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.
Example Scenario:
A client has 1M of invested assets and a retirement expense goal of $30,000/year. They also use a floor and ceiling spending strategy with a ceiling rate of 20% and a floor rate of 15%.
Next year the invested assets will grow by 7% (to $1,070,000), and the expenses are increased by the same amount until they are capped at the ceiling rate of 20% (expenses grow to $36,000).
The following year, invested assets drop by 2% (to $1,0486,000), and the expenses are decreased by the same amount and are not capped since they do not drop below the spending floor of 15% (expenses drop to $30,600).
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.
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.
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