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Retirement Spending Insight - CA

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Jamie Phelps
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The Retirement Spending Insight is designed to show clients the maximum they could spend in retirement while gradually drawing down their available liquid assets to near zero by the end of the plan. This excludes illiquid assets (such as properties) and accounts that are ring-fenced, i.e., those with withdrawal limits that prevent them from being used as a source of funds.

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To calculate this annual expenditure, the Insight creates a “spending goal expense”, similar to any other expense in the plan. The value is expressed in today’s terms and escalated using the default inflation rate set in Plan Settings.

This spending goal applies after the retirement event. The analyzer attempts to fulfill this maximum spending goal in addition to any mandatory expenses, such as debt payments or insurance premiums. All other non-mandatory expenses are excluded from the simulation during the post-retirement years.

The system uses a binary solve algorithm to determine the highest possible spending goal value that can be sustained throughout retirement without creating a shortfall. This is not necessarily a literal “spend to zero” scenario, as accounts with withdrawal limits are respected and may prevent total liquidation of assets.

 

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You can review expense details by clicking Year View (top right) or by double-clicking a bar on the chart. Exit the detailed view by clicking the icon in the top right again.

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NOTE: The Spending Capacity figure returned is expressed in today’s terms. This amount is escalated from the start of the plan using the default inflation rate set in the plan settings.

Additional Details

  • The Insight typically uses the primary client’s retirement event if their spouse/partner has been added to the plan in AdviserGo.

  • If the primary client is already retired and no retirement event exists, the Insight uses the start of the plan.

  • If a spouse was added in AdviserGo, the retirement event may differ; check the Year View of the Insight to confirm when the Retirement Spending Analysis begins.

  • Debt, future asset purchases, Planned Contributions, taxes, and other linked expenses remain unmodified in the plan.

  • All other user-entered expenses are adjusted to end at the retirement event.

  • The calculated value represents the maximum retirement spending capacity (present value).

  • In charts, the bar shows the future value of the spending capacity plus the sum of mandatory expenses for that year (debt, etc.).

  • The spending level is assumed to continue throughout the plan horizon, accounting for inflation and, in a couple of plans, until the second death.

  • If the second client is already retired, the simulation still begins from the primary client’s retirement event.

  • If the primary client is already retired, the simulation starts from the plan start.

  • The maximum retirement spending is determined by analyzing the entire retirement period until mortality.

  • The figure can be inclusive or net of taxes.

  • A binary solve algorithm is used to calculate the highest sustainable spending goal that ensures no shortfalls occur during the retirement horizon (or from the start event if no retirement event exists).

How it works:

  • The algorithm determines the annual amount that can be withdrawn from the plan to end with zero liquid assets (excluding accounts with withdrawal limits) after fulfilling all mandatory expenses.

  • In most plans, this corresponds to a spending level that leaves zero liquid assets at the end.

  • The simulation does not check actual account balances but instead evaluates shortfalls at each iteration to find the maximum sustainable spending.

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