It’s Time, Once Again, to Measure Your Funded Status

Happy New Year! It’s the time of year that we ask you to perform your actuarial valuation to measure (or re-measure) your Funded Status. We encourage you to use the granular spending budget chart that we outlined in our post of December 25, 2024 to gather the estimated 2026 data to be inputted in this year’s Actuarial Financial Planner (AFP). 

Last year, Congress enacted new legislation affecting personal income taxes. You may wish to revisit your assumptions for 2026 and future years’ tax expenses. Remember that your taxes may increase in the future for various reasons, including application of RMDs and sales of appreciated assets. You should factor these expected increases in the present value of your expenses when determining your Funded Status.

Default Assumptions for 2026 Actuarial Financial Planner

We’ve increased the default investment return/discount rate for risky investments/discretionary spending from 8% to 10%. All other assumptions are unchanged from those used last year. As with all the default assumptions in the spreadsheet, you can change them if you want by following the assumption change override process. You can also change them to stress test your plan.

How Long Do You and Your Spouse Plan to Live, Part 2

This post is follow-up to our post of December 22, 2024 and will again highlight the benefits of using the Actuaries Longevity Illustrator (ALI) to help you develop reasonable lifetime planning period (LPP) assumptions for your household. As we did in Part 1, we will also discuss the financial implications of planning for longer-than-life expectancy LPPs.

U.S. Actuarial Profession Develops a New Story Explaining Social Security’s Financial Decline Since 1983

After enactment of the Social Security Reform Act of 1983, Social Security actuaries determined OASDI’s (Social Security’s or the system’s) long-range actuarial balance (LRAB) to be .02%, meaning that the system was considered to be in actuarial balance for the “long-range,” which the actuaries defined as the next 75 years. Being in long-range actuarial balance in 1983 was an important consideration for congress in crafting the provisions of the new law, and some members of congress were not terribly happy with the actuaries back then when, just before passage of the new law, they increased the LRAB from -1.82% in 1982 to -2.09% to reflect passage of the Tax Reform Act of 1982. 

How Much More Can You Afford to Spend in 2026?

It’s not too early to start planning your spending for 2026 even though you haven’t yet determined your January 1, 2026 Funded Status. You or your spouse may be considering spending in 2026 on items that weren’t in your 2025 spending budget, such as an extra vacation, purchase of a new car or remodeling your kitchen, but you don’t know whether you can afford the “extra” spending involved. 

Fortunately, you are using the Actuarial Approach, its Funding Status metric and our suggested guardrails to manage your spending in retirement rather than a Strategic Withdrawal Plan (SWP) or Retirement Income Strategy (RIS) that is designed to slowly release your own money to you over time via something called a “retirement paycheck.” Therefore, if your Funded Status is sufficient and you are comfortable with a potentially lower Funded Status as of January 1, 2027, you may be able to increase your spending for 2026.

In this post, we will show you how easy the process is for determining how much more than your 2026 budget you may be able to spend. We will also show several examples illustrating the process for retired households with different Funded Statuses and tolerances for risk. 

The Actuarial Approach Addresses the “Big Flaw” in Most Decumulation Approaches

Recently, in her Motley Fool article, A Big Reason the Famous 4% Rule May Not Work for Your Retirement, Maurie Backman confirmed what we have been telling our readers for years—you aren’t going to solve the decumulation problem in retirement by assuming you (or your client) will spend the same real dollar amount each year in the future. While Ms. Backman focuses on the 4% Rule, her criticism applies to most different types of Strategic Withdrawal Plans (SWPs) and even many Monte Carlo simulation approaches typically used by financial advisors today.

The Only Other Spending Rule Article You Will Ever Need?

A little more than ten years ago, the Financial Analysts Journal released “The Only Spending Rule You Will Ever Need” by M. Barton Warning and Laurence Siegel. Recently, Stefan Sharkansky has updated and changed the Strategic Withdrawal Plan (SWP) set forth in Waring and Siegel’s article with a different SWP in an article entitled, “The Only Other Spending Rule Article You Will Ever Need.”

Front-Loading Spending in Retirement

As discussed in our previous post of September 28, 2025, there are lots of levers in the Actuarial Financial Planner (AFP) that can be pulled to make your spending plan in retirement more or less conservative. In that post, we indicated that we thought most retirees would prefer to err a little on the conservative side by spending somewhat less initially to avoid future spending reductions. Subsequent to releasing that post, however, we came across a Think Advisor article by Michael Finke entitled, “Most Retirees Want to Front-Load Their Spending.” Since we aren’t researchers, we aren’t going to fight Dr. Finke over what most retirees actually want. 

