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, create additional Plans. Each plan will represent one pension option.

Second, set up cards: one to reflect the potential monthly pension and one to reflect lump sum distributions.

Third, compare the pension options.

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 Monthly Pension), go on to the next part of this article.

Modeling an Annual Pension

For the annual pension, navigate to Profile > Income and click Add Income > Pension to add a Pension Income:

Enter all of the relevant information such as start year, annual increase, etc. but leave the annual amount blank so it doesn't update the current plan.

Click Save.

Modeling a Lump-Sum Pension

To create a one-time deposit, reflecting the nature of a Lump-Sum Payment, navigate from the Income portion of the client's profile to the Savings portion.

Click Add Savings > Tax-deferred. 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).

Once again, leave the contribution amount at $0 for now.

Be sure to set the starting and ending points to the same age or year to reflect a one-time contribution.

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:

  • a pension income card created with a $0 value for the monthly pension
  • a tax-deferred savings card created with a $0 value for the lump-sum pension

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.

Select the Lump Sum payment plan in the drop-down menu on the left:

Click Edit in the action items section to add in the lump-sum pension card to the plan:

Update the proposed pension value and refresh to see the impact:

Repeat steps 1-3 using the Annual Pension plan from the drop-down menu on the left side.

Now, compare the two options by selecting the Lump Sum Payment option in the drop-down on the right to see the difference in probability and across different return scenarios on the Investments tab:

Compare also on the Investments tab:

We reviewed a similar scenario in the 2nd half of one of our weekly webinars