The SECURE Act – So, What is a “Lifetime Income Stream Equivalent” of Your 401(k) Account Balance? How Will It be Calculated? And Why Should You Care?

In accordance with Section 105(a)(2) of the Employee Retirement Income Security Act (ERISA), as amended by the SECURE Act of 2019, defined contribution plan sponsors will soon be required to disclose two lifetime income stream equivalents (LISEs) of a participant’s current account balance under the plan at least once during each twelve-month period in participant benefit statements.  The two required LISEs are:

How to Develop and Implement a Strategic Plan for Your Retirement

In our post of September 25, 2019, we encouraged you to take responsibility for your own retirement.  In this post, we will build on our previous post by encouraging you to adopt and implement a strategic plan for your retirement.

How Do Expected End-of-Life Expenses Affect Your Current Recurring Expense Spending Budget?

One of our readers recently indicated that he was planning on using the proceeds from the sale of his home to fund several years of assisted living for spouse and himself when and if the need for such long-term care arose.  The reader wanted to know how to use our Actuarial Budget Calculator (ABC) to explore doing this, and how such a plan would affect their current recurring spending budget.  This post is a follow-up to our post of January 12, 2016 and addresses how you can use our ABCs to determine how your anticipated long-term care and bequest expenses will affect your current recurring expense spending budget.

“Big ERN” Discovers the Basic Actuarial Balance Equation

Thanks to one of our readers, Ian Holliday of the U.K., for letting us know that Karsten, a blogger at Early Retirement Now (with the nickname “Big ERN”) has made available a Google spreadsheet entitled EarlyRetirementNow Actuarial SWR Toolbox.    His new actuarial spreadsheet is very similar conceptually to the Actuarial Budget Calculators for single retirees and retired couples that we make available in this website.  He utilizes the Basic Actuarial Balance Equation and calculates the present values of assets and spending liabilities (using deterministic assumptions—no simulations) to develop a recurring expense spending budget “data point.” 

Time to Perform Your January 1, 2020 Actuarial Valuation

As part of our ongoing effort to encourage you to think more like an actuary when it comes to your personal finances, this post will recommend that you to perform an actuarial valuation based on your personal data as of January 1, 2020. We also encourage you to prepare an “Actuarial Report” to document your thought process and your planning decisions.  The purposes of this year-end planning exercise are to:

Looking to Calm Those Retirement Spending Fears?

Are you losing sleep because you think you’re spending too much in retirement?  Or maybe you’re spending too little now because you are worried about possible future expenses?  A recent article by Christopher Carosa, entitled, “Why Are We Seeing More Cases of ‘Fear of Spending’ Among Retirees?” discusses this latter fear.  Mr. Carosa notes, “After a career focused on saving, when it comes time to retire, the saving tap is turned off and the spending tap is (supposed to be) turned on.  For many retirees, that’s when the sudden fear of spending kicks in.  And there may be indications this phobia is reaching pandemic levels.”

Actuarial Budget Calculator (ABC) Tips

One of the basic building blocks for the actuarial approach that we advocate for developing a spending budget and for basic personal financial retirement planning is the Basic Actuarial Balance Equation for personal finance.  We provide several Excel workbooks in the “Spreadsheets” section of our website to help individuals and couples perform the present value calculations required to solve this equation, based on their data:

Actuaries Promote Actuarial Methods/Tools for Retirement Planning

The actuarial profession has recently released two items that support the use of actuarial methods/tools for personal financial retirement planning.  The American Academy of Actuaries (AAA) released an Issue Brief titled, “Actuarial Observations on Retirement Income Approaches” and The Society of Actuaries (SOA), in conjunction with Stanford Center on Longevity, issued, “Viability of the Spend Safely in Retirement Strategy.”  While it should be noted that while neither of these two releases specifically endorses the Actuarial Approach advocated in this website, they do acknowledge that actuarial methods/tools can provide sound personal retirement planning analysis.  This post will briefly discuss these two releases and our response to them.

Do You Want to be More Aggressive with Your Upside Portfolio?

One of the advantages of the “Floor and Upside”, or “Safety-First”, retirement planning strategy is that once you have established a floor portfolio of low-risk investments intended to fund your future essential expenses, you can be more aggressive when investing and spending from the upside portfolio intended to fund your future discretionary expenses.  This is because, theoretically, it should not pose an undue hardship for you to reduce your future discretionary expenses if the need should arise.  It is important to note, however, that we are not pushing you to be more aggressive with investment or spending from your upside portfolio, but if being more aggressive with respect to spending from your upside portfolio is something that appeals to you, this post will show you how you can override the default assumptions applicable to discretionary spending to implement a more aggressive overall spending strategy.  We also include an example that utilizes results from our Actuarial Budget Calculator (ABC) workbooks.

Use the Actuarial Approach to Implement Your “Safety-First” Retirement Income Plan

Several of our readers have asked us to compare:

• the retirement planning strategy discussed in Dr. Wade Pfau’s recent Forbes article and his new book, “Safety-First Retirement Planning:  An Integrated Approach for a Worry-Free Retirement” with
• the seven-step planning process outlined in our post of August 25, 2019, which is designed to help users determine the amount of assets necessary to fund essential and discretionary expenses (floor and upside portfolios) in addition to determining recurring and non-recurring spending budget data points.