Simulation error - Investment return rate need analyser returns a result of -50% or "no solution"

Q - When I run the investment return rate need analyser it returns, very quickly, a result of negative fifty percent (-50%). Is this an error or am I doing something wrong? 

 

A - Negative results from the investment return rate need analyser would normally indicate that your clients could not only afford to earn less on their investments, they could even lose a given amount money on their investments annually and still never run out of money. 

A result of -50% or "no solution", however, indicates that the simulation simply stopped running when it encountered what appeared to be an unsolvable situation. 

Two things may be at play in your case. 

First, if your clients are in the rare and enviable position of having all of their expenses covered by earnings, other incomes, and secured income sources such as final salaries, annuities, and state pension benefits, they may never need to withdraw any funds from their assets to meet expenses. Effectively, your client could live happily without any returns on their assets. Their assets could cease to exist from an income generation standpoint. The simulation would find that even with a -50% return your client would never run out of money and at that point it would stop, hence the outsized negative return. 

The second and more likely cause could be that your client does not have any investments, money purchases or drawdown pensions (present or future).

The investment return rate need analyser tests against these three broad categories of accounts. Savings (cash) accounts, on the other hand, are normally excluded from the simulation unless savings are set be grown using 100% cash asset allocation - i.e. market assumptions. More about that option in a moment.  

The growth on cash accounts (savings) is normally assumed fixed, which is to say that these accounts are set to be excluded from any simulations that make adjustments to returns. These simulations include: 

- Investment return rate need analyser,

- Performance slider,

- Monte Carlo and Historic simulations,

- Major Loss / Loss Capacity. 

 

We exclude cash accounts from these simulations because they would usually skew results. For example, to assume that a savings account could have returns of 6% or conversely that it could drop 10% in value in a down market would probably be unrealistic. Cash based investments are assumed to be relatively stable, with little potential for gain or loss. 

If all of your client's liquid assets are being deposited into savings:

1. Go to the Savings screen.

2. Select an account in the ledger, to the right.

3. Expand Advanced Settings

4. Click Growth

If the "Growth is Fixed" check box is ticked, the account is being excluded from the investment return rate need analysis as well as the other simulations that make adjustments to returns. 

 

You could untick this setting if you would prefer the return rate need analyser include this account in its results. However, please bear in mind that funds held in cash may not be grown realistically at the rate applied by the simulation. 

5. Repeat this check for any other cash accounts in the plan.  

 

Cash accounts grown using market assumptions (100% cash allocation) 

If the "Use 100% Cash Allocation" option is ticked, the account is being grown using the market assumptions for cash, which provide a potential upside and downside range that fixed growth rates do not. Cash accounts grown using a 100% cash allocation are included in simulations that make adjustments to returns. 

 

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