Options for Spending 2020's Forfeited Trip

One of our readers recently asked whether it was good practice to “roll over” unspent budgeted 2020 travel and entertainment expenses to 2021 or later future years, as long as one does not “double dip” by also counting these unspent amounts as accumulated savings when determining recurring spending budgets.  Since this is likely to be a common situation for many of us retirees this year (other than Bobbie, who managed to travel to England early this year), we will address this question in this post.

We’ve Changed the Default Assumptions for the Actuarial Budget Calculators

The Default Assumptions we build into our Actuarial Budget Calculators (ABCs) are intended to be consistent with assumptions used by insurance companies in the pricing of inflation-indexed life annuities.  Since fully inflation-indexed annuities are no longer issued by U.S. insurance companies, selecting these assumptions has become more of a theoretical exercise.  However, we do have data on fixed income single premium life annuities and other sources to guide us to some degree.

Can You Afford to Retire?

In these uncertain times, it is natural (for Baby Boomers anyway) to wonder whether retirement or partial retirement may be financially viable. We have seen several articles discussing how much savings may be necessary to enjoy a “comfortable” retirement. In this post, we remind our readers that with the help of one of our Actuarial Budget Calculators for retirees (Single or Couples), and just a little bit of number crunching, you can derive a pretty good idea of how much you may need. We point you to our post of August 25, 2019, “Is $1 Million of Savings Enough?” for a step-by-step example of the approach we recommend. 

Actuaries Discuss Retirement Budgeting Approaches

On July 13, 2020, the American Academy of Actuaries (AAA) released an Issue Brief entitled, “Actuarial Perspectives on Determining a Retirement Income Budget.”  This post will provide the perspectives of two retired actuaries on this AAA Actuarial Perspectives Issue Brief.

How to Fix Advisor Retirement Planning Models

After posting, we received the following comment on this post from David Blanchett: “While it's true some financial planning tools don't do the things you list, I wouldn't ascribe the problem to Monte Carlo models... since there are few, if any, limitations for Monte Carlo simulations. Therefore, you might want to change the header to something like "Common Financial Planning Problems" to reflect the fact it's not the model itself (Monte Carlo), rather the tools that have been built using the model that aren't as good as they could be (or likely will be as they evolve)!” We thank Mr. Blanchett for his constructive feedback and agree with him, but we point out that these problems are much more easily fixed in our deterministic actuarial models than in the Monte Carlo models typically used today by financial advisors.

Be Empowered to Own Your Own Retirement

In his July 17, 2020 Forbes article, Your Retirement Asset Drawdown Strategy Should Fit Your Personal Story, Steve Parrish says,

“Before addressing the legitimate assumptions tied to retirement planning, the advisor should first help create and tell a story for the retiree to show the bigger picture. An approach to drawing down retirement income should be laid out in order to see how true that story feels to the owner. If the story fits, the retirement plan has a better chance of blending with that retiree’s style.”

In this post, we will push back on Mr. Parrish’s premise that retirees need to be told stories about draw-down strategies as a first step in developing a plan for retirement, and we will propose following our Recommended Retirement Planning Process as a better alternative.

Quantifying Spending Needs Versus Spending Wants – Example

This post will present and discuss another example of our Recommended Financial Planning Process. As a follow-up to our last few posts, we will compare results for an example couple under the Actuarial Approach with less satisfactory results obtained using two alternative approaches.

Focus on Retirement Spending, Not Retirement Income

We’ve recently come across a fair number of articles encouraging individuals and couples to cobble together Retirement Income Generators, or sources of retirement income, to meet their spending needs in retirement.  These sources of income are generally expected to commence at retirement and are also expected to last for the life of the person or couple.  The theory behind this approach is that the sum of these income sources will replace the paychecks individuals and couples received while working, and make it easier for them to manage their finances in retirement.  And while this approach can work in fairly simplistic situations, and in fact is promoted as a simple alternative to other approaches, it falls short in many real-world situations.

Comparison of Retirement Spending Budget Calculation Approaches

Since our blog is all about helping people develop a robust spending budget, in this post we are going to do a deeper dive into the approaches generally used today by retirees (or for retirees) to develop their spending budgets.  We acknowledge up-front that not everyone actually feels the need to calculate a spending budget, so this post is focused on comparing the approaches generally used by those who do.

Actuaries Release New Essay Collections of Effective Retirement Planning Ideas

The Society of Actuaries has released two new essay collections containing ideas to improve retirement planning.  We encourage you to read these collections (or, at least the ones we wrote).  The two essay collections are: