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.