In his article, Dr. Finke says that “Advisors need to help clients enjoy their savings during early retirement while protecting against inflation and other long-term risks.” Therefore, in this post we will briefly discuss how the AFP can be used to help households front-load their discretionary spending in retirement while at the same time protecting their essential spending.

How Conservative is Your Decumulation Plan?

If the assumptions used in your retirement decumulation plan (including the important assumptions that the assets you plan to receive, and the expenses you expect to incur in the future) are exactly realized, your Funded Status should remain approximately the same from year to year. If your (or your financial advisor’s) assumptions are too conservative, future experience will be more favorable than assumed, and your Funded Status will increase over time. Conversely, if your assumptions are too aggressive, future experience will be less favorable than assumed and your Funded Status will decrease over time.

Most retirees prefer to be somewhat more conservative than aggressive in the funding of their retirement liabilities. They prefer the possibility of future spending increases to future spending decreases, even if such spending decreases involve discretionary expenses that presumably are not as critical as essential expenses. On the other hand, most retirees don’t want to be overly conservative and prefer to enjoy increased spending early in retirement if at all possible. This conflict of preferences and the uncertainty of the future make retirement planning difficult. Some financial advisors attempt to address this issue by administering risk tolerance questionnaires and by asking clients to select between spending strategies that have varying “probabilities of success” or “probabilities of future changes.”

In this post, we will attempt to quantify how conservative certain sets of assumptions are when using the Actuarial Financial Planner (AFP) with different Funding Status targets. We will do this by using an example hypothetical individual and comparing calculated withdrawal rates for this individual with withdrawal rates under the 4% Rule.

Using the Actuarial Approach to Avoid Financial Traps in Retirement

Like you, we read many articles on the Internet that dispense financial advice to retirees. This one entitled, “11 Financial Traps Retirees Don’t See Coming” recently caught our attention. While we hope that most of our readers are aware of these financial traps and are planning for them, it doesn’t hurt to revisit them from time to time.

In this post, we will summarize and briefly discuss the eleven financial traps (or risks) set forth in the article and how almost all these risks are relatively easily addressed by applying the Actuarial Approach. We will also add a few to the author’s list.

Self-Insuring Your Long-Term Care? What is the Present Value of Your Future Long-Term Care Expenses?

At How Much Can I Afford to Spend in Retirement? we encourage retired households to periodically compare the present value of their retirement assets with the present value of their spending liabilities to determine their Funded Status. Unlike other approaches that frequently ignore long-term care costs or assume that these costs will be met through insurance or from other assets, our approach encourages users to estimate the present value of these future uninsured expense liabilities just like any other retirement expense. 

No Reason to be so Conservative, Dr. Pfau

In his Rethinking 65 article, Slow and Steady Wins the Retirement Funding Race, Ed Prince outlines Dr. Wade Pfau’s “conservative formula for guiding clients to a secure retirement.” Dr. Pfau’s approach is essentially the same as the Actuarial Approach recommended in this website, with one fairly significant difference—it assumes all household investments earn the same conservative bond-like rate of return. And while you can change the default assumptions in the Actuarial Financial Planner to accomplish this same level of conservatism if you like, we believe higher assumed rates of return on risky investments/assets can be justified. 

Ditch Monte Carlo Modeling and Embrace the Actuarial Approach

Thanks to Kitces.com and Justin Fitzpatrick for once again informing financial advisors and retired DIYers that there are better metrics and processes for managing spending in retirement than the probability of success/failure metric typically used in Monte Carlo modeling. Mr. Fitzpatrick’s thoughts are summarized in the section of the August 23-24 Weekend Reading For Financial Advisors titled, Reframing “Risk In Retirement As ‘Over- And Under-Spending’ To Better Communicate Decisions To Clients, And Finding A "Best Guess" Spending Level.”

Measuring Retirement Risks

This post is a follow-up to our post of September 2, 2023, Manage Your Financial Risks in Retirement Like an Actuary, and is in response to the following recent quote from a well-known retirement researcher, “The No. 1 risk in retirement, hands down, is longevity risk.”

