Households often have assets they expect to use during retirement that are not level streams of income, as well as expenses that are not expected to recur every year. These items need special handling in the Actuarial Financial Planner (AFP) because they occur at specific future dates and often carry different risk characteristics than ongoing retirement spending.
Examples of deferred or one‑time assets include:
- Future sale or downsizing of a primary or secondary home
- Sale of rental property
- Sale of other assets such as boats, artwork, or collections
Examples of non‑recurring expenses include:
- Home repairs or replacement of major systems
- Travel or large discretionary purchases
- Purchase of new vehicles
- Purchase of a vacation home
- Pre‑Medicare medical costs
- Increased taxation due to RMDs
- Long‑term care expenses
- Support of aging parents
AFP provides two ways to incorporate these items:
- Enter the present value directly, if you already know it.
- Enter data that AFP uses to calculate the present value.
If you use AFP to calculate the present value, do not also enter a present value in the PV cell. Users should choose one method or the other.
How AFP Calculates Present Values for Deferred Assets and Non‑Recurring Expenses
To have AFP calculate the present value, enter values in the following five fields:
- Annual Amount — the cost or value in today’s dollars, increased by inflation (or another reasonable rate) to the first year of payment.
- Deferral Period — number of years until the first payment or asset sale.
- Payment Period — number of years the item occurs after the deferral period.
- Annual Rate of Increase — expected growth rate after payments begin (often 0% for one‑time items).
- % Upside (assets) or % Essential (liabilities) — the risk weighting used to determine the blended discount rate.
AFP discounts each item using a blended rate equal to:
This ensures that risky assets and essential liabilities are valued consistently with the household’s portfolio risk profile.
Example 1: Expected Non‑Recurring Expense — Kitchen Remodel
Assume a married couple expects to remodel their kitchen 10 years from now, and the current cost is $25,000. Using the default inflation assumption of 3%, the inflated cost in year 10 is:
They consider this remodel to be 50% essential. Because the remodel is a one‑time expense, the payment period is 1 year and the annual rate of increase after payment begins is 0%.
Their AFP entries would be:
Annual Amount | Deferral Period | Payment Period | Annual Rate of Increase | % Essential |
$33,598 | 10 | 1 | 0% | 50% |
Under current default assumptions, AFP calculates a present value of $17,899. The discount rate is 6.5%, reflecting 50% weighting of the floor rate (5%) and 50% weighting of the upside rate (8%).
Example 2: Deferred Asset — Future Home Sale and Downsizing
Assume the couple plans to downsize 15 years from now. If they sold today, they estimate net proceeds of $200,000 after purchasing a smaller home. They believe this net amount will increase with inflation at 3% per year, and they classify the downsizing as a 70% upside (risky) asset.
The future net value is:
Their AFP entries would be:
Annual Amount | Deferral Period | Payment Period | Annual Rate of Increase | % Upside |
$311,593 | 15 | 1 | 0% | 70% |
AFP calculates a present value of $111,364 using a blended discount rate of 7.1% (30% floor rate, 70% upside rate).
Households anticipating future home sales should monitor both expected sale price and replacement home cost over time to ensure assumptions remain reasonable. Relying on future asset sales to fund retirement can create cash‑flow pressure before the sale occurs and may result in having to sell the asset prior to the desired date of sale.
Summary
AFP provides a consistent actuarial framework for valuing deferred assets and non‑recurring expenses. By entering the annual amount (inflated to the expected payment year), deferral period, payment period, post‑payment growth rate, and risk weighting, users can determine present values for future home sales, remodels, long‑term care, and other irregular items. These present values feed directly into the household’s funded‑status calculation.
For an example of how to apply this same process to long‑term care, see my October 6, 2025 Advisor Perspectives article, “How to Help Clients Budget for Long‑Term Care.”
