It is common for the Total Need shown in retirement to be higher than the retirement goal you entered. This is because the retirement goal represents your client's desired spending, while Total Need includes any additional expenses that must also be funded during retirement.
The two most common reasons are inflation and taxes.
1. The retirement goal is inflated over time
When you enter a retirement goal, the amount is entered in today's dollars.
Voyant automatically increases that amount over time using the inflation rate assigned to the goal. As a result, the spending need in retirement will generally be higher than the amount originally entered.
For example, if you enter a retirement goal of $150,000 per year, the actual spending requirement in the first year of retirement may be higher, depending on:
- The number of years until retirement.
- The inflation rate assigned to the goal.
- Whether the value was entered as present value or future value.
2. Taxes increase the client's Total Need
The retirement goal represents the amount your client wants to spend after taxes.
If taxable accounts or income sources are used to fund that spending, additional withdrawals may be required to cover the taxes generated by those withdrawals.
For example, distributions from tax-deferred retirement accounts may create income tax, meaning more than the retirement goal must be withdrawn to leave the client with their desired after-tax spending.
These taxes are included in the client's Total Need, which is why it may be higher than the retirement goal itself.
How to review the additional expenses
To see what is contributing to the higher Total Need:
- Open Year View.
- Select Expenses.
- Review the retirement years.
This view shows the expenses included in each year and can help identify additional costs, such as taxes, that are increasing the client's Total Need beyond the retirement goal.
Key takeaway
The retirement goal represents your client's desired spending in retirement, while Total Need represents the total amount that must be funded to achieve that spending. Inflation and taxes are the most common reasons these two figures differ.