Passage of OBBBA Deepens Social Security’s Funding Hole

This post is a follow-up to our post of June 18, 2025 in which we addressed the magnitude of Social Security’s long-term funding hole based on results of the 2025 Trustees Report and their “intermediate assumptions.” Last week, Karen P. Glenn, the Chief Actuary of the Social Security Administration (SSA) updated the primary 2025 results in a letter to Senator Ron Wyden reflecting SSA’s understanding of the tax provisions in the One Big Beautiful Bill Act (OBBBA). 

Primary Reason Why Lifetime Income Products are Generally Better Investments for Retirees than Bonds

We advocate a Safety First (or Liability-Driven) Investment strategy for retired households which anticipates the use of relatively low-risk investments to fund future Essential Expenses (the Floor Portfolio) and higher-risk investments to fund future Discretionary Expenses (the Upside Portfolio). The non-risky assets/investments we advocate for the Floor Portfolio include:

• Social Security benefits
• Pension benefits
• Lifetime income annuities (SPIAs and DIAs)
• Tips ladders, and
• Non-lifetime fixed annuities

The first three items above (including deferring commencement of Social Security benefits) can be considered as lifetime income products for the purpose of this post. 

Should You Build a Social Security Bridge?

This month, the Bipartisan Policy Center released “Hedging the Risk of a Longer-than-Expected Life—The Value of a Social Security Bridge Strategy” authored by Emerson Sprick. Among the report’s key findings, Mr. Sprick says,

“A well-designed bridge strategy can significantly enhance retirement security and improve retirees’ financial well-being.”

This post will discuss the automatic Social Security bridge strategy built into the Actuarial Financial Planner (AFP) models to see how significantly this strategy may enhance one’s retirement security. See our post of April 15, 2020 for more discussion of delaying claiming of Social Security benefits. We hope that this post will help retirees make better financial decisions regarding the timing of their Social Security benefit commencement.

Use the Actuarial Financial Planner and Actuarial Process to Successfully Implement a Coast-Fire Strategy

 In his June 25, 2025 Kitces.com post, Adam Van Deusen encouraged financial advisors to help their clients understand when they may have enough retirement savings to “Coast-Fire” and keep working without necessarily saving more. The present value calculations required to implement this strategy are relatively straight-forward, but financial advisors (and DIYers) would be wise to use a tool like the Actuarial Financial Planner to perform the required calculations and an actuarial valuation process to manage assets, spending liabilities and risks for clients (or households) who actually choose to Coast-Fire. 

Valuing Your Hard-to-Value Retirement Assets

As indicated in many of our prior posts, the key metric for managing your spending, assets and risks in retirement is your Funded Status--the present value of your assets divided by the present value of your spending liabilities. The greater this measure, the healthier your financial status, all things being equal. As discussed in our post of June 3, 2025, you may wish to consider increasing your spending once your Funded Status exceeds 120% and you probably should be increasing your spending once your Funded Status reaches about 150% if you wish to avoid leaving an unintended legacy at death.

Eliminating the Cap on Social Security’s Taxable Wage Base

In 2025, the maximum taxable wage for determining payroll tax (FICA tax) contributions to Social Security (OASDI) is $176,100. This is also the maximum taxable wage for 2025 for determining an individual’s lifetime benefit (primary insurance amount) payable from the system. Under current law, the “cap” is adjusted annually based on the increase in the national average wage index.

Eliminating the cap is perhaps the most popular solution suggested these days for solving most of the system’s short and long-term funding problems. Since it only affects relatively wealthy working Americans, it is a solution that tends to have wide support among lower-paid workers and retirees, consistent with the famous Russell B. Long quote from 1973, “Don’t tax you, don’t tax me, tax the fellow behind the tree.” In this post, we will take a quick look at the pros and cons of eliminating the cap on Social Security’s taxable wage base.

Actuaries Live for Mortality

In this weekend’s Kitces.com Weekend Reading for Financial Planners (July 5-6), Adam Van Deusen discusses three articles concerning the importance of selecting reasonable lifetime planning period assumptions when decumulation planning, as well as stress-testing these assumptions when measuring longevity and mortality risks. He says,

“Ultimately, the key point is that creating a plan based on how long a client will live is most effective when both mortality and longevity risk factors are considered. Actuarial science offers tools that can help advisors assess these considerations so that they can adjust mortality assumptions and longevity expectations as part of an ongoing process of monitoring and updating a plan. And by making these adjustments collaboratively and regularly, advisors can help clients develop a relevant and realistic strategy to manage their mortality and longevity risks as they journey into retirement!”

