Funded Status—A Better Metric for Managing Spending Decisions in Retirement

This post is a follow-up to our post of August 23, 2025
where we encouraged financial advisors and DIYers to ditch Monte Carlo
modeling and its probability of success metric and adopt the Actuarial
Approach and its funded status metric if they wanted to better manage
spending decisions in retirement.Apparently, even Michael Kitces,
Chief Financial Planning Nerd at Kitces.com and advisor to many
financial advisors agrees that Monte Carlo modeling with a probability
of success metric used by most financial advisors today has its
problems. In a recent LinkedIn post,
Mr. Kitces called for financial advisors to “pivot away” from
communicating the probability of success metric to communicating “a more
accurate ‘probability of adjustment’ framework that relies on the
concepts of overspending and underspending.”It is important to
note that Mr. Kitces proposes that Monte Carlo modeling using
probability of success scores should still be developed, but the success
scores should actually be withheld from clients and re-interpreted. We
find his proposal to be bizarre and potentially confusing. A much
simpler and straightforward solution is to use an approach like the
Actuarial Approach that compares household assets to spending
liabilities. The funded status metric developed by this approach
directly measures underspending and overspending risks that can be
easily communicated and understood by clients. We also suggest that
advisors and clients discuss and adopt plans to implement specific
“guardrail” spending adjustments when necessary.But, there are
some people who actually like to know their Monte Carlo probability of
success score. And we have no problem with that. The Funded Status
produced by the Actuarial Approach can provide users with approximately
equivalent information (assuming consistent assumptions about future
experience are made) as shown in the table below.Monte CarloProbability of SuccessActuarial ApproachFunded Status50%100%75%125%99%150%As
discussed in our previous post, one of the many benefits of using the
Actuarial Approach is that it is relatively easy to reflect all of the
client’s asset resources and all of the client’s spending liabilities in
the Funded Status calculation.For the purpose of managing
spending decisions in retirement, we continue to believe that the
Actuarial Approach is superior to any Monte Carlo model or strategic
withdrawal strategy out there. It uses the same basic actuarial
principles and processes used to measure and monitor the sustainability
of many other financial systems and can work equally well for household
retirement systems.