This post goes over the information reported on the Retirement Capital Analysis in Moneytree Advise, breaking down each of the columns on this year by year retirement projection.
Column 1 – Retirement Spending Needs:
- Retirement spending starts when either individual reaches retirement age. All living expenses are ignored while both individuals are working.
- This is the value of the “Annual expenses during retirement” entered in Expenses input, increased for inflation.
- If one individual retires, and the second is still works, the program applies the working individuals after-tax and after-contribution income to reduce the spending need. For a detailed breakdown of this calculation, see our post on the retirement spending needs.
- After the life expectancy of one individual, the spending need changes to the “Annual expenses for a survivor in retirement” entered in the Expenses input, increased for inflation.
Column 2 – Social Security:
- The program estimates a benefit based on the clients earned income if no Social Security benefit is entered.
- If the actual benefit is entered on the Income/Pension/SS input, the actual benefit is reflected on the report.
- To have no Social Security reported, check the box “Ineligible” in the Income/Pension/SS input.
- The program inflates Social Security prior to and after the start age by the increase rate entered.
- Social Security benefits appear in after-tax amounts.
- Moneytree Advise assumes 85% taxable Social Security benefits.
- If the individual qualifies, and the benefit is higher, the program will show the spousal or survivor benefit over the individual’s own benefit.
Column 3 – Pension Income:
- Pension information is pulled from entries in the Income/Pension/SS input section.
- Separate options exist to increase pension benefits before and after the start age.
- Moneytree assumes the 100% taxable pension benefits.
- The after tax pension benefit is displayed.
- The program will account for survivor benefits after the death of the pension recipient, when entered under “Percent of this benefit available to surviving spouse” on the Pension/S.S. input.
- Lump sum pension benefits do not appear on the report, except by an increase in Column 7 – Retirement Capital.
Column 4 – Other Inc. (Expense):
- This shows the sum of everything entered in the Special Income, Special Expense or Education section.
- Example: If there is a Special Income of 10,000, and a Special Expense for the same year of (15,000), the net result of (5,000) would display in this column.
- Note: Special Income items are not reduced for taxes. If the income entered in the Special Income Planner is taxable, enter the after-tax value.
- Uncheck the box “Include Net Education Costs in Retirement Calculations” to remove education costs from this report, if desired.
- The program accounts for existing education asset funds and costs to show the expenses that the existing fund cannot cover. The program does not account for the planned annual additions.
Column 5 – Net Surplus or (Shortage):
- This is the sum of everything to the left of this column. Spending Needs offset by Social Security, Pensions and Other Income (or increased by Other Expenses) = Surplus/(Shortage).
Column 6 – Annual Additions to Assets:
- The total of additions to assets entered in the Asset input.
- This includes both personal and company additions.
Column 7 – Retirement Capital:
- This column shows the combined asset account totals: Savings & Investments, Tax Free (municipals, etc.), Annuity, 401K/TSA/SEP/Simple, IRA, Roth IRA. Roth 401k, Roth 457.
- The value at the top of the column (above the line) is the starting capital balance of all assets entered in the Asset input screen. Each year the program adjusts the balance based on the following illustration:Starting balance
+/- plus or minus surplus or shortage reported
+ plus annual additions
– taxes on growth and/or withdrawal
+ plus annual interest (from the asset reports)
= next year’s balance.
To reliably reproduce the retirement capital and retrieve the above values, include the following pages on your report:
- Taxable Savings & Investment Accounts
- Tax Deferred Annuities
- Tax Deferred Accounts (for IRA, 401k, etc.)
- Tax Free Accounts (for Tax Free (municipals, etc.) and Roth IRA)
- Roth 401k Accounts
- Roth 457 Accounts
The Retirement Capital column equals the sum of all the above balances for a given year.
In an “Entire” report those pages appear right after the Retirement Capital Analysis report. If a client does not have a particular asset (such as a Roth 457) then that page will not generate, so there is no risk including even the uncommon asset pages. The exception to that rule is the Taxable Savings & Investments page. That is because any surpluses seen on the Retirement Capital Analysis reinvest into taxable accounts.
Growth:
Below are the instructions to replicate the monthly compounding method used to calculate growth on investments in Moneytree Advise, with less work!
Shortage Occurs:
- Take the “End of Year Balance of the previous year” + “1/2 year account addition” x “the interest rate” [A]
- Take “1/2 of the Cash Flow shortage” x “the interest rate” [B]
- Take [A] – [B] = “Annual Growth”
Surplus Occurs:
- Take the “End of Year Balance of the previous year” + “1/2 year account addition” x “the interest rate” [A]
- Take “1/2 of the Cash Flow surplus” x “the interest rate” [B]
- Take [A] – [B] = “Annual Growth”
