In this website, we encourage retired households to periodically (generally annually) compare the present value of their assets with the present value of their spending liabilities to determine a snapshot Funded Status. We also promote monitoring the household Funded Status over time to see whether adjustments in assets or spending liabilities may be necessary or appropriate to keep spending in retirement on track and consistent with spending goals.
As discussed many times in this website, this is the same process that is used by actuaries to measure and monitor funding progress for many other financial systems, including defined benefit pension plans and Social Security. If a system’s Funded Status (Assets/Liabilities) is significantly in excess of 100% and exhibits a pattern of increasing over time, it may be reasonable to decrease system assets and/or increase system liabilities to avoid over-funding. On the other hand, if a system’s Funded Status is less than 100% and has exhibited a pattern of decreasing over time, actions should be taken to bring the system’s Funded Status back up to at least 100% to ensure long-term system sustainability.
