One of the basic tenets of the Actuarial Approach recommended in this
website is to fund the present value of expected essential expenses in
retirement with non-risky assets/investments like:
- Social Security,
- Lifetime pensions,
- Life annuities,
- TIPs ladders,
- Multi-year guaranteed annuities, etc.
We
call the total non-risky assets/investments used for this purpose the
“Floor Portfolio,” as distinguished from the “Upside Portfolio”
comprised of more risky assets used to fund discretionary expenses. We
also refer to these portfolios as “buckets’ for funding essential and
discretionary expenses. Recently, in our post of April 26, 2025,
we introduced the concept of a third “Surplus” bucket to encourage
households to increase spending when their Funded Status exceeds a
specified level.
Recently, the Alliance for Lifetime Income released “Check off the Basics—A guide to Planning for Essential Expenses.”
Like most of their material, this guide makes a lot of sense. We agree
with their proposed approach, as it is very similar to the November, 2021 essay, “A New Approach to Building a Sustainable Retirement Plan Using Proven Actuarial Principles” that we wrote for them.
