Support Grows for Using “Funded Status” Rather Than “Probability of Success” as the Key Metric for Measuring Financial Health in Retirement

This post is a follow-up to our post of February 13, 2025, How to Improve Decumulation Planning. Subsequent to that post, we received our copy of Retirement Planning Guidebook, by the preeminent retirement researcher, Dr. Wade Pfau.

Social Security Financing—When You’re in a Hole, Stop Digging Part 2

This is a follow-up to our post of October 14, 2024.  In this follow-up post, we will estimate Social Security’s January 1, 2025 Funded Status based on 2024 valuation results and once again point out that now is probably a good time for our congressional representatives to be looking at ways to increase system revenues and/or decrease system benefits to improve the system’s Funded Status rather than looking at ways to increase system benefits and/or decrease system revenues.

How to Improve Decumulation Planning

We have never been big fans of Monte Carlo models for determining how much one can afford to spend in retirement from year to year. As actuaries, we believe that following the simple “3M” process described below is much more import than the model used in the process.

Actuarial Financial Planner FAQs

The Actuarial Financial Planner (AFP) workbooks (for single retirees and retired couples) are robust actuarial models integral to each of the three “M” steps outlined below in our recommended process for keeping your spending on track and consistent with your spending goals in retirement:

Actuarial Approach--Three Key Planning Steps

• Measure your Funded Status (Assets/Liabilities) at the beginning of each year
• Monitor your Funded Status from year to year, and
• Manage your spending, assets and risks in retirement as necessary 

We have received questions about the AFPs over the years. In this post we will once again attempt to briefly answer five of the most frequently asked questions.

Would Enacting the Hoyer/Primus Proposal “Fix” Social Security?

In early January, Social Security’s retiring Chief Actuary, Steve Goss, released an actuarial valuation of a proposal intended to improve the solvency of the Social Security trust funds based on 2024 valuation results and intermediate assumptions. The request for the proposal valuation was submitted by Rep. Steny Hoyer (D-MD) and economist Dr. Wendell Primus, and therefore is referred to in this post as the Hoyer/Primus proposal. The proposal includes a total of 17 provisions that would affect the system’s finances. Some of the more significant proposal provisions would increase system revenues while other significant proposal provisions would generally decrease system benefits.

This post will not analyze or comment on (with one exception) any of the specific proposed changes. Nor will we provide our thoughts on the likelihood of this proposal passing in the near future (unlikely). Instead, we will simply discuss whether enactment of the Hoyer/Primus proposal would fix the system. In brief, while the proposal would definitely improve Social Security’s solvency, it should not be considered as a “fix” for 75 years or any specific period.

How Much Can You Afford to Spend, Not Withdraw, in Retirement?

Since our very first post in 2010, our focus has been on helping households determine how much they can afford to spend each year in retirement (hence the title of our website). By contrast, the focus of most retirement experts has been, and continues to be, how much of your portfolio can you afford to withdraw each year in retirement. If you are looking for a Strategic Withdrawal Plan (SWP) that purports to be the best way to “tap” your retirement savings, you’ve come to the wrong website.

Beware the Retirement Income Death Spiral

In his article, “The Retirement Income Death Spiral,” retirement researcher James B. Sandidge concludes that, “[there] is not a smooth transition from sustainable to failing because principal erosion accelerates abruptly, throwing the portfolio into a death spiral.” To measure the likelihood of portfolio failure, Mr. Sandidge developed a rule of thumb he calls the Momentum Ratio (MoRo). This ratio is determined by dividing the sum of negative percentage changes in the household portfolio account during retirement by the sum of the positive changes. According to Mr. Sandidge:

 “When I applied the MoRo to historical portfolios going back to 1900, I found that portfolios with ratios of more than 100 percent during the first 15 years, 125 percent during years 16–20, and 150 percent during years 21–25 had a high failure rate. Conversely, those with ratios below those thresholds had a high success rate.”

Further, his research showed that deterioration of a retired household’s portfolio may occur much more rapidly than expected.

While Mr. Sandidge’s MoRo rule of thumb has some appeal, we believe that the process of annually Measuring and Monitoring your household Funded Status and Making changes to your spending plan when your Funded Status falls outside a reasonably determined corridor (guardrails), is a much more robust approach for keeping your spending on track, consistent with your spending goals and out of potential “death spirals.”

Retirement Researcher Advocates Actuarial Concepts for Adjusting Spending in Retirement

 

September 25, 2025 Supplement

Dr. David Blanchett, Head of Retirement Research at PGIM DC Solutions, has been recently active on LinkedIn, advocating his 2022 paper “Redefining the Optimal Retirement Income Strategy.” In this paper, Dr. Blanchett suggests several changes to traditional Monte Carlo models currently used by many financial advisors. These changes include:

• Inclusion of a dynamic process, similar conceptually to the Actuarial Approach advocated in this website, to determine how retiree spending should be adjusted from year to year, and
• Development of a better metric for evaluating scenario results than the traditional “probability of success” metric.

Measuring and Managing Your Financial Risks in Retirement

In prior posts, we’ve discussed the three M’s that constitute the actuarial process for keeping your spending in retirement on track and consistent with your spending goals:

1. Measuring your Funded Status each year
2. Monitoring your Funded Status from year to year, and
3. Making changes in your assets or spending liabilities when your Funded Status falls outside a reasonable corridor (guardrails).

In this post, we will discuss two more M’s: Periodically Measuring and Managing your financial risks. If you have completed Steps 1 and 2 above and are contemplating increases in your spending plan this year, we suggest that now may be a good time to measure and possibly manage your financial risks before implementing your plan.

What’s the Present Value of Your Accumulated Savings?

If you are not an actuary, you may not be familiar with present values. This basic actuarial concept is integral to determining your Funded Status (the present value of your household assets/sources of income divided by the present value of your future expected spending) using the Actuarial Financial Planner (AFP) workbooks available on this website. By entering relevant information in the input section of our spreadsheets, the AFPs will calculate your present values and your Funded Status.