This program can assist with establishing withdrawal and investment policies for a portfolio. It projects a portfolio's investment performance, disbursements, taxes paid and market value. Annual results are displayed although most activity is projected in quarters. It is useful in retirement and estate planning by helping to answer such questions as:
Each of the tabbed sections are described below.
For a lifetime projection click the Ages radio button and enter the ages, at the start of the projection, in whole years. An age must be entered for A, the primary life. An age should only be entered for B if projecting for the lifetime of 2 people. A unisex mortality table is used so adding a year or two to a males age and subtacting 2 or 3 years from a females age is recommended. Also, you may want to adjust the ages to reflect above or below average health. The projection continues to the end of the year in which the last person is calculated to die.
For a fixed term projection click the Fixed Term radio button and enter the number of whole years of the projection.
Enter the Market Value at the start of the projection and the expected Mean Quarterly percentage Rate of Return and the 75 percentile Quarterly Return for Fund 1. Also enter these items for Fund 2 if two funds are being projected and the percentage of Correlation, i.e. a number between -100 and +100. If Fund 2's return is completely independent of Fund 1's the Correlation is 0, if completely correlated 100, and if completely negatively correlated -100. Quarterly returns are modeled assuming a symmetric stable distribution with an alpha of 1.9.
State and federal taxes, other taxable income, and the portion of income taxed at capital gains rates should be considered in selecting the Steps and Rates.
The % Income Taxed is the percentage of previously unrecognized investment earnings (income and unrecognized gains) assumed recognized for tax purposes. For a tax qualified fund 0 is probably appropriate.
The % Withdrawals Taxed is the percentage of amounts withdrawn from a fund, including amounts to pay taxes and insurance premiums, assumed recognized for tax purposes. Withdrawals are assumed first paid from accumulated earnings, therefore this percentage only applies to the excess, if any, of the withdrawals over recognized plus unrecognized investment earnings. Withdrawals, for tax purposes, are also reduced by any accumulated unrecognized investment losses. For a tax qualified fund this is probably 100 and 0 for other funds.
The Estate Amount Excluded and Tax Rate only apply to life time projections. The estate tax is calculated at the end of the last year of the projection, i.e. after the death of the last person.
If 2 funds are projected you must indicate the percentage of withdrawals from Fund 1. This percentage is also used in paying taxes from the Funds.
Solvent Term - the number of years of the projection for which the portfolio's value was greater than 0 at the end of the year.
Term after Ruin - the number of years of the projection for which the portfolio's value was 0 at the end of the year.
Average Annual Withdrawals - the average annual withdrawals, in thousands, for a specific trial.
Ending Balance - the portfolio's value, in thousands, at the end of the last year of the projection.
Average Annual Return % - the average annual investment return experienced by a specific trial.
In addition the mean Annual Return and mean absolute Deviation of all years of all trials is shown. This may be used as a check that the values entered in the Assumptions-Portfolio section were as intended.