Retirees, I don’t want to be the Grinch who stole your Christmas (or your holiday season), but if you haven’t done so already this year, you might want to estimate your end-of-year financial status by updating the data in your Actuarial Financial Planner (AFP). And, if your updated end-of-year Rainy-Day fund (the balancing item of your retirement assets and spending liabilities) is uncomfortably negative, you might want to think about reducing some of your discretionary expenses going forward, including your upcoming holiday spending. Alternatively, you might want to consider going back to work or finding other sources of income. In this post, I will provide some suggestions on how you can update your beginning of year AFP to year end.
Suggested Process for estimating end-of-year AFP from beginning of year AFP
- Pull out your January 1, 2022 AFP and read any notes that you wrote yourself last year or during this year
- Add another year of age to your and your spouse’s age
- Estimate your end-of-year current accumulated savings. This may involve looking at recent account statements or adjusting your beginning-of-year balance for estimated withdrawals and investment experience.
- Increase your estimated 2022 Social Security benefits by 8.7% (the cost-of-living increase for 2023 benefits)
- Re-estimate your recurring and non-recurring expenses for 2023. This will generally involve increasing essential expense spending from 2022 by at least 8.7% to reflect increases in inflation. Add any new non-recurring expenses and subtract 1-year from expected payment periods for non-recurring expenses listed last year.
- Possibly re-estimate future increases in your re-estimated current expenses to reflect your revised estimate of future increases in these expenses, and
- Make any other changes to more accurately reflect your current financial situation or expected spending for 2023 (or later).
Summary
It is possible that your investments may bounce back between now and the end of this year. It is also possible that they may drop even further. In order to develop a budget for the upcoming holiday season and other discretionary spending going forward, it is simply prudent to project what your financial status may be at year-end and make whatever adjustments you feel are necessary in your retirement plan.