We totally agree with Mr. Van Deusen, and in this post, we will highlight the mortality/longevity related actuarial tools in our “Actuarial Approach” website that can be of value to advisors and their clients.

Should Your Plan Anticipate Future Social Security Benefit Cuts?

In light of the recent release of the 2025 OASDI Trustees Report, there has been considerable news concerning Social Security’s financial status and the possibility that if Congress does not act prior to the projected exhaustion of the trust fund (2033 for OASI and 2034 for OASDI), benefits may effectively be reduced in the first full year of trust fund exhaustion by about 20% (for OASDI) or about 23% (for OASI). Reductions could increase in subsequent years absent any action by Congress. 

NASI Fumbles Facts Regarding Primary Cause of Social Security’s Funded Status Deterioration

This month, the National Academy of Social Insurance (NASI) released “Social Security at 90: Policy Options for Strengthening the Program’s Finances and Avoiding Automatic Benefit Cuts.” In their report, NASI examines “lessons from Social Security’s history that can help inform a potential path forward.” With respect to the causes of system’s current long-term financing problem, the report concludes:

“Much of the program’s long-term shortfall stems from the legacy costs of paying benefits to early generations of recipients after the program’s inception. More recently, the further deterioration in Social Security’s financial outlook since 1983 is largely due to the rise in earnings inequality that has eroded the program’s tax base, along with a failure to adjust tax rates in recent decades.”

In this post, we will disagree with NASI’s conclusions with respect to the primary cause(s) of the system’s long-range funded status deterioration and several other suggestions they make. This is a subject that we have written about extensively in the past, and one which we feel compelled respond to by “substituting facts for appearances” (part of the actuarial profession’s motto).

Long-Range Social Security Financing—It’s Worse Than We Predicted

In our post of February 15, 2025, we estimated Social Security’s financial status as of January 1, 2025 using:

• results from the 2024 OASDI Trustees report,
• an estimate from the Congressional Budget Office (CBO) of the effect of passage of the Social Security Fairness Act,
• our estimate of the effect of the annual actuarial loss to the system resulting from the change in the 75-year projection period, and
• no other changes in assumptions, system provisions or methods

Last February, we estimated that Social Security’s long-range actuarial balance as of January 1, 2025 would be -3.65% of present value of taxable payrolls for the next 75 years (down from -3.50% last year), or a Funded Status (PV of Assets/PV of Liabilities for the next 75 years) of 79.1% (down from 79.8% last year).  Our estimates turned out to be optimistic.

Kitces.com Suggests Advisors Include an Actuarial Approach in their Consulting Toolbelt

In its Weekend Reading for Financial Planners (June 7-8), Kitces.com and Adam Van Deusen included a link to and summary of our April 28, 2025 Advisor Perspectives article, “Advising a Retired Client Who Wants to Buy a Second Home (or Other Big-Ticket Item)”. Mr. Van Deusen did an excellent job summarizing the article and pointing out the benefits of using the Actuarial Approach and its Funding Status metric to measure and communicate the impact of a client’s financial decisions on the sustainability of their plan.

In his summary, Mr. Van Deusen says,

“In sum, financial advisors have more than one tool in their toolbelt when it comes to analyzing the impact of large purchases by their retired clients. And while advisors might not consider themselves to be actuaries, taking an actuarial approach could provide clients with a metric that allows clients to better understand the impact of potential purchases on the sustainability of their financial plan!”

Of course, we like to think that the Actuarial Approach advocated in this website and its Funded Status metric can easily be applied more broadly to all significant financial decisions in retirement, not just potential purchases. We strongly agree with Mr. Van Deusen that the Actuarial Approach would be a good tool to add to the toolbelt of a financial advisor, and we are happy to assist financial advisors who may have questions about the Actuarial Financial Planner Excel workbooks or the Actuarial Approach discussed in our website.

Funded Status—The Better Metric for Managing Assets and Spending in Retirement

As we have indicated many times in prior posts, the future isn’t going to happen as you (or your financial advisor) assume, and your spending goals and actual spending are likely to change over time. Therefore, your retirement plan should include a process for determining when future adjustments to your plan may be necessary. We believe such a process is much more important than any model you may use to project the future.

