It’s Time, Once Again, to Measure Your Funded Status

Happy
New Year! It’s the time of year that we ask you to perform your
actuarial valuation to measure (or re-measure) your Funded Status. We
encourage you to use the granular spending budget chart that we outlined
in our post of December 25, 2024 to gather the estimated 2026 data to be inputted in this year’s Actuarial Financial Planner (AFP). Last
year, Congress enacted new legislation affecting personal income taxes.
You may wish to revisit your assumptions for 2026 and future years’ tax
expenses. Remember that your taxes may increase in the future for
various reasons, including application of RMDs and sales of appreciated
assets. You should factor these expected increases in the present value
of your expenses when determining your Funded Status.As part of
the annual valuation process, we also encourage you to monitor the
changes in your Funded Status from year to year and to make changes in
your spending budget or your assets if appropriate. This may involve
considering increasing your spending plans this year if your Funded
Status is growing too large after three years of robust equity market
experience. This year, you can also stress-test your plan by
changing assumptions used in the AFP to assess and manage risks that the
assumptions used in the AFP may not be realized in the future.In our previous post,
we discussed the default assumptions used in the AFP. You can easily
change these assumptions using the assumption override process outlined
in the spreadsheet. We encourage you to refine and personalize the
longevity planning period (LPP) assumptions you use in the AFP by
performing the following three-step process:Step 1: Compare
longevity estimates (50% probability of survival) for you and your
spouse (if applicable) from three or four reliable internet longevity
calculators with the 50% probability of survival LPPs from the Actuarial
Longevity Illustrator (ALI)Step 2: Estimate an age set-forward
or age set-back to make the 50% results between the internet
calculators and the ALI consistent, andStep 3: Enter the
adjusted ages from Step 2 in the ALI and select the LPPs from the 25%
probability of survival to develop a personalized plan for living longer
than your life expectancy. We will be discussing this LPP-assumption-age adjustment process in more detail in a future post.We
recently saw that a fellow Fellow of the Society of Actuaries, Tonya
Manning, recently wished actuaries on LinkedIn success in 2026 by
saying, “May all your assumptions be reasonable and may all your Funded
Statuses be strong.” We shamelessly pass along her pithy actuarial
blessing to all our readers. We hope you have a great new year. Happy budgeting and planning!