Default Assumptions for 2026 Actuarial Financial Planner

We’ve
increased the default investment return/discount rate for risky
investments/discretionary spending from 8% to 10%. All other assumptions
are unchanged from those used last year. As with all the default
assumptions in the spreadsheet, you can change them if you want by
following the assumption change override process. You can also change
them to stress test your plan.As indicated in our post of December 13, 2025, we encourage you to visit www.longevityillustrator.org to help you select potentially more appropriate lifetime planning periods than the default LPPs for you and/or you spouse.From
time to time, we get questions about the use of two discount
rate/investment return assumptions for determining present values of
streams of income or expenses. In addition, users of the model are
frequently confused by the requirement to estimate the “% Upside” for
certain household assets (the ones that are not clearly non-risky like
Social Security) and the “% Essential” for household spending
liabilities (the ones that are not clearly labeled as “essential” or
“discretionary”). We don’t do this to torture you, but rather to try to
get you to determine how much of your household assets are risky
(upside) and how much are non-risky (floor) and how much of your
spending liabilities are essential and how much are discretionary so
that these present values of your non-risky assets and essential
spending liabilities can be matched if so desired by you.We
realize that it may not be easy for you to assign these percentages. For
example, some believe that investment in high quality non-laddered
bonds is riskier than investment in life annuities but not as risky as
investment equities. Perhaps we can help you select these % assumptions
in this post by discussing the investment return/discount rate
implications of your choice.The default investment return for
non-risky assets and discount rate for essential expenses in the 2026
planner is 5% and the default investment return for risky assets and
discount rate for discretionary expenses (as noted above) is 10%. This
means that if you believe an inputted asset is 70% non-risky (or 30%
risky or upside), it’s assumed annual investment return (using the
default assumptions) is 6.5% (.7 x 5% + .3 X 10%). If you expect to earn
a greater return than 6.5% per annum on this investment, then you might
wish to input a higher upside percentage than 30%. All return/discount rate assumptions used in the AFP are nominal returns and are not real rates of return.If you have other questions about the AFP, you might want to revisit the FAQs in our post of February 8, 2025.SummaryWe
hope that you will use the AFP again in 2026. Remember to use your best
estimates to input your expected assets and expected spending,
including taxes, and to try to be as granular as possible as discussed
in our post of December 25, 2024. Happy Holidays and Happy Planning!