Planning for Essential Expenses in Retirement

One of the basic tenets of the Actuarial Approach recommended in this website is to fund the present value of expected essential expenses in retirement with non-risky assets/investments like:

• Social Security,
• Lifetime pensions,
• Life annuities,
• TIPs ladders,
• Multi-year guaranteed annuities, etc.

We call the total non-risky assets/investments used for this purpose the “Floor Portfolio,” as distinguished from the “Upside Portfolio” comprised of more risky assets used to fund discretionary expenses. We also refer to these portfolios as “buckets’ for funding essential and discretionary expenses. Recently, in our post of April 26, 2025, we introduced the concept of a third “Surplus” bucket to encourage households to increase spending when their Funded Status exceeds a specified level.

Recently, the Alliance for Lifetime Income released “Check off the Basics—A guide to Planning for Essential Expenses.” Like most of their material, this guide makes a lot of sense. We agree with their proposed approach, as it is very similar to the November, 2021 essay, “A New Approach to Building a Sustainable Retirement Plan Using Proven Actuarial Principles” that we wrote for them. 

Don’t Forget Your Taxes, Part II

This post is a brief follow-up to our post of May 6, 2023 in which we reminded you that taxes are essential expenses that must be planned for in retirement. As is the case with other expenses expected in retirement, you must make assumptions about how your current tax expenses will change in the future to develop a reasonable estimate of the total present value of future household expenses (i.e., household spending liabilities), against which the total present value of household assets is compared to develop your Funded Status.

Are You Still Worried About Increasing Your Spending?

In our last post, we tried to encourage retirees afraid of (or behaviorally resistant to) spending their wealth to consider increasing their spending whenever their Funded Status exceeded a specific threshold percentage. In this post, we will take another shot at increasing your spending comfort level assuming safely increasing spending during retirement is consistent with your spending goals.

The “spend-less” Funding Status guardrail we recommend is 95%, and the “spend-more” guardrail we previously recommended in our post of January 7, 2023 for considering increased spending was 120%. The 150% (or 140%) Funded Status spend-more threshold used in the example in our previous post was considerably higher than our recommended 120% “spend-more” guardrail. We did this primarily to illustrate the process that could be used to transfer assets from one’s “upside portfolio” bucket to a “surplus bucket” whenever the Funded Status exceeded the specified threshold. We have absolutely no problem if you want to use a higher threshold than 120% as your spend-more guardrail, especially if you may be afraid of having to decrease your spending in the future. 

However, in this post, we are going to look at just how conservative the 120% Funded Status spend-more guardrail is by stress-testing it for a hypothetical couple. 

Use the Funded Status Metric and a “Surplus Bucket” to Increase Spending in Retirement

Most of us are relatively conservative when it comes to determining how much we can afford to spend in retirement. All things being equal, we would rather die with too much money than too little. Apparently, however, some researchers are worried that we may not be spending anywhere near enough and should buy life annuities to rectify that situation. In their recent article, researchers Drs. David Blanchett and Michael Finke reach several conclusions, including:

• “Individuals tend to view money held in savings accounts differently than wealth held in the form of income.”
• “Retirees spend a much higher percentage of their annuitized income and spend about half the amount that they could safely spend from non-annuitized wealth.”
• “Our results provide evidence that retirees bracket wealth held in investments differently than wealth held as income and consequently spend less than would be optimal in a life-cycle model.”
• “Retirees who are behaviorally resistant to spending down savings may better achieve their lifestyle goals by increasing the share of wealth allocated to annuitized income”, and
• “Less knowledgeable and risk-averse retirees may be particularly prone to underspending [since?] out of fear of depleting wealth.”

As a result of their research, they argue for implementation of policies that incentivize (or default to) the annuitization of retirement wealth.

Can I Afford to Buy that Dream Lake House (or Some Other Big-Ticket Item)?

In many of our prior posts, including our post of March 8, 2025, we have strongly encouraged readers to estimate the potential impact on their Funded Status before making a significant financial decision. In the March 8 post, we looked at how easy it was for a hypothetical couple to crunch the numbers on whether they could afford to go on a dream world cruise.

In this post, we will look at a slightly more complicated financial decision—Can I afford to buy something that involves not just an upfront cash outlay, but also involves ongoing annual costs and may also involve some future income during the period of ownership or when the item is eventually sold.

