Plan on Future Adjustments to Your Retirement Plan

Ongoing retirement planning involves making best estimate (or conservative) assumptions about the future and making necessary adjustments to your retirement plan when those assumptions inevitably turn out to be incorrect. At How Much Can I Afford to Spend, we believe using our Actuarial Financial Planner (AFP) model annually to calculate your funded status can best help you with ongoing (or dynamic) retirement planning. 

On the other hand, some financial advisors and academics encourage use of “safe” alternatives (like the 4% Rule or Monte Carlo model results with 90% or greater probability of success) where future retirement plan adjustments are generally not anticipated. This type of planning is referred to as “one-and-done” (or static) retirement planning. We also refer to this second type of retirement planning as “head-in-sand” retirement planning as it is very difficult to predict the future accurately and, as a result, it is very easy to either overspend or underspend relative to your spending goals when using these static approaches. For more discussion of ongoing vs. static planning, see our post of January 15, 2023. 

Systematic Comparison of Assets and Liabilities—It’s How We Actuaries Roll

In our last post, we discussed how Social Security actuaries compare system assets with system liabilities on an annual basis to determine the system’s funded status (long-range actuarial balance). We noted that the process used for this purpose for Social Security is very similar to the process we recommend for developing a spending plan in retirement.

What is Social Security’s Funded Status?

This post is a geeky dive into the primary metric used to measure Social Security’s funded status and how similar this metric is to the Funded Status measure generated by the Actuarial Financial Planner (AFP) that we encourage retired households to use in their financial planning.