The Retirement Income Industry Association represents banks, insurers, mutual fund companies, advisors, etc., so I'll take their pronouncements with a grain of salt.
However, their research and publishing ventures must keep all of those constituents reasonably happy, so there is (potentially) some balance in their approach.
Wade Phau published a new article on SPIAs this week, which I will post in a separate thread. In that article, he leans heavily on a net present value approach to evaluating retirement readiness and he mentions an RIAA initiative to promote a "household balance sheet" assessment method.
From the first link below:
The RIIA Household Balance Sheet Views is an extension of the familiar net-worth statement, but with
1. Focuses on assets to be used for providing retirement income, including assigning a value to
income sources such as Social Security and pensions;
2. Separately records values for all financial products held by households, including all retail and
tax-advantaged securities, mutual funds, annuities and cash value life insurance; and all of
households outstanding debts; and all of households in-place protection including life, health,
and property/casualty insurance;
3. Shows household spending on both non-discretionary and discretionary expenses;
4. Projects a future state by modeling behavioral economic principals and leveraging a ‘continuous
learning’ platform; and
5. Enables drilling down into different RIIA age and asset segments
One of the most powerful benefits of this tool is its conceptual simplicity. Assets either equal or exceed
liabilities or there’s a shortfall. The household is overfunded, underfunded, or constrained.
At first review, it seems like a reasonable alternative method (refinement?) to the 4% rule for assessing the withdrawal-phase. The achilles heel may be selection of a discount rate for the NPV calculations.
Has anyone looked at this more closely? Compared it to other methods?
(Their worksheet is on page two at the second link.)