Retirement Spending Insight Q&A


The Retirement Spending insight is designed to show clients the maximum they could spend on average, once in retirement, to order to run their available liquid assets to near zero by the end of the plan. This average is exclusive of illiquid assets (usually properties) and accounts that have been ring-fenced – those excluded from being a potential payment source due to withdrawal limits.
Please note when running the insight, all non-mandatory expenses are dropped from the simulation in the years after the retirement event including one-off Milestone expenses.

Here are a selection of queries and answers that the support team receive from users on the Retirement Spending Insight;

Excluding vs Including Taxes

Q. - Can you explain the difference between excluding taxes and including taxes as I'm not sure which one to select?

A. - If you 'include' taxes, the calculated retirement spend figure will comprise:

(1) taxes,

(2) scheduled debt payments,

(3) any scheduled investment contributions, and

(4) the clients' own 'discretionary' expenditure, i.e., whatever is left over,

If you 'exclude' taxes, the calculated figure will be the sum of:

(1) scheduled debt payments,

(2) any scheduled investment contributions, and

(3) the clients' own 'discretionary' expenditure i.e., whatever is left over.

The calculated retirement spend figure with either option, will increase year-on-year in line with the plan’s inflation assumption.

NB: having run the simulation, one can then 'interrogate' the plan, by selecting the 'Year View' option and clicking the ‘Expenses’ tab below the chart. You will see the 'discretionary' element, i.e., ‘Spending Analysis Expense,’ listed under Expenses.


Retirement Spending Figure in Financial Summary report

Q. - On page 3 of the Financial Summary report, under the retirement spending heading, it states a figure of what the client will be able to spend in their retirement excluding taxes. Is this figure Gross or Net?

A. – The figure in the Financial Summary report is generated from the Retirement Spending Insight. Because it excludes taxes it is a NET figure and is in TODAY'S TERMS. It shows what the couple can spend in retirement without hitting a shortfall.


Impact of one-off gift in Retirement

Q. - My client wants to know the impact on income in retirement if gives away £100k. The retirement spend figure however is the same for both the Base Plan and the What if scenario that models the giveaway? Surely the 100k withdrawal would generate a lower figure?

A. - When you run the Insights for both plans - the base plan and the What if that models the giveaway, all non-mandatory expenses are dropped from the simulation in the retirement years which, in this case, includes the one off £100k. This is why the two scenarios show the same spend figure.


Retirement Goal vs Retirement Spend

Q. - I have entered a Retirement Goal of £60,000 pa. It shows the client is 95% on the way to reach his goal, however, the Retirement Spending Insight shows his retirement spending capacity higher at £66,143. Wouldn’t the retirement spending capacity be lower if the client has not reached his goal?

A. – It is important to note the £60k retirement goal is not the only expense in the plan. On top of this, for example, the client may have mortgage payments that continue into retirement which increases the overall expenses. The Retirement Insight includes the Retirement Goal plus any mandatory expenses (such as debt payments, premiums on protection policies, etc.). You can see the year-on-year expense detail using the compare to plan option on the insight screen and clicking on Year View > Expenses. This is why the insight results figure is higher than the retirement goal despite the goal not being fulfilled.


Substituting the Retirement Goal figure with the Retirement Spend figure

Q. - So why is there a shortfall in income if I replace the Retirement Goal figure with the Retirement Insight figure?

A. – When you run the simulation, the software assumes that the calculated 'retirement spending' will increase in line with your default 'Inflation' assumption, e.g., 2.5%, as shown in the Plan Settings.

However, if the inflation rate for the 'Retirement Goal' in the plan, is set to 3%, there will be a mismatch.

There’s simply a difference in the rate at which the simulation is assuming expenditure increases and the rate at which you're assuming retirement expenditure increases. You can either change the value in Plan Settings to 3% and re-run the simulation which will produce a lower figure or lower the inflation assumption on the 'goal' to 2.5%.


Interest-Only vs Repayment Mortgage in Retirement Spend

Q. - Is there any difference between how interest-only and repayment mortgages are classed in retirement in terms of the total spending number generated in the Retirement Spend Insight?

A. - Repayment and Interest-only mortgages are not treated differently in the retirement spend calculation. That said, with repayment mortgages the payments end automatically when the debt is paid off, which may occur at some point before or during retirement. With interest-only mortgages, the payments continue indefinitely in the software as the mortgage balance stays level (unless the property is sold, the owner dies, or you schedule a one-time payment).


Check Withdrawal Limits

Q. – Why does the Retirement Spend Insight produce a larger max expenditure figure on the base plan, where expenditure is £150k, compared to the scenario where expenditure is less at £130k?

A. - The calculated 'max retirement spending' in the 'what-if' scenario modeling the lower expenditure has a 'withdrawal limit' ('Scheduled Only') on the pension which limits the amount that can be withdrawn from that pension. Once you remove this limit, the max expenditure figure will be higher and identical to the Base Plan, as one would expect, because the initial value of the assets is the same and the assumed timing of 'retirement' is the same.