Model Dynamic Retirement Spending with Ease
RightCapital enables you to capture every element of a client's financial landscape, including multiple retirement spending models.
Retirement spending can be customized based on client behavior or market performance. There are five default spending strategies found in the Advisor Portal > Models > Retirement Spending tab.
Advisors can modify the parameters around existing strategies, add new spending strategies, or remove them altogether. All strategies included in the Models > Retirement Spending tab will be available in every financial plan's Retirement Expense Goal & Retirement > Analysis > Action Items.
Retirement Spending Strategies
You will have access to the following spending strategies within RightCapital:
Inflation adjusted expense strategy
Retirement spending smile strategy
Retirement spending stages strategy
Guardrail spending strategy
Floor & ceiling strategies
The Retirement spending strategies will only impact expense values input within the Profile > Retirement Expense card, also found in step six of the initial data entry.
Inflation Adjusted
The default spending strategy is “Inflation Adjusted”, which is simply increasing expenses each year by the global inflation assumption.
Retirement Spending Smile
In the retirement spending smile strategy, the inflation rate used for retirement expenses will be reduced by the specified percentage causing a slow reduction in spending over time. Increasing health care costs over time can offset the decrease causing the ‘smile’ effect.
Retirement Spending Stages
The retirement spending stages strategy creates three stages of retirement spending where expenses are reduced downward at each stage. The first stage will start at the client’s retirement and the last stage will end at end of the plan. Advisors can customize the starting age of the second and third stages as well as the expense adjustment percentages for each.
Guardrails
The guardrails strategy is used to adjust retirement spending based on withdrawal rates from invested assets during a specified timeframe. The first component, if enabled, does not inflate retirement expenses if the previous year’s portfolio return is negative or flat. The second component puts ‘guardrails’ around the overall withdrawal rate up to a specified age. If the overall withdrawal rate exceeds the original withdrawal rate by the specified percentage, RightCapital will automatically reduce retirement expenses as indicated. If the overall withdrawal rate is lower than the original withdrawal rate by the specified percentage, RightCapital will increase retirement expenses. This helps the client avoid investment shortages during their lifetime while reducing excess funds at the end of the projection.
The initial withdrawal rate used to trigger the rules above will be calculated based on the first year of retirement unless you override the initial withdrawal rate. To find the initial withdrawal rate in a financial plan, visit the Retirement > Analysis > Retirement Details tab > select Withdrawal Rate from the dropdown menu. The first year of the chart's X-axis represents the year of retirement used to calculate the initial withdrawal rate, unless it's manually overridden.
Floor and Ceiling
This strategy adjusts the retirement expenses each year so that they represent a constant percentage of the client’s invested assets, subject to a floor and ceiling based on the original retirement expense number.
Add A New Spending Strategy
You can create unique spending strategies using the Models > Retirement Spending > + Add spending strategy button.
For additional assistance using retirement spending strategies in RightCapital, please contact RightCapital Support.
