Present
value is the organizing principle of the Actuarial Approach recommended
on this website. Retirement sustainability ultimately depends on a
single question: Can the present value of your assets support the present value of your planned lifetime spending?
The ratio of these two quantities — your funded status — provides an
actuarially coherent measure of retirement readiness and a disciplined
way to monitor financial solvency over time.Many readers find
present value calculations challenging, particularly when applied to
long‑range spending plans. The Actuarial Financial Planner (AFP)
workbook is designed to handle this complexity for you. All inputs are
entered in the Input & Results tab, and the AFP automatically performs the present value calculations in the PVCalcs
tab using risk‑adjusted discount rates. These discount rates allow you
to compare the present value of non‑risky assets with the present value
of essential spending on a consistent basis.In our August 16, 2026 post, we illustrated several typical asset present value calculations. In this companion post, we turn to the spending
side of the funded‑status equation and show how the AFP evaluates the
present value of recurring and non‑recurring expenses under its
risk‑adjusted framework.Medical CostsExample entry (as “other annual essential expenses, increasing with input %, if any”):Annual Amount: $12,000Annual Increase: 4%This
example reflects a 65‑year‑old single male with current medical costs —
primarily Medicare premiums — of $12,000 per year. Under the AFP’s
default assumptions, his Lifetime Planning Period is 29 years. He
assumes his premiums will increase 4% annually, slightly higher than the
AFP’s default inflation assumption of 3%. Items entered in this row are
treated as recurring and 100% essential.The AFP calculates the present value of this expense stream as $305,342. This amount is substantially higher than the $185,000
estimate published by Fidelity for a single 65‑year‑old. The difference
arises primarily from the planning horizon: Fidelity uses life
expectancy, while the AFP uses a more conservative lifetime planning
period based on a 25% probability of survival. It is more prudent to plan
to live longer than your life expectancy. It should be noted that the
present value would be even higher for a 65-year-old female retiree.TaxesExample entry (two parts — one recurring, one non‑recurring):Recurring taxes:Annual Amount: $15,000Annual Increase: 3%Non‑Recurring (from RMD payments):Annual Amount: $5,000Deferral Period: 8 yearsPayment Period: 21 yearsAnnual Increase: 4%% Essential: 100%This
retiree includes $15,000 of current federal, state, and property taxes
as recurring essential expenses, increasing annually with inflation. In
addition, he anticipates higher taxes once required minimum
distributions (RMDs) begin from his 401(k). The AFP treats these
RMD‑related taxes as a non‑recurring future expense stream. The annual
amount is entered in future dollars, and the retiree assumes these taxes
will grow faster than inflation.Under default assumptions, the AFP calculates:Present value of recurring taxes: $336,641Present value of additional RMD taxes: $64,691If
the retiree expects to sell appreciated assets during retirement, he
may also wish to include the present value of any taxes associated with
those future sales in the present value of his planned expenses.Travel ExpensesExample entry:Annual Amount: $30,000Deferral Period: 0 yearsPayment Period: 15 yearsAnnual Increase: 3%% Essential: 0%This
example illustrates budgeting for discretionary travel from age 65 to
80. The retiree plans to spend $30,000 annually, increasing with
inflation. Because travel is 0% essential, the AFP treats this as fully
discretionary spending. It is important to distinguish these
non-recurring expenses from recurring expenses expected to last for the
rest of retirement. The present value of this planned expense stream is $329,744.
Discretionary present values are particularly useful for testing
“what‑if” scenarios — for example, how reducing or increasing travel
affects funded status. Long‑Term Care ExpensesExample entry:Annual Amount: $209,909Deferral Period: 28 yearsPayment Period: 3 yearsAnnual Increase: 4%% Essential: 100%This
example reflects a potential long‑term care (LTC) event beginning at
age 93 and lasting three years. The annual amount is expressed in future
dollars.Under default assumptions, the AFP calculates the present value of this planned expense as $157,599.For more discussion of this example, see the October 6, 2025 Advisor Perspectives article, “How to Help Clients Budget for Long‑Term Care.”SummaryPresent
value calculations allow you to translate future income and spending
into today’s dollars so they can be evaluated consistently. The AFP
workbook automates these calculations once items are entered correctly
in the Input & Results tab.With both asset and spending
present values in hand, the AFP’s funded‑status metric provides a
single, actuarially grounded measure of retirement sustainability —
helping you determine whether your assets can support the lifetime
spending you want without jeopardizing long‑term financial solvency.
