Portfolio Disbursement and Investment Projector
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:
- What withdrawal program maximizes annual withdrawals without depleting the portfolio before death, given the
portfolio's investment allocation.
- Is the estate's value likely to be increased by the purchase of life insurance, given the portfolio's investment
- What investment allocation produces the best chance the desired withdrawal program will not deplete the portfolio
Each of the tabbed sections are described below.
All data input that defines the projection are entered here.
- Projection Period
A projection can run for the lifetime of 1 or 2 lives or for a fixed number of years.
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.
Either 1 or 2 investment funds may be projected. Two funds are provided for in order to accommodate tax sheltered
and non-sheltered funds. However, two funds may be used for other purposes, e.g. investments with significantly
different expected rates of return and risk.
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.
Taxes are calculated and paid at the end of each quarter. Five marginal tax rates are allowed. The dollar breakpoints
and rates are annual amounts. The marginal rates apply to the Step amount of dollars. For example if 25,000 and
18 are entered for the first Step and Rate and 36,000 and 33 are entered for the second Step and Rate; then 18%
is the tax rate for the first 25,000 and 33% is the tax rate for the next 36,000.
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
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.
Withdrawals are made at the beginning of each quarter. They are in addition to any taxes and insurance premiums
paid. Planned Withdrawals are a percentage of the total portfolio's market value. However minimum and maximum dollar
bounds may be placed around the Planned Withdrawal amount. In addition the minimum and maximum dollar amounts can
be increased annually by specified percentages.
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.
- Life Insurance
Life insurance can only be projected for life time projections. The Face amount is paid to the specified Fund
at the end of the year in which the specified person dies. Premiums are paid from the Funds at the beginning of
Click this button to start the projection. A thousand independent trials are projected. A distribution of results is then determined from the individual trial results.
This section summaries a projection's results. Various characteristics of the projection are measured and the
value which is equal to or higher than the value obtained in 5%, 50%, and 95% of the trials is shown. In addition
to the value the number of the trial which produced these values is shown. A specific trial's yearly details may
be displayed in the Trials section. The following characteristics are measured:
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.
This section shows a table and chart of the number of trials that were still solvent at the end of each year
of the projection and the number of trials that had become insolvent. For life time projections it is number of
trials solvent with a person still alive, number becoming insolvent with a person still alive, and number solvent
in year in which no one remained alive.
This section shows a table and chart of the portfolio's market value, in thousands, at the end of each year
at the 5%, 50%, and 95% frequency level.
This section shows a table and chart of the portfolio's annual earnings, in thousands, at the 5%, 50%, and 95%
This section shows a table and chart of the annual withdrawals, in thousands, not including taxes or insurance
premiums, at the 5%, 50%, and 95% frequency level.
In this section you may enter a trial's number, for example from the Summary section, and a table and chart
of its yearly results are displayed. The item labeled Taxes also includes any insurance premiums. Earnings do not
include any insurance death benefits received, but such benefits are reflected in year end market values.