Floor and Ceiling - Retirement Spending - RightCapital Help Center

Floor and Ceiling is one of five retirement spending strategies built into each RightCapital account. This strategy can be found within the Advisor Portal > Models > Retirement Spending tab:

The Floor and Ceiling strategy allows for retirement spending to fluctuate with market performance. Spending will be reduced in years of down markets, but will not be lower than the specified floor. Spending will be increased in years of strong markets, but no higher than the specified ceiling.

This strategy starts by calculating an initial expense rate (living expenses / starting invested assets) in the year of second retirement. As the client's assets change over time, the expense rate remains consistent, but spending itself will change. General inflation will be applied to the floor and ceiling thresholds each year.

Example Scenario

A client retires at age 65. Their initial retirement expenses are 70,000/yr, and their invested assets at the start of that year are 2,000,000.

This results in an initial expense rate of 3.5% (70,000/2,000,000).
The floor percentage is 15%, so the floor value is 59,500 (70,000 x 0.85)
The ceiling percentage is 20%, so the ceiling value is 84,000 (70,000 x 1.20)

Assume no inflation in this example:

At age 66, the invested assets at the start of the cash flow year are 2,100,000. Multiplying that value by 3.5% yields 73,500. Since that value is between the ceiling and the floor, the retirement expense value for that year is 73,500.
At age 68, the invested assets before cash flows are 1,650,000. Multiplying that value by 3.5% yields 57,750. Since that value is below the floor value, the retirement expense value for that year is the floor value of 59,500.
At age 71, the invested assets before cash flows are 2,500,000. Multiplying that value by 3.5% yields 87,500. Since that value is above the ceiling value, the retirement expense value for that year is the ceiling value of 84,000.

By default, the Floor and Ceiling strategy in RightCapital will set the Floor to limit the spending reduction to 15% below the initial retirement expense amount (inflation adjusted). The Ceiling is set to 20% above the initial retirement expense amount (inflation adjusted). However, the Floor and Ceiling parameters can be adjusted to your preferences in the Advisor Portal > Models > Retirement Spending tab.

If your currently selected proposal is utilizing this strategy, you'll find an additional chart called Floor and Ceiling in the Retirement > Analysis > Retirement Details tab. This chart helps to visualize a client's annual retirement expenses in relation to the floor and ceiling values:

This strategy can be applied to a client's current plan via the Profile > Goals > Retirement Expense goal card. It can also be applied to a proposed plan via the Retirement > Analysis > Action Items > Retirement Spending strategy item.