Thank You, Mr. President

As of the close of stock markets on April 8, 2025, the S&P 500 index was down about 15% from its close at the beginning of the year. It seems pretty clear that this decrease is primarily attributable to implementation of President Trump’s tariff policies. Whether the market’s decline will worsen or recover this year is uncertain. It is also uncertain what the impact of these policies will have on short-term or long-term inflation.

Generally, we encourage our readers to remeasure their Funded Status once a year at the beginning of the year. However, it may make sense to remeasure (or estimate) the household Funded Status during a year in which investment performance is significantly higher or lower than expected or in which a significant purchase or other financial decision is being considered by the household.

In this post, we will discuss how you can easily estimate the impact of the recent stock market decline on your beginning of year Funded Status and provide an example. Knowing the impact can possibly help you make better financial decisions during 2025. 

All About That Process

The future isn’t going to happen as you (or your financial advisor) assume, and your spending goals and actual spending are likely to change over time. Therefore, as previously discussed in our posts of April 16, 2023 and October 24, 2023, your retirement plan should include how you will determine when future adjustments to your plan may be necessary. We believe it is important for a good retirement plan to implement a robust process for making necessary future adjustments, and this process is likely to be even more important than the projection tool, or metric, used to measure the financial status of your plan.

Planning Tip--How Will My Funded Status Be Affected?

As discussed in previous posts, your Funded Status is an easily calculated, robust metric used to measure your financial health in retirement. Measuring and monitoring your Funded Status annually can help you make countless financial decisions. In this post, we encourage you to think about how your Funded Status will be affected before making a significant financial decision.

Retirement Researcher Discusses why He Prefers Funded Ratio to Monte Carlo Modeling

As discussed in our post of February 21, 2025, pre-eminent retirement researcher Dr. Wade Pfau has become an actuarial approach convert. You can hear Dr. Pfau and Alex Murguia discuss why they prefer using the Funded Ratio [Status] to Monte Carlo modeling for retirement planning in Episode 168 of their podcast series.

Better Financial Management in Retirement Through Better Metrics

In several of our recent posts, we have been touting the Actuarial Approach and its use of the Funded Status metric to measure household financial health. This is another one of those posts.

Support Grows for Using “Funded Status” Rather Than “Probability of Success” as the Key Metric for Measuring Financial Health in Retirement

This post is a follow-up to our post of February 13, 2025, How to Improve Decumulation Planning. Subsequent to that post, we received our copy of Retirement Planning Guidebook, by the preeminent retirement researcher, Dr. Wade Pfau.

Social Security Financing—When You’re in a Hole, Stop Digging Part 2

This is a follow-up to our post of October 14, 2024.  In this follow-up post, we will estimate Social Security’s January 1, 2025 Funded Status based on 2024 valuation results and once again point out that now is probably a good time for our congressional representatives to be looking at ways to increase system revenues and/or decrease system benefits to improve the system’s Funded Status rather than looking at ways to increase system benefits and/or decrease system revenues.

How to Improve Decumulation Planning

We have never been big fans of Monte Carlo models for determining how much one can afford to spend in retirement from year to year. As actuaries, we believe that following the simple “3M” process described below is much more import than the model used in the process.

Actuarial Financial Planner FAQs

The Actuarial Financial Planner (AFP) workbooks (for single retirees and retired couples) are robust actuarial models integral to each of the three “M” steps outlined below in our recommended process for keeping your spending on track and consistent with your spending goals in retirement:

Actuarial Approach--Three Key Planning Steps

• Measure your Funded Status (Assets/Liabilities) at the beginning of each year
• Monitor your Funded Status from year to year, and
• Manage your spending, assets and risks in retirement as necessary 

We have received questions about the AFPs over the years. In this post we will once again attempt to briefly answer five of the most frequently asked questions.

Would Enacting the Hoyer/Primus Proposal “Fix” Social Security?

In early January, Social Security’s retiring Chief Actuary, Steve Goss, released an actuarial valuation of a proposal intended to improve the solvency of the Social Security trust funds based on 2024 valuation results and intermediate assumptions. The request for the proposal valuation was submitted by Rep. Steny Hoyer (D-MD) and economist Dr. Wendell Primus, and therefore is referred to in this post as the Hoyer/Primus proposal. The proposal includes a total of 17 provisions that would affect the system’s finances. Some of the more significant proposal provisions would increase system revenues while other significant proposal provisions would generally decrease system benefits.

