Stress-Testing Your Retirement Plan for Rising Interest Rates/Inflation, Part II

One of the three basic principles of the Actuarial Approach to personal financial planning is periodically stress-testing of significant assumptions made in your plan to assess the risks that these assumptions may not be realized in the future and to determine if you want, or need, to take actions that may mitigate these risks. In this post, which is a follow-up to our post of March 16, 2021, we once again look at the importance of future inflation and resulting future expected increases in expenses in retirement.

Not Spending Enough in Retirement? Plan to Spend More

Many researchers have concluded that retirees frequently underspend their available assets in retirement. And while we are not pushing you to spend more than you want, we don’t want you to underspend if that is not part of your plan. In our post of June 19, 2021, we discussed how failure to spend assets during retirement (underliving wealth) can prevent you from achieving your financial goals. In our post of June 23, 2021, we noted that “the many uncertainties involved in retirement planning can and do lead to anxiety, stress and sub-optimal decisions,” and we suggested facing financial fears in retirement by developing a robust plan to mitigate and/or address future contingencies.

Hey Retirees; What Percentage of Your Retirement Assets Should be Invested in Stocks?

In his recent Advisor Perspectives article entitled, “Is It Still Worth Investing in Stocks?” Fellow actuary Joe Tomlinson outlines the potential positives and negatives for retired households of investing in stocks in today’s low-interest rate, high-stock valuation environment. He concludes that there are tradeoffs associated with taking stock market risk, and different households will “put different weights on the positives and negatives.” We suggest you read Mr. Tomlinson’s excellent article.

What Will Retirees (and their Financial Advisors) Do Now That The 4% Rule is Dead?

We have never been big fans of the 4% Rule. One of the major reasons we started this blog in 2009 was because we didn’t particularly care for the 4% Rule, and we thought we could help people make better financial decisions by suggesting a more dynamic (flexible) spending strategy based on fundamental actuarial principles. In 2014 alone, we posted four separate posts trying to convince our readers to ditch the static 4% Rule and adopt the dynamic Actuarial Approach that we recommend.

It’s Time to Perform Your January 1, 2022 Actuarial Valuation

Congratulations. You made it through 2021!

In our ongoing effort to turn you all into actuaries, this post will recommend that you perform an “actuarial valuation” based on your personal and financial data as of January 1, 2022. An annual actuarial valuation is part of our 7-step Recommended Financial Planning Process. As part of this process, we will also encourage you to prepare a brief “actuarial report” to document your thought-process and any planning decisions you make for this year.

Are Guaranteed Lifetime Income Products Part of Your Investment Strategy in Retirement?

As discussed in our post of November 27, 2021, balancing the sometimes-conflicting requirements to grow, protect and carefully spend household assets is an important element of a financially successful retirement plan.

How Much Did You Spend in 2021?

The first three steps in our Recommended Financial Planning Process involve estimating your annual recurring and non-recurring expenses in retirement and categorizing those estimated expenses as either “Essential” or “Discretionary.” In this post, we suggest that you begin this process for 2022 planning purposes by gathering your actual spending data for 2021. In a future post, we will encourage you (as we do every year around this time) to perform an actuarial valuation of your assets and spending liabilities using your estimated future recurring and non-recurring annual spending. 

How Will Your Spending Change During Your Retirement?

This post is a follow-up to our post of March 19, 2021, “What is Your Plan for Future Spending in Retirement?” Impetus for this post was the recent release of a retirement spending pattern research paper by Anqi Chen and Alicia Munnell from the Center for Retirement Research at Boston College entitled, “Do Retirees Want Constant, Increasing or Decreasing Consumption?”

We briefly discuss the results of Mses. Chen and Munnell’s research and possible implications for your financial planning in or near retirement.

There’s a Much Simpler and More Robust Financial Planning Tool for Retirees Than a “Risk-Based Guardrails Model”

In their November 24, 2021 Kitces.com post, Dr. Derek Tharp and Justin Fitzpatrick once again tout their risk-based guardrails financial planning model for financial advisors to use with their retired clients. In their post, they state,

“a risk-based guardrails model can provide clients with a more accurate picture of how much they can sustainably spend than can models based on static withdrawal rates or withdrawal-rate guardrails” and

“movement from withdrawal-rate guardrails to risk-based guardrails represents a significant improvement in planning quality for retirees!”

Feel free to read their post if you are interested in a risk-based guardrails planning concept. 

Growing, Protecting and Spending Your Assets in Retirement—Finding the Right Balance with The Actuarial Financial Planner

How much you can afford to spend in retirement (or leave to your heirs) is a function of how much assets you possess. Generally, the more assets you have, the more you can afford to spend. Most retirees need to invest (grow) their assets in order to maintain or increase their desired standard of living in retirement. At the same time, however, retirees need to protect their assets and watch their spending to ensure that:

1. sufficient amounts remain throughout the entire period of their retirement to fund at least a minimum (essential) standard of living, and
2. other spending goals are achieved.