Once you’ve determined how much risk a client is comfortable with, how much risk they have in their current portfolio, and built a Retirement Map, you can instantly jump to Income By Source with just a single click.
Unlike the traditional Retirement Map view that highlights asset accumulation and probability of retirement success, Retirement Income By Source paints a picture that helps clients understand where their money is going to come from during the decumulation phase of retirement.
In this article:
- Navigating to Income By Source
- The Income By Source Chart
- Adding Timeline Events
Navigating to Income By Source
To begin, navigate to the client profile and click “Create Retirement Maps.” You can learn more about Retirement Maps here. With your Retirement Map built, you can switch to your Income By Source view by selecting the toggle in the top left.
The Income By Source Chart
If you’ve filled out all of the inputs for your Retirement Map, you can toggle into Income By Source with just two clicks — no additional inputs required!
Now that you are in Income By Source, let’s talk about each element.
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Income Sources - These are all sources of income for your clients.
- Blue represents taxable accounts
- Purple is non-taxble accounts
- Green is non-asset based incomes like Social Security, annuity income riders, and pensions
- Income Need - The black line represents your annual income need (gross of taxes) in retirement based upon your inputs. This line grows based upon your assumed inflation rate. Our system will default to draw down taxable accounts first and non-taxable accounts second.
- Retirement Map Inputs - These are the same inputs as your Retirement Map view.
- Investment Amount is the starting principal amount in today's dollars. By default, if you've selected a portfolio in the "Invested Like" section, we'll start with that portfolio's actual value.
- Monthly Savings is the amount of assumed monthly savings from today until the retirement date selected. If you want Retirement Maps to increase monthly savings going forward, you can edit the "annual savings increase" field under the assumptions section.
- Retirement Year (which can be a date in the past or future) is the date at which the monthly savings stop and monthly withdrawals start. Retirement Maps assumes retirement in the same month as 'today' in the retirement year selected. For example, if it is April 15th, 2014 and you enter 2033 as the retirement year, Retirement Maps will calculate retirement as of April 2033.
- Monthly Withdrawal should be the amount, in today's dollars, needed during retirement to cover all of ther expenses for daily living. The "Monthly Withdrawal" is the income burden that the portfolio will bear in retirement. For example, if the investor(s) needs a total of $5,000 of monthly income (in today's dollars) at retirement and pensions/social security will be paying him/her $3,000 of monthly income, the "Monthly Withdrawal" would still be $5,000. The investor(s) will be withdrawing $2,000 each month in retirement against their portfolio and $3,000 from pensions and social security.
- Birth Year will work in conjunction with the Life Expectancy input for modeling purposes. The birth year will automatically be included for clients with completed risk questionnaires on file. It may be prudent to adjust the birth year for couples with large age differences.
- Life Expectancy determines the end date of a client's Retirement Map, while also driving the Probability of Success. In this case, success is determined by the likelihood that a client will be able to withdraw the specified monthly amount from their portfolio each month from the date of retirement until through the date defined by their life expectancy.
- Inflation Rate allows you to effectively discount the assumed rate of return by an inputted inflation rate.
- Annual Savings Increase allows you to model an annual increase in monthly savings, raising that value, annually, by the specified percent increase. For example, if a client is saving $100/month and the advisor selects an annual savings increase of 2%, in year two Nitrogen will model monthly savings of $102/month, in year three $104.04/month and so on until the retirement year.
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Income By Source Stats
- Portfolio Longevity - This confirms the amount of time that your portfolio will last based upon your projected income, expenses, and assets.
- Income Floor - This represents the floor or lowest amount of income your client can receive from guaranteed income sources like annuity income riders, Social Security, and pensions.
- Legacy Amount - This reflects the amount of money left over when life expectancy is reached.
Adding Timeline Events
If you’ve added Timeline events to your Retirement Map, those will appear in your Income By source graph as a raised line based upon the annual income need shift.
- Deposits - Deposit events will show up as non-asset based incomes. For example, if you add a Timeline event for Social Security deposits, that will appear as a green income source at the top of the graph.
- Withdrawals - Withdrawal events will increase your annual income needed and show as a dotted raised line above the standard income line.
If you’ve got additional questions on Retirement Income By Source, please do not hesitate to reach out to our customer care team at care@nitrogenwealth.com.