Thinking About Retiring Early?

The primary purpose of this website is to help the retirees and near retirees who happen to stumble across this blog site make better financial decisions. We attempt to do this by providing relatively simple tools (spreadsheets) and processes which utilize basic actuarial and financial economics principles. These tools and processes, which are available for free, can be used by DIYers or by financial advisors to quantify the effects of various options available to retired or near-retired households with respect to their spending and investing. The authors of this blog are retired actuaries. Neither of us receives any direct or indirect compensation from visits to this website or from any activity associated with this blog.

Planning on Temporary Higher Levels of Inflation

This is a follow-up to our post of January 30, 2022 on stress-testing your retirement plan for rising interest rates/inflation. In this post, we will provide you with a work-around for the Actuarial Financial Planner for Retirees (AFP) default inflation assumption if you believe that today’s increased rates of inflation relative to interest rates will be temporary and will revert back to “more normal rates” in the future. 

Will Kitces.com Guarantee the 4% Rule?

In this post, we will discuss a recent Kitces.com post defending the 4% Rule, and we will compare this widely-used rule of thumb with the Actuarial Financial Planner (AFP) approach for a hypothetical single retiree. We believe the example illustrates that many retirees can better meet their spending goals and better manage their investment risk by using the AFP approach rather than the 4% Rule.

Planning on Future Decreases in Discretionary Spending? OK With Us.

In this post we will revisit the planning implications of research that finds that household spending may decrease in real dollars as retired households age. This week we became aware of research in the U.K. that, like several other research reports we have discussed, shows that spending in retirement does decrease in real dollars, on average. Unlike other research, however, this research measured the sources of spending decreases in retirement and concluded:

• Much of the decline in consumption is explained by falls in spending on “non-essential items” such as recreation, eating out and holidays.
• Spending on essential items remains relatively flat during retirement, which means essential items account for an increasing proportion of the overall household budget. Indeed, by age 80+, over 50% of expenditure is on essential goods and services.
• There does not appear to be a post-retirement spending boom on leisure and holidays. In fact, from age 50 onwards, spending on most non-essential items begins a slow decline.

We believe the conclusions of this research are consistent with the thoughts we expressed on the planning implications of possible spending decreases in retirement in our post of December 11, 2021 where we said,

Reflecting Non-Financial Assets in Your Asset Allocation Strategy

Unless you are almost totally reliant on Social Security and/or your pension benefits, one of the most important decisions you will need to make in (or near) retirement is how to allocate your Accumulated Savings among risky investments, such as equities, and less-risky investments, such as bonds or annuities.  

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.