Present value is the organizing principle of the Actuarial Approach recommended on this website. Retirement sustainability ultimately depends on a single question: Can the present value of your assets support the present value of your planned lifetime spending? The ratio of these two quantities — your funded status — provides an actuarially coherent measure of retirement readiness and a disciplined way to monitor financial solvency over time.
Many readers find present value calculations challenging, particularly when applied to long‑range spending plans. The Actuarial Financial Planner (AFP) workbook is designed to handle this complexity for you. All inputs are entered in the Input & Results tab, and the AFP automatically performs the present value calculations in the PVCalcs tab using risk‑adjusted discount rates. These discount rates allow you to compare the present value of non‑risky assets with the present value of essential spending on a consistent basis.
In our August 16, 2026 post, we illustrated several typical asset present value calculations. In this companion post, we turn to the spending side of the funded‑status equation and show how the AFP evaluates the present value of recurring and non‑recurring expenses under its risk‑adjusted framework.
Medical Costs
Example entry (as “other annual essential expenses, increasing with input %, if any”):
- Annual Amount: $12,000
- Annual Increase: 4%
This example reflects a 65‑year‑old single male with current medical costs — primarily Medicare premiums — of $12,000 per year. Under the AFP’s default assumptions, his Lifetime Planning Period is 29 years. He assumes his premiums will increase 4% annually, slightly higher than the AFP’s default inflation assumption of 3%. Items entered in this row are treated as recurring and 100% essential.
The AFP calculates the present value of this expense stream as $305,342. This amount is substantially higher than the $185,000 estimate published by Fidelity for a single 65‑year‑old. The difference arises primarily from the planning horizon: Fidelity uses life expectancy, while the AFP uses a more conservative lifetime planning period based on a 25% probability of survival. It is more prudent to plan to live longer than your life expectancy. It should be noted that the present value would be even higher for a 65-year-old female retiree.
Taxes
Example entry (two parts — one recurring, one non‑recurring):
Recurring taxes:
- Annual Amount: $15,000
- Annual Increase: 3%
Non‑Recurring (from RMD payments):
- Annual Amount: $5,000
- Deferral Period: 8 years
- Payment Period: 21 years
- Annual Increase: 4%
- % Essential: 100%
This retiree includes $15,000 of current federal, state, and property taxes as recurring essential expenses, increasing annually with inflation. In addition, he anticipates higher taxes once required minimum distributions (RMDs) begin from his 401(k). The AFP treats these RMD‑related taxes as a non‑recurring future expense stream. The annual amount is entered in future dollars, and the retiree assumes these taxes will grow faster than inflation.
Under default assumptions, the AFP calculates:
- Present value of recurring taxes: $336,641
- Present value of additional RMD taxes: $64,691
If the retiree expects to sell appreciated assets during retirement, he may also wish to include the present value of any taxes associated with those future sales in the present value of his planned expenses.
Travel Expenses
Example entry:
- Annual Amount: $30,000
- Deferral Period: 0 years
- Payment Period: 15 years
- Annual Increase: 3%
- % Essential: 0%
This example illustrates budgeting for discretionary travel from age 65 to 80. The retiree plans to spend $30,000 annually, increasing with inflation. Because travel is 0% essential, the AFP treats this as fully discretionary spending. It is important to distinguish these non-recurring expenses from recurring expenses expected to last for the rest of retirement.
The present value of this planned expense stream is $329,744. Discretionary present values are particularly useful for testing “what‑if” scenarios — for example, how reducing or increasing travel affects funded status.
Long‑Term Care Expenses
Example entry:
- Annual Amount: $209,909
- Deferral Period: 28 years
- Payment Period: 3 years
- Annual Increase: 4%
- % Essential: 100%
This example reflects a potential long‑term care (LTC) event beginning at age 93 and lasting three years. The annual amount is expressed in future dollars.
Under default assumptions, the AFP calculates the present value of this planned expense as $157,599.
For more discussion of this example, see the October 6, 2025 Advisor Perspectives article, “How to Help Clients Budget for Long‑Term Care.”
Summary
Present value calculations allow you to translate future income and spending into today’s dollars so they can be evaluated consistently. The AFP workbook automates these calculations once items are entered correctly in the Input & Results tab.
With both asset and spending present values in hand, the AFP’s funded‑status metric provides a single, actuarially grounded measure of retirement sustainability — helping you determine whether your assets can support the lifetime spending you want without jeopardizing long‑term financial solvency.
