Planning For Non-Recurring Expenses in Retirement

As we have said many times in this blog, if you want a reasonable spending budget in retirement (or if you want a better idea of whether you can afford to retire) it is important to estimate your expected non-recurring expenses in retirement separately from your expected recurring expenses. For example, see our post of February, 7, 2019, “If You Aren’t Separately Budgeting for Non-Recurring Expenses, You Probably Don’t Have a Robust Retirement Spending Budget.” 

Actuarial Financial Planner Consistent with General Personal Retirement Planning Guidance Issued by the American Academy of Actuaries

As professional number-crunchers, actuaries generally use and develop models designed to produce useful information to help clients and others make financial decisions. These models typically consist of:

• Input (data and assumptions),
• Calculations that transform the inputs into outputs, and
• Results that translate outputs into useful financial information

The Actuarial Financial Planner available in this website is a simple model that we designed to help retirees and near retirees make better financial decisions. It is a deterministic model (with no random variable assumption inputs) much like the actuarial models generally used by actuaries to determine pension plan contribution and expense requirements or Social Security’s funded status. 

Discount Rate Assumptions Used to Price Life Annuities

Thanks to our friend, Will Selden, for asking what discount rates are currently being used by insurance companies to price life annuities in his March 28, 2022 blog post SWAG on Annuity Discount Rate. Based on his analysis, Will notes that current annuity pricing appears to be based on higher interest rate assumptions than in the past few years. This is not terribly surprising as interest rates in general have increased since the Federal Reserve signaled that it would raise the Federal Funds interest rate and would probably continue to do so into 2023. For example, the 10-year constant maturity Treasury rate has increased by almost 70 basis points during the month of March. All things being equal, higher assumed interest rates translate to higher monthly life annuity benefit amounts per dollar of premium.