RRON Projection Calculator

The Projection Calculator displays a summary worksheet of the present projection (on the left of the table) and a revised projection (on the right of the table).  The client’s age is displayed between the present projection and the revised projection.

The present projection is based on the clients inputs entered on the RRON Initial Assumptions screen.  The present projection will stay the same, unless you return to the assumptions 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:

► Spend Less

► Work Longer

► Save More

► Increase ROR

► Change Inflation

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 spreadsheet.

Clicking Documentation will display the actual worksheets used in the programs calculations.  The summary worksheet, which is the one displayed on this screen, is just two columns (year-end balance and the annual withdrawal) from the Present Projection and two columns (year-end balance and the annual withdrawal) from the Revised Projection with age displayed in the center.

You can either show the annual withdrawal 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 Projection Annual Withdrawal column header on the top right of the spreadsheet.

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 Revised Projection 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.

SUMMARY OF RESULTS BUTTON: Clicking the button “Summary of Results” will display a one-page narrative summary showing the results of the automated solution to each of the four top left buttons (Save More, Spend Less, Work Longer, and Increase ROR).

Defined Benefits: Provides the ability to manage the defined benefits used in the summary projection. Hidden  benefits are still taken into account in the projection calculations. Excluded benefits are removed from calculations altogether.

Worksheet Auto-Row Positioning: The top row of the worksheet is automatically positioned one year prior to retirement whenever projection is recalculated.  This allows you to see the balances in the year before retirement without needing to scroll.

INFLATING SAVINGS AND WITHDRAWALS: Selecting [x] Inflate Savings in the initial assumptions screen have the effect of increasing the savings amount by the inflation rate each year.  For the present projection, the inflation rate entered on the input screen is used.  For the revised projection, the inflation rate entered on the spreadsheet, (using the button on the top right) screen is used.

Similarly, the withdrawals can be inflated or not inflated by checking the [x] Inflate Withdrawals option on the initial assumptions screen.

If you inflate both Annual Savings and the Withdrawals in the Revised projection, be aware that changing the inflation rate may have surprising (or unexpected) results.  For example, if you change the inflation rate to 10%, you would expect the retirement withdrawals to last fewer years.  However, if that same 10% is being applied to the savings over many years, the withdrawals may last more years.  That is, the inflated savings increased the fund’s growth during the accumulation years more than the inflated withdrawal reduced the fund in retirement years.  Obviously, this is a function of the number of years of accumulation and the number of years of retirement.

Which Inflation Rate is used where?

The present inflation rate (entered on the initial assumptions screen) is used:

•To calculate the required retirement withdrawal in the first year of retirement in both the present projection and revised projection.

•To inflate the annual savings in both the present projection and revised projection.

•To inflate the annual retirement withdrawal in the present projection during the retirement years.

The revised inflation rate (entered by clicking the [Change Inflation] above the projection worksheet) is used:

•To inflate the annual retirement withdrawal in the revised projection during the retirement period.

•To calculate the Present Values of withdrawals (both including and excluding Defined Benefits).

SG Head Start: Clicking this button will use the assumptions entered in RRON as the basis for a Spending Game present position scenario. Be aware that by clicking this button, you will immediately navigate away from RRON and be 'teleported' into the newly created present position scenario in Spending Game - so you probably don't want to click it right away.

This screen shows two tables of numbers that start out equal. Each shows an Account Balance which represents the money stored in your tanks, and a future retirement Lifestyle that matches your current Lifestyle adjusted for inflation.

There are three numbers in particular I would like you to focus on highlighted by the red boxes. The first is your account balance at the beginning of your retirement. This is how much you are forecasted to have at retirement if everything works out the way it’s modeled. The second is the future lifestyle that would allow you to live a retirement at the same standard of living you’re enjoying today. And the third is your age in which your Account Balance, 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 Account Balance is shown up top and the revised Account Balance is shown on the right side of the screen. This is now showing that you would need to earn x% from this day forward until you retire. 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 an Account Balance to last thru your retirement. As you can see, the savings necessary is shown up top and the revised Account Balance is 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 Present 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.

Current Savings: The current value (balance) of the clients Retirement Savings will appear in the top row of this column. All remaining rows will always be zero.

