Planning Your Discretionary Spending in Retirement — Like Ordering Off a Menu

Sustainable
retirement spending begins with quantifying the present value of your
essential expenses and then allocating the remaining funded status
toward discretionary “menu items” such as travel, hobbies, or gifts.
Most retirees struggle not because they overspend, but because they lack
a framework for understanding how long their discretionary choices remain sustainable. The Actuarial Financial Planner (AFP) provides that structure.Framing the Problem: Your Retirement MenuThink
of retirement spending as a restaurant menu. Some items are
nonnegotiable staples—housing, healthcare, insurance, food, taxes. These
form the baseline of your lifestyle and must be funded first. Others
are optional add‑ons—travel, dining out, charitable giving, home
upgrades, hobbies, and family support.The challenge is not simply “Can I afford this trip?” but “How does this choice affect my long‑term funded status and the sustainability of future choices?”To answer that, you need a disciplined two‑step process.Step 1 — Determining Essential Recurring and Non‑Recurring ExpensesThis step establishes the baseline—the portion of your assets already spoken for. Identify Essential Recurring ExpensesExamples include:Housing (rent, property tax, maintenance)Medicare premiums and supplemental insuranceFood and household suppliesUtilitiesTransportationTaxesBasic communication (internet, phone)For each category, estimate:Annual cost todayExpected inflation/trend rate (Healthcare often trends higher than CPI; property taxes may trend differently than food or utilities.)Duration (Lifetime, 10 years, until mortgage payoff, etc.)Then
compute the present value (PV) of these obligations using your chosen
discount rate. This produces the actuarial liability for essentials. The
AFP automates these calculations. Identify Essential Non‑Recurring ExpensesThese are predictable but not annual:Roof replacement in 12 yearsVehicle purchase every 8–10 yearsMajor dental workHome accessibility modificationsLong‑term care costs (Non‑recurring until triggered, recurring once triggered)For each, estimate:Then discount each to present value. Sum the Present ValuesThis produces your Essential Spending Liability (ESL)—the actuarial cost of maintaining your baseline lifestyle.Your discretionary budget is:Before adding discretionary items, you must know how much “room” you have in your funded status.Step 2 — Prioritizing Discretionary SpendingOnce essentials are funded, the remaining assets support discretionary choices. This is where the menu metaphor comes into play. Define Your Discretionary CategoriesCommon ones:TravelDining and entertainmentGifts and charitable givingHobbies (golf, photography, boating)Home upgradesFamily support (college funds, helping adult children)Each category should have:A desired level (e.g., two major trips per year, expressed in real dollars)A duration (e.g., travel‑heavy years until age 75)A priority ranking (must‑have vs. nice‑to‑have)Higher‑priority items get funded first when discretionary budget is limited.Example: Travel Spending — How Much and For How Long?Travel is one of the most common discretionary categories—and one of the most variable. Build a Desired Travel Spending ScheduleFor example:Ages 65–75: $25,000/year (real dollars)Ages 76–85: $10,000/year (real dollars)Ages 86+: minimal Compute the Present Value of Travel PlansDiscount each year’s travel spending back to today. The AFP automates this year‑by‑year discounting. The result is your Travel Liability (TL). Test SustainabilityAsk:Does adding TL keep your funded status ≥ 120%?A 120% threshold provides a prudent buffer for:Market volatilityLongevity riskUnexpected health or home expensesInflation deviationsIf not, adjust:Reduce frequency (e.g., one major trip instead of two)Reduce duration (e.g., travel‑heavy years end at 72 instead of 75)Reduce cost per tripThis is the actuarial version of “ordering off the menu without blowing your budget.”Bringing It Together: A Practical WorkflowList essential recurring expensesList essential non‑recurring expensesCalculate present value of essentials using the AFPDetermine ESL and funded statusDefine discretionary categoriesModel travel and other discretionary scenariosEvaluate funded status for each menu alternativeAdjust until funded status meets your sustainability thresholdClosing ThoughtRetirement
spending is not about guessing what you can afford—it’s about
quantifying it. Once you know the present value of your essential
obligations, discretionary spending becomes a menu you can navigate
confidently, choosing the items that bring joy without compromising
long‑term security. The Actuarial Financial Planner easily quantifies
your menu choices as opposed to other models that may assume a specified
level of discretionary spending occurs each year (or that may not even
distinguish between essential and discretionary spending). With a clear
funded‑status framework, the retirement menu becomes something you can
enjoy rather than worry about.