Funded Ratio Retirement Calculator

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Anyone familiar with the Funded Ratio concept and is it a good tool for planning and assessing retirement readiness?

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I get paid a lot of money to do this. If you want really accurate guesses for free, there would be no need for my profession


Here is a way to get some somewhat accurate numbers better than what you'll find online


This is how you can calculate how much you can take out every year factoring in the likelihood of death during your retirement years.

Go get some generic quote on a whole life annuity for 1000$ /year the age you want to retire at from a few NON participating insurance company. Also find out how much you expect to have at retirement age.

(Amount you have in retirement)*1000 / (Cost of whole life annuity at retirement age)


What this will do is take your retirement account and divide it by the accumulation of a payment of 1$ every year times the probability of living to that year. By doing this, you are finding out how much money you could pull out every year contingent on the expectation you'll actually live that long.


Now, the positives of that is that you are getting an insurance companies' expected death rate for you and how long they'd expect to continue paying you. It does pad in profit, commission and policy expenses. Which is nice since you don't get to diversify mortality risk like insurance companies. If you really wanted to, you could hit the upfront cost of the annuity by a factor to get it back to the level benefit premium



ASSUMPTIONS ABOUT DOING THIS-

1- Retirement money is in some interest bearing account
2- You are fairly normal in terms of life expectancy
3- You are only providing benefits for yourself otherwise you need a last survivor annuity

I was only joking Just saying those basic calculators aren't great.


While I personally would go for pricing out the annuity from a company since they'll use their own mortality assumptions which are better than what are publicly available + extra costs gives you a more conservative guess which helps alleviate mortality risk for you. ALternatively, you could do it yourself and look on the SOA (society of actuaries) website for publicly available mortality tables and annuities.

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I am trying to include spending (fixed and discretionary) into the model to see how far above water I am going out 30 years into retirement. I know I am above water but want to confirm how much cushion I have in my plan.

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If you want just a breakeven withdrawel point and willing to assuming a guaranteed interest rate that is even easy

Divide by a 30 year certain annuity instead of 30 year life annuity. That is 1-v^30 divided by interest rate (i) where v = 1/(1+i)

For example, 25 year certain at 5% interest

1-(1.05)^-25 / .05

I've plugged in numbers on a mortality calculator and am comfortable with the 90 yr expectation with 82 and 97 as the lower and higher quartiles. That's where I came up with the 30 year plan. Now I need to build a model of spending out 30 years and discount it back. I think I'll use 10yr Treasury rate for discount and 3% for inflation.

On the revenue side I have financial assets, hard assets, pension and social security incomes to consider.

On the spending side I probably need to do some work on projecting health care costs (ugh!), taxes, essential spending (fixed), discretionary and legacy (gifting).

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On the revenue side I have financial assets, hard assets, pension and social security incomes to consider.

On the spending side I probably need to do some work on projecting health care costs (ugh!), taxes, essential spending (fixed), discretionary and legacy (gifting).

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That you probably want to talk to a financial planner about. I can give you formulas/calculating tips based on assumptions only