Most people measure retirement readiness one way: how big is the portfolio? Amy Shepard, Partner and Financial Planner at Sensible Money, argues that’s an incomplete question. A more useful one is how much of your future retirement spending is already funded — and pension plans have had a name and a formula for that for decades.
What Fundedness Actually Measures
Fundedness compares the present value of your future spending needs to the value of your available resources. Amy uses a road-trip analogy: most people only check how much gas is currently in the tank. That’s useful, but it doesn’t answer the question that matters — is there enough gas to reach the destination? A portfolio balance can look reassuring in isolation, but whether it’s enough depends entirely on what you’ll actually spend over the rest of your life. For a related but more surface-level version of this question, see a simple calculation to get you close to an answer — fundedness goes a step further by turning that estimate into an ongoing, trackable ratio.
Pension plans didn’t build this for retail investors — they built it to keep their own promises solvent, calculating assets against the present value of benefits owed. Sensible Money applies that same math to individual plans: instead of asking “how much money do I have,” fundedness asks “how prepared am I to support the life I want.”
A Worked Example
Take a retiree whose plan estimates lifetime spending needs at about $2 million in today’s dollars, against $1.8 million in current resources. That’s 90% funded — not a verdict on success or failure, but a planning input. It points toward a real decision: save more, work a bit longer, or adjust spending, rather than leaving the retiree guessing from the account balance alone.
Why 110%, Not Just 100%
100% funded sounds like the finish line, but it covers projected spending with zero margin for anything going differently than assumed — and retirement plans rarely go exactly to plan. Sensible Money targets 110% or higher, with the extra cushion covering healthcare costs, major home repairs, a stretch of poor market returns, or simply living longer than projected. None of those are edge cases; they’re the ordinary texture of a multi-decade retirement.
Turning a lump sum into that kind of durable income is its own discipline — see 5 steps to turn your nest egg into a retirement paycheck for how that process works once a plan is funded.
Fundedness Is a Tool, Not a Crystal Ball
A strong fundedness score can support retiring sooner, spending more confidently, or increasing gifting. A weaker one points toward saving more, adjusting spending, or reconsidering timing. Either way, it relies on assumptions about longevity, market returns, and inflation, so it works best reviewed regularly rather than calculated once and filed away — the same discipline behind benchmarking progress in retirement more broadly.
Retirement planning isn’t just about maximizing wealth — it’s about building confidence that your resources can support the life you want for the rest of your life. Fundedness is one of the ways Sensible Money connects the portfolio to that goal, instead of treating a large balance as the finish line on its own.
