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Understanding the Funded Ratio

Everyone wants to know where they stand with their finances – Will I be able to have the retirement I want? Do I have enough? Roughly how far do I have to go? Am I overfunded (believe me, it happens)?

Your Retirement Number Is Meaningless

Retirement is this big unknown for so many folks, that when someone offers to nail it down to a concrete number, of course people will line up. The only problem is, it’s meaningless.

Dynamic Programming Methods For Retirement Income

In addition to other methods we’ve discussed, a third type of variable spending model uses dynamic programming methods. These methods rely on complex computing power and mathematical equations to integrate spending and asset allocation decisions more completely over the life cycle.

Dynamic programming provides a road map at each point in time for optimal spending and asset allocation, which have been determined by first considering optimal future behavior stemming from today’s decisions.

How Much Wealth Will You Have 30 Years Into Retirement?

Thus far, we have compared the historical performance of various spending strategies when the initial spending rate is 4%. Over the next couple weeks, we will apply an XYZ rule and consider how spending may be impacted by the low-interest-rate environment facing retirees.

Retirement Spending And Required Minimum Distributions

One final spending rule serves as a reasonably easy way to implement an actuarial method for retirement spending. Actuarial methods generally have retirees recalculate their sustainable spending annually based on the remaining portfolio balance, remaining longevity, and expected portfolio returns.

Retirement Income Planning Is As Easy As PAY

As an alternative to failure rates, I suggest calibrating the downside risk across strategies in order to match them for a level of risk the retiree is comfortable taking. This calibration is done with a customized “XYZ formula” that I first outlined in my article, “Making Sense Out of Variable Strategies for Retirees” in the Journal of Financial Planning.

Are You Ready for a Challenge?

Register to attend our FREE 4-Day Retirement Income Challenge event on March 4th – 7th from 12:00 – 2:00 PM ET each day.

Click below to learn more and reserve your spot!