Using the AFP to Develop a More Aggressive Financial Plan in Retirement

In our last post, we indicated that there are several levers in the AFP that more conservative users can employ to reflect their lower tolerance for potential future spending reductions, including:

• Using more conservative (than default) assumptions about the future to determine their household Funded Status,
• Building up a larger Funded Status over time, or
• Classifying more expenses as “essential.”

In this post, we will flip the coin and look at levers available for those with a higher tolerance for potential future spending reductions, or for those with insufficient assets to cover their spending liabilities using the default assumptions (and therefore, have little choice but to assume more risk).

We include an example. 

Improving Retirement Planning by Employing Basic Actuarial and Financial Economic Principles

In our post of July 23, 2020 entitled, “How to Fix Advisor Retirement Planning Models,” we summarized some of the problems with commonly used Monte Carlo approaches used by financial advisors to develop plans for retirees and near retirees. These problems were identified by three retirement thought-leaders (Michael Kitces, Michael Finke and David Blanchett) in a panel discussion at the Engage 2020 virtual conference.