This post will not analyze or comment on (with one exception) any of the specific proposed changes. Nor will we provide our thoughts on the likelihood of this proposal passing in the near future (unlikely). Instead, we will simply discuss whether enactment of the Hoyer/Primus proposal would fix the system. In brief, while the proposal would definitely improve Social Security’s solvency, it should not be considered as a “fix” for 75 years or any specific period.

How Much Can You Afford to Spend, Not Withdraw, in Retirement?

Since our very first post in 2010, our focus has been on helping households determine how much they can afford to spend each year in retirement (hence the title of our website). By contrast, the focus of most retirement experts has been, and continues to be, how much of your portfolio can you afford to withdraw each year in retirement. If you are looking for a Strategic Withdrawal Plan (SWP) that purports to be the best way to “tap” your retirement savings, you’ve come to the wrong website.

Beware the Retirement Income Death Spiral

In his article, “The Retirement Income Death Spiral,” retirement researcher James B. Sandidge concludes that, “[there] is not a smooth transition from sustainable to failing because principal erosion accelerates abruptly, throwing the portfolio into a death spiral.” To measure the likelihood of portfolio failure, Mr. Sandidge developed a rule of thumb he calls the Momentum Ratio (MoRo). This ratio is determined by dividing the sum of negative percentage changes in the household portfolio account during retirement by the sum of the positive changes. According to Mr. Sandidge:

 “When I applied the MoRo to historical portfolios going back to 1900, I found that portfolios with ratios of more than 100 percent during the first 15 years, 125 percent during years 16–20, and 150 percent during years 21–25 had a high failure rate. Conversely, those with ratios below those thresholds had a high success rate.”

Further, his research showed that deterioration of a retired household’s portfolio may occur much more rapidly than expected.

While Mr. Sandidge’s MoRo rule of thumb has some appeal, we believe that the process of annually Measuring and Monitoring your household Funded Status and Making changes to your spending plan when your Funded Status falls outside a reasonably determined corridor (guardrails), is a much more robust approach for keeping your spending on track, consistent with your spending goals and out of potential “death spirals.”

Retirement Researcher Advocates Actuarial Concepts for Adjusting Spending in Retirement

 

September 25, 2025 Supplement

Dr. David Blanchett, Head of Retirement Research at PGIM DC Solutions, has been recently active on LinkedIn, advocating his 2022 paper “Redefining the Optimal Retirement Income Strategy.” In this paper, Dr. Blanchett suggests several changes to traditional Monte Carlo models currently used by many financial advisors. These changes include:

• Inclusion of a dynamic process, similar conceptually to the Actuarial Approach advocated in this website, to determine how retiree spending should be adjusted from year to year, and
• Development of a better metric for evaluating scenario results than the traditional “probability of success” metric.

Measuring and Managing Your Financial Risks in Retirement

In prior posts, we’ve discussed the three M’s that constitute the actuarial process for keeping your spending in retirement on track and consistent with your spending goals:

1. Measuring your Funded Status each year
2. Monitoring your Funded Status from year to year, and
3. Making changes in your assets or spending liabilities when your Funded Status falls outside a reasonable corridor (guardrails).

In this post, we will discuss two more M’s: Periodically Measuring and Managing your financial risks. If you have completed Steps 1 and 2 above and are contemplating increases in your spending plan this year, we suggest that now may be a good time to measure and possibly manage your financial risks before implementing your plan.

What’s the Present Value of Your Accumulated Savings?

If you are not an actuary, you may not be familiar with present values. This basic actuarial concept is integral to determining your Funded Status (the present value of your household assets/sources of income divided by the present value of your future expected spending) using the Actuarial Financial Planner (AFP) workbooks available on this website. By entering relevant information in the input section of our spreadsheets, the AFPs will calculate your present values and your Funded Status.

Why It’s Important to Monitor Your Funded Status from Year to Year

We encourage you to remember the following 3Ms when determining how much you can afford to spend in retirement:

1. Measure your Funded Status periodically (we recommend at least annually at the beginning of each calendar year)
2. Monitor your Funded Status from year to year, and
3. Make changes when your Funded Status falls outside a reasonable corridor (guardrails)

Some of our readers question why the second M is important. We will answer in this post.