Data Entry: Modeling Pension Options in a Financial Plan

A common planning scenario involves illustrating the tradeoffs of a lump-sum pension vs an annual pension to help a client determine their preferred financial path.

This article will walk-through how to create proposals of both options to present to a client. This article covers several tools in RightCapital and demonstrates how to pull them all together into a compelling presentation to a client.

First, we will need to create additional Plans. Each plan will represent one pension option.

Below we will detail the process of creating and comparing multiple pension plans.

Let's jump in!

Create multiple plans

Click here to learn more about how to create multiple plans. Once two additional plans are created (one for Lump-Sum Payment and one for Annual Pension), go on to the next part of this article.

To incorporate a pension scenario under the current plan, annual pensions will be modeled under Profile > Income and lump-sum pensions will be modeled under Profile > Savings.

Modeling an Annual Pension

For an annual pension, navigate to Retirement > Analysis and make sure the 'Annual Pension' plan is selected on the left-hand drop-down menu above the two graphs. Then, click Action Items button beneath the two graphs:

Note: Whichever Plan we have selected on the left-hand side is the Plan we will be tailoring our Action Items toward.

Within the Action Items, click the white 'Edit' button on the bottom right. Within the menu screen select Add New Items > Income > Pension:

Enter all of the relevant information such as start year, annual amount, annual increase, etc.

Click Save.

Modeling a Lump-Sum Pension

To create a one-time deposit, reflecting the nature of a Lump-Sum Payment, select the Lump-Sum Plan on the left-hand drop down menu above the two graphs in Retirement > Analysis:

Within the Action Items, click the white 'Edit' button on the bottom right - in the expanded menu screen select Add New Items > Savings > Other> Tax-Deferred > Select 401(k), 403(b), or other retirement plan. Input the parameters of the one-time lump-sum payout including the full amount - be sure to set the starting and ending points to the same age or year to reflect a one-time contribution.

This will reflect savings coming from outside the plan so as not to reduce the client's income. Name the savings card "Lump-Sum Pension" so that it will be easier to find when comparing the two options (as explained below).

If the client is going to take receipt of the pension, you can alternately enter an income amount to reflect the pension coming in.

Click Save.

At this point, there should be two Plans created and named after the two pension options.

Now on to the comparison!

Comparing Pension options

Click Open Client and navigate to Retirement > Analysis to illustrate the different options. In this scenario, the Current Plan reflects neither pension option.

1
Select the Annual Pension plan in the drop-down menu on the left.
2
Open the Action Items to ensure the annual pension amount is input correctly and the lump-sum option is set to $0:

3
Now, select the Lump-Sum plan on the right-hand side to compare the two plans side by side, ensuring the lump-sum action item is input accurately the the annual pension is set to $0:

4
Voila! Now you can see the difference in probability of success and compare the plans across different return scenarios on the Comparisons tab:

Check out our 'Helpful Hints for Comparing Pension Options' Webinar for a live demonstration!

Got multiple pension options on your plate? Reach out to our Support Team to walk you through best practices for data entry and presentation.