Earned Income: Assumed Current Income (adjusted for inflation if Annual Savings are inflated.)

Earning Income C: Cumulative Earned Income.

Annual Contributions T Risk: Annual savings designated as Taxable and High or Medium risk. Also Includes Future Asset Risk percentage.

Annual Contributions TD Risk: Annual savings designated as Tax Deferred and High or Medium risk.

Annual Contributions TA Risk: Annual savings designated as Tax Advantaged and High or Medium risk.

Annual Contributions Risk: Sum of Annual Contributions to T Risk, TD Risk and TA Risk.

Annual Contributions T Safe: Annual savings designated as Taxable and Low risk. Also Includes Future Asset Safe percentage.

Annual Contributions TD Safe: Annual savings designated as Tax Deferred and Low risk.

Annual Contributions TA Safe: Annual savings designated as Tax Advantaged and Low risk.

Annual Contributions Safe: Sum of Annual Contributions to T Safe, TD Safe, TA Safe.

Annual Contributions: Sum of Annual Contributions Risk and Annual Contributions Safe.

Future Asset Risk: Amount of Future Asset inflow applied to risk tank.

Future Asset Safe: Amount of Future Asset inflow applied to safe tank.

(Future asset risk/safe tank percentage assignment is based upon existing risk/safe tank balance ratio.)

Future Asset: Sum of Future Asset Risk and Future Asset Safe.

Future Expense Risk: Amount of Future Expense outflow applied to risk tank.

Future Expense Safe: Amount of Future Expense outflow applied to safe tank.

Future Expense: Sum of Future Expense Risk and Future Expense Safe.

Required Lifestyle: The net retirement funding requirement for the year. (Before consideration of defined benefit income streams.)

Sum of Annual DBs: Sum of annual defined benefit income streams.

Gross Withdrawal T Risk: Gross withdrawal from Taxable Risk accounts.

Gross Withdrawal TD Risk: Gross withdrawal from Tax Deferred Risk accounts.

Gross Withdrawal TA Risk: Gross withdrawal from Tax Advantaged Risk accounts.

Gross Withdrawal Risk: Sum of Gross Withdrawal from T Risk, TD Risk and TA Risk.

Gross Withdrawal T Safe: Gross withdrawal from Taxable Safe accounts.

Gross Withdrawal TD Safe: Gross withdrawal from Tax Deferred Safe accounts.

Gross Withdrawals TA Safe: Gross withdrawal from Tax Advantaged Safe accounts.

Gross Withdrawal Safe: Sum of Gross Withdrawal from T Safe, TD Safe and TA Safe.

Gross Withdrawal: Sum of Gross Withdrawal Risk and Safe.

Required Lifestyle After DBs: Required Lifestyle minus Sum of Annual DBs.

Actual Lifestyle From Tanks: The net lifestyle funded from Risk/Safe tank accounts. Calculated as the lesser of [Required Lifestyle After DBs + Future Expense] or [net remaining funds in the Risk/Safe tanks].

Balance at Begin of Year T Risk: Taxable risk account sum of previous year's balance plus any associated contributions or withdrawals.

Balance at Begin of Year TD Risk: Tax deferred risk account sum of previous year's balance plus any associated contributions or withdrawals.

Balance at Begin of Year TA Risk: Tax advantaged risk account sum of previous year's balance plus any associated contributions or withdrawals.

Balance at Begin of Year Risk: Sum of Balance at Begin of Year T Risk, TD Risk and TA Risk accounts.

Balance at Begin of Year T Safe: Taxable safe account sum of previous year's balance plus any associated contributions or withdrawals.

Balance at Begin of Year TD Safe: Tax deferred safe account sum of previous year's balance plus any associated contributions or withdrawals.

Balance at Begin of Year TA Safe: Tax advantaged safe account sum of previous year's balance plus any associated contributions or withdrawals.

Balance at Begin of Year Safe: Sum of Balance at Begin of Year T Safe, TD Safe and TA Safe accounts.

Balance at Begin of Year: Sum of Balance at Begin of Risk and Safe accounts.

Annual Growth T Risk: Balance at Begin of Year T Risk times appropriate growth rate. (Accumulation growth rate used during accumulation period, distribution growth rate during distribution period.)

