Data Entry: Other Assumptions

Client Specific Assumptions

To review and customize client specific assumptions, open a client plan > Select Gear Icon > Settings Tab > Other assumptions tab. This area allows advisors to adjust inflation assumptions, Social Security benefits, and tax settings.

Inflation

RightCapital uses five different inflation assumptions to project goals and expenses. The inflation assumptions can be assigned globally or customized at the individual client level.

Default Inflation Assumptions:

Default inflation settings are derived from studies and planning tools used by leading financial institutions and industry experts. The default assumptions are as follows:

  • General Inflation: 2.5%
  • Health Care Cost Inflation: 5%
  • Education Cost Inflation: 5%
  • Social Security Inflation: 2.5%
  • Tax Inflation: 2.5%

Custom Inflation Assumptions:

Advisors can set customized inflation rates in the Client Assumptions section of the Advisor Portal. To edit inflation values, use the dropdown menu to switch "global assumptions" to "customized assumptions". When adjusting the inflation settings, a financial plan is impacted in the following ways:

General inflation: Adjusts expenses and general goals.

Health care cost inflation: Adjusts the health care expenses and LTC costs.

Education cost inflation: Adjusts the college goals.

Social Security inflation:

  • Adjusts the social security payment every year for those who have started taking benefits.
  • Adjusts PIA Bend point and other variables needed to calculate social security benefits.
  • Adjusts the Social Security salary base every year for the purpose of calculating maximum social security benefit.

Tax inflation:

  • Adjusts the max contributions on employer-sponsored plans and IRAs.
  • Adjusts taxable income brackets.

Social Security

Advisors can choose adjust Social Security benefits starting in the future by changing the dropdown menu from "No Adjustment" to "Reduce by" and entering a percentage into the new data field.

Advisors will also have the option to apply a discount rate that will impact the optimal Social Security strategy. Users can select a specific discount rate or use the general inflation rate. If a discount rate is chosen, that rate will be used to discount all future Social Security benefits for each strategy back to the current year. For additional information on using the Social Security Optimizer please click here.

Taxes

In the advisor portal, select the client in the client list and click on the "Client Assumptions" tab. At the bottom of the client assumptions tab, advisors can choose to adjust the tax law or reduce income taxes beginning in a specific year.

This setting allows advisors to reduce the calculated Social Security benefits by a flat percentage. Advisors can use this setting for younger clients who do not expect to receive the full calculated benefit amount in the future. The reduction only applies to calculated Social Security benefits starting in the future. The reduction will not impact any benefits already being received or any manually entered SS benefits.

Tax Law:

Use the drop-down box to select the tax framework used in calculating the client's projections:

  1. TCJA sunset 2025: reflects all updated provisions related to TCJA, including the sunsetting of most individual income tax provisions in 2025
  2. TCJA no sunset: reflects all updated provisions related to TCJA for the entire duration of the plan (ignores the sunset provisions).
  3. 2017 tax law: reflects all tax provisions prior to enactment of TCJA, as would be used in clients' 2017 tax calculations.

Ordinary Income Tax Rate Adjustment:

Advisors can use this setting to illustrate a higher federal income tax rate in the future. This feature is helpful for users who believe tax rates will rise in the future beyond the sunset of TCJA. This is not a blanket increase in taxes, rather it's an increase in the rate for each of the ordinary income tax brackets. This setting only effects federal income taxes, and will not impact long-term capital gain brackets.

To adjust the ordinary income tax rate in the future change the dropdown menu from "No Adjustment" to "Increasy By". Users can then input the percentage that will increase ordinary income tax rates in a specific year.

Miscellaneous

RightCapital uses three different miscellaneous assumptions to alter cash flow details. These assumptions can be assigned globally or customized at the individual client level. Miscellaneous assumptions include:

  1. Cost of purchasing a real estate property: The default of .1% represents costs associated with purchasing a property.
  2. Cost of selling a real estate property: The default of 6% represents typical real estate agent fees associated with selling a property.
  3. Expense adjustment upon the death of a co-client: The default 15% figure represents the reduction in living expenses associated with the death of a client or co-client.