Rule and adopt the dynamic Actuarial Approach that we recommend.

It’s Time to Perform Your January 1, 2022 Actuarial Valuation

Congratulations. You made it through 2021!

In our ongoing effort to turn you all into actuaries, this post will recommend that you perform an “actuarial valuation” based on your personal and financial data as of January 1, 2022. An annual actuarial valuation is part of our 7-step Recommended Financial Planning Process. As part of this process, we will also encourage you to prepare a brief “actuarial report” to document your thought-process and any planning decisions you make for this year.