Annual Growth TD Risk: Balance at Begin of Year TD Risk times appropriate growth rate. (Accumulation growth rate used during accumulation period, distribution growth rate during distribution period.)

Annual Growth TA Risk: Balance at Begin of Year TA Risk times appropriate growth rate. (Accumulation growth rate used during accumulation period, distribution growth rate during distribution period.)

Annual Growth Risk: Sum of Annual Growth T Risk, TD Risk and TA Risk accounts.

Annual Growth T Safe: Balance at Begin of Year T Safe times appropriate growth rate. (Accumulation growth rate used during accumulation period, distribution growth rate during distribution period.)

Annual Growth TD Safe: Balance at Begin of Year TD Safe times appropriate growth rate. (Accumulation growth rate used during accumulation period, distribution growth rate during distribution period.)

Annual Growth TA Safe: Balance at Begin of Year TA Safe times appropriate growth rate. (Accumulation growth rate used during accumulation period, distribution growth rate during distribution period.)

Annual Growth Safe: Sum of Annual Growth T Safe, TD Safe and TA Safe accounts.

Annual Growth: Sum of Annual Growth Risk and Safe.

Balance at End of Year T Risk: Sum of Balance at Begin of Year T Risk and Annual Growth T Risk.

Balance at End of Year TD Risk: Sum of Balance at Begin of Year TD Risk and Annual Growth TD Risk.

Balance at End of Year TA Risk: Sum of Balance at Begin of Year TA Risk and Annual Growth TA Risk.

Balance at End of Year Risk: Sum of Balance at End of Year T Risk, TD Risk and TA Risk.

Balance at End of Year T Safe: Sum of Balance at Begin of Year T Safe and Annual Growth T Safe.

Balance at End of Year TD Safe: Sum of Balance at Begin of Year TD Safe and Annual Growth TD Safe.

Balance at End of Year TA Safe: Sum of Balance at Begin of Year TA Safe and Annual Growth TA Safe.

Balance at End of Year Safe: Sum of Balance at End of Year T Safe, TD Safe and TA Safe.

Balance at End of Year: Sum of Balance at End of Year Risk and Safe.

Lifestyle Including DBs: Sum of Actual Lifestyle From Tanks and Sum of Annual DBs.

PV of LS Excluding DBs: Present value of lifestyle excluding defined benefits. The calculation uses a TVM Present Value function with the following inputs: Rate = Inflation Rate, Nper = year - 1 (because the withdrawal is positioned at the beginning of the year), Pmt = 0, FV = Actual Lifestyle From Tanks, Type = 0.

PV of LS Including DBs: Present value of lifestyle including defined benefits.The calculation uses a TVM Present Value function with the following inputs: Rate = Inflation Rate, Nper = year - 1 (because the withdrawal is positioned at the beginning of the year), Pmt = 0, FV = Lifestyle Including DBs, Type = 0.

Lifestyle Dollars: Earned Income + Gross Withdrawal - Taxes Paid (less taxes paid on taxable growth since they are paid from the account) - Annual Contributions.

Lifestyle Percent: Lifestyle Dollars / (Lifestyle Dollars  + Annual Contributions).

Earned Income Taxes Paid: Earned Income * Tax Rate.

Future Assets Taxes Paid: Future Assets * % Taxable * Tax Rate.

Growth Taxes Paid Risk: Annual Growth T Risk * Tax Rate.

Growth Taxes Paid Safe: Annual Growth T Safe * Tax Rate.

Withdrawal Taxes Paid Risk: Gross Withdrawal TD Risk * Tax Rate.

Withdrawal Taxes Paid Safe: Gross Withdrawal TD Safe * Tax Rate.

Taxes Paid Risk: Growth Taxes Paid Risk + Withdrawal Taxes Paid Risk.

Taxes Paid Safe: Growth Taxes Paid Safe + Withdrawal Taxes Paid Safe.

Taxes Paid: Taxes Paid Risk + Taxes Paid Safe.

Potential Taxes Risk: Balance at End of Year TD Risk * Tax Rate.

Potential Taxes Safe: Balance at End of Year TD Safe * Tax Rate.

Potential Business Value: (RRON3 Only) TVM Future value of business sale based on assumed initial value and growth rate.