In the AdvisorGo software many entries include the Timing Screen and the Steps option. In this example I will use the entry of a couple's yearly travel budget to demonstrate how each of the options might be used.
Example: Ryan and Nina MacDonald
(Demonstrated in Canadian Software but applicable across all versions)
Travel is a major priority for your clients Ryan and Nina. They enjoy spending their leisure time travelling and hope to journey the globe once their child is away at University and especially after they have both retired. Travel is important although not strictly essential, so let’s enter their travel expenditure as a Leisure expense.
- With the Dashboard selected in the top navigation:
- Click the plus button (+) bottom right.
- Select Expenses.
- Select Multi Year Expense.
5. Owner: Notice the checkmarks next to the couple's names. The software is defaulted to assume that expenses are co-owned by couples. Leave these default ownership selections in place to indicate that these are the couples combined travelling expenses.
6. Name: Enter "Travel".
7. Amount: Enter $10,000
8. Frequency (the “Annually” dropdown): Leave Annually selected to indicate the amount entered is an annual one.
9. Tax Deductible: Leave the default set to No.
10. Note the Inflation Rate at the bottom of this screen. Leave this inflation rate in place, which will escalate Ryan and Nina's expenses into the future in line with the assumed inflation rate.
11. The events selected on the Timing tab are used to set the overall time span over which the travel expense will be active in the plan. Ryan and Nina want to travel, at least to some degree, throughout their lives. The software will assume their Travel expenses start at beginning of the plan (the Start event) until the final Mortality event, Nina’s, which is set presently at age 90. These default event selections are shown above the timeline in the Expense Starts and Expense Ends boxes. The period over which this expense will be active in the plan is also highlighted in the timeline as are the events that set the beginning and end of the expense.
Let’s leave this default timing in place. Do not press Save yet, as we are going next to the Steps screen.
Ryan and Nina's travel spending will need to be adjusted, however, at various points in the future as their travel needs change. These future adjustments are called Steps in AdviserGo.
12. Select the Steps tab in the left navigation.
Currently, Ryan and Nina have limited time for holidays due to their busy careers and active home life. Once they retire and their children are away, they want to use their newfound free time to travel the globe. To do this they will need to Increase their travel budget. Later in their lives we think it safe to assume that they will start slowing down, spending more time at home and less on travel, perhaps when Ryan, the older of the two, turns 75.
These two future steps will be scheduled using Events. Events might already be present on the timeline or new ones can be added as we make the step. Let’s review the events shown on the timeline shown at the top of the Steps screen. Here events can be added as you create the Step, without leaving your work in progress.
An event is already available in the timeline to schedule our first step. We will increase the MacDonald’s travel spending at Ryan’s Retirement.
13. Since we already have an event in the timeline to schedule this step, click + Add Step.
The Amount field will show the original cost of the Travel expense, $15,000, which is the amount you will be adjusting. Ryan and Nina's plan to increase their travel expenses once they retire.
- Amount: Enter $15,000.
Note – When entering a stepped amount, always be sure to enter the full adjusted amount, not the difference between the original value and the adjusted one.
Tip – The amount you enter at the step is assumed to be a present value. AdviserGo will work out the inflationary difference for you. Notice the Inflation Rate. The software will apply this rate to escalate not only the original amount, but also any future stepped values. By the time the step is made in the future, at Ryan’s retirement, the $10,000 you entered will be an inflated amount, inflated at 2.5% per annum from the beginning of the plan until the step is made, and thereafter.
Click Save, top right.
The Steps screen will show the newly added step, listing the value that will be modified at this step, which will be the annual amount of the travel expense. Again, the amount shown is a present value. When the step is made in a future, travel expenses will step up will show as inflated annually and the expense will continue inflating from then onward. The event used to schedule the step (Ryan’s retirement event) is highlighted in the timeline above. Look further down the timeline to age 75. Ryan’s future ages are shown in the top row running below the timeline while Ryan’s future ages are displayed in the lower row. There is no event in this year of the plan, which is when we plan to decrease their travel spending, so let’s add one.
14. Double click the bar above age 75 on the timeline within the Steps screen.
Options to add a new event to the timeline will display. The event you are adding will appear in the timeline below.
15. Name: Enter a name for the new event, “Slowing Down”.
Type: Either accept the default icon or select in the event icon palette an icon of your choice, such as the sailboat.
Tip – If you need to move this new event to a different year or age, click the event icon and drag it up or down the timeline, dropping it on the appropriate year/age. The ages shown as you move the event will be those of the default event owner, Ryan, who was the first person entered when we first created this plan.
17. Click + Create a New Step.
The Amount field will show the original cost of the Travel expense, $10,000, as a point of reference. At this future point in time the MacDonald’s plan to slow down and travel less, primarily to see their future grandchildren.
18. Amount: Enter $5,000.
Since you began this step by adding a new event to the timeline to schedule it, there is no need to click the Timing tab, that is, unless you want to select a different event.
19. Click Save, top right, to save the new step.
The Steps screen will show the two future steps in travel spending, listing the value that will be modified at each step, which will be the annual amount of the travel expense. Again, that the amounts shown are present values. When the step is made in a future, travel expenses will step up to an inflated $15,000 annually and the expense will continue inflating from then onward.
Later Ryan and Nina's travel spending will step down to an inflated $5,000 annually. The events used to schedule these steps, Ryan’s retirement event and the event you added called “Slowing Down”, are highlighted in the timeline above.
Returning to the Dashboard, Ryan and Nina's general, personal and travel expenses are shown in the Expenses section of the overview.