The Projection Calculator displays a summary worksheet of the 'baseline' projection (on the left of the table) and the revised projection (on the right of the table). The client’s age is displayed between the baseline projection and the revised projections. In single-scenario mode, the baseline projection is based on the clients inputs entered on the FGPS data entry screen. This baseline projection will stay the same unless you return to the data entry screen and change the initial assumptions. When the projection is displayed the first time, the revised projection is set equal to the present projection. However, you may change and recalculate the revised projection by clicking the buttons: ► Increase ROR ► Save More ► Work Longer ► Spend Less Each time you change one of these inputs, the Revised projection is recalculated and the new results are displayed on the right side of the summary worksheet. Clicking the documentation icon (printer) will display the actual worksheets used in the calculations. The summary comparison worksheet, which is the one displayed on this screen, is just three columns (lifestyle spending, available funds, and net worth) from the baseline projection and the same columns from the revised projection with age displayed in the center. You can either show the annual lifestyle spending in nominal dollars (future dollars for the current age or year) or in present value dollars (today’s dollars). To toggle between the two displays, click the Revised Lifestyle Spending column header on the top right side of the table. ITERATIVE SOLUTIONS: For four of the top buttons (Spend More, Work Longer, Save More and Increase ROR), the program presents an option to automatically solve the problem using iteration. Iteration is the process where the program guesses at an answer (result), and then checks the results. If the result is too large or too small, the program changes the guess (result) in the appropriate direction (a larger or smaller guess) and tries again. Using this process, the calculation engine is able to determine the correct solution. RESET BUTTON: The Reset Button in the bottom center allows you to quickly reset the assumptions back to the initial assumption values. That is, it allows you to start over quickly. It is necessary to Reset after using an iteration solution, unless you wish to include the results of the iteration in the next calculation. Worksheet Auto-Row Positioning: The top row of the worksheet is automatically positioned to the retirement year whenever projection is recalculated. This allows you to see the balances in that year without needing to scroll. Copy To Spending Game: Clicking this button (gamepad icon) will use the current assumptions entered into the revised projection as the basis for a Spending Game scenario. To be clear, this includes any assumption modifications made by the four buttons. Copy To Other COW Presentations: Clicking this button will use the assumptions entered in FGPS as the basis to 'back fill' related data fields used by other presentation storyboards. This can be helpful in the future as other storyboards (like Allocation Mix) share data using generic account lists. A video walk-through of the entire Financial GPS storyboard presentation can be viewed by clicking here. Comparison Mode: The toggle switch between the baseline and revised positions allows you to compare two different scenarios side-by-side. In this mode, you can compare two different scenarios against each other and test how they may respond to hazards. Hazards: This feature provides an opportunity to explore what the impact may be if a significant life event happens. •Disability: [Client/Spouse, Start Age, End Age] When active, the affected account owner loses income sources and stops making account contributions. This is mitigated by disability insurance and/or riders. •Long Term Care: [Client/Spouse, Start Age, End Age, Annual Expense] When active, the model must absorb the annual LTC expense. This is mitigated by LTC insurance and/or riders. •Major Liability: [Age, Amount] When active, must absorb this expense. This is mitigated by P&C and Umbrella insurance. •Market Volatility: [Age, Return] When active, any account marked as High Risk will experience the stated return. •Premature Death: [Client/Spouse, Age] When active, the affected account owner loses income sources and stops making contributions. This is mitigated by Life insurance and/or Death Benefit riders. •Tax Rate Changes: [Start Age, Ordinary Rate, Cap Gains Rate] When active, the stated tax rates are applied. |
This screen shows two tables of numbers that start out equal. Each shows an Available Funds Balance which represents the spendable assets stored in your tanks, a Net Worth balance which is the value of all your assets (both liquid and illiquid) and your Lifestyle Spending which matches your desired lifestyle adjusted for inflation. There are three numbers in particular I would like you to focus on highlighted by the green boxes. The first is the future lifestyle spending that would allow you to live a retirement at the same standard of living you’re enjoying today. The second is your available funds at the beginning of your retirement. This is how much you are forecasted to have in spendable dollars at retirement if everything works out the way it’s modeled. The third is your net worth which includes the forecasted value of all your stated assets (including illiquid assets like your house.) And finally there is your age in which your Available Funds in your Tanks, will run empty. When you see this, what’s going on in your mind? Now, the first place many investment advisors go to solve a shortfall is the assumption on the Rate of Return. Let’s click on the Increase ROR button and see what Revised rate of return we would need to make the plan work with you doing nothing more than you’re doing right now. As you can see, the ROR necessary to build up your Available Funds is shown up top and the revised Available Funds are shown on the right side of the screen. This is now showing that you would need to increase your current return across all your accounts by x% from this day forward. If you tried to earn this type of rate of return, what do you think would happen to the risks you’ll have to take along the way? (Optional question:) If in working together, we could find a way where you wouldn’t have to take on extra risk and still retire at the same standard of living you are enjoying today, is that something you would be interested in talking about? I'll reset the results and now, let’s look at solving for how much you would need to save to create a revised projection with enough of Available Funds to last thru your retirement. As you can see, the savings necessary is shown up top and the revised Available Funds are shown on the right side of the screen. What this is telling us is that you would have to save $X per month from this day forward until you retire. (Optional question:) If in working together, we could find a way where you wouldn’t have to save this amount per month and still retire at the same standard of living you are enjoying today, is that something you would be interested in talking about? I'll reset the results and now let’s move on to the idea of working longer, let’s calculate your age that you could stop working and have enough in your tanks. Notice in the Revised Projection that you would need to work to age #. How does that sound? (Optional question:) If in working together we could find a way where you wouldn’t have to work until age#, and still retire at the same standard of living you are enjoying today, is that something you would be interested in talking about? I'll reset the results and now, let’s look at potentially spending less during retirement to make the money last. What this shows is a reduced retirement income that will allow for your tanks to last. Now, just to be clear, these are future dollars. Let me show you what this looks like in today’s purchasing power. So, in looking at these revised retirement Lifestyle numbers, what would you think about a retirement income that is x% lower than what you live on today? (Optional question:) If in working together, we could find a way where you wouldn’t have to reduce your retirement income by x% and still retire at the same standard of living you are enjoying today, is that something you would be interested in talking about? |
All contributions and withdrawals occur at the beginning of the year. Calculations for the baseline and revised projections are performed against and stored in a logical worksheet format. Therefore the calculation logic is best described by defining each worksheet column. Age: The age of the client for each year (or row) in the worksheet. Net Worth B.O.Y: The value of all accounts at the beginning of the year before contributions, withdrawals and growth. Income and Withdrawals: The sum of all cash inflows and asset withdrawals for that year. Taxes Paid: The sum of all taxes paid on income and withdrawals. Spendable Income: The funds available for use after taxes have been paid. Future LS Contributions: Contributions made to future lifestyle account for the year. Itemized Expenses: The sum of all annual expenses entered into the model. Actual Lifestyle: The remaining spendable income available after funding contributions and itemized expenses. Desired Lifestyle: The annual target lifestyle consumption based on the data entered in step 7 of the data entry screen. Lifestyle Delta: The difference between the actual lifestyle and the desired lifestyle target. Available Funds: The sum of all values in accounts that hold spendable (liquid) assets. Net Worth E.O.Y: The value of all accounts at the end of the year after contributions, withdrawals and growth. |
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