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Safe Withdrawal Rate Matrix

Retirement Period (Years)
20% Equity Allocation
Probability
of success (%)
40% Equity Allocation
Probability
of success (%)
60% Equity Allocation
Probability
of success (%)
80% Equity Allocation
Probability
of success (%)

Spouse1 Acknowledgement : _______________ Spouse2 Acknowledgement:_______________

  • Total projected value of annual benefits to be received based on the information provided by applicant, this includes desired retirement age and recommended retirement age.
  • Other guaranteed income includes pension benefits and/or annuity payments.
  • Annual income gap represents the difference, if any, between the annual income goal, Social Security and other guaranteed sources of income.
  • Capital required to close the remaining income gap, after Social Security benefits and other sources of guaranteed income, is determined by dividing the income gap by the safe withdrawal rate chosen by the applicant and listed on the input page of this report. Capital requirements may be understated as Morningstar research assumes an average overall cost for asset management of 1%. Forbes research indicates the average cost for an actively managed portfolio to be 2.1%. As a result, if utilizing an actively managed portfolio, safe withdrawal rate assumptions should be reduced by 100 basis points. As an example, a 60/40 equity to fixed income portfolio with a 90% probability of success over a 30 year time horizon suggests a safe withdrawal rate of 2.7%. Utilizing an actively managed portfolio would reduce the safe withdrawal rate 100 basis points to 1.7%. This is significant as illustrated by the following figures; an income gap of $25,000 divided by a safe withdrawal rate of .027 (2.7%) means one would need $925,926 in order for the plan to succeed. Conversely, because of the added cost associated with an actively managed portfolio, the safe withdrawal rate would need to be reduced to .017 (1.7%). In this case, the amount of capital required to close the $25,000 gap would be $1,470,588, a 58.8% increase in the amount of capital required for the plan to succeed.

Spouse1 Acknowledgement : _______________ Spouse2 Acknowledgement:_______________

  • Bridge capital is the amount of money needed to fund the income goal until all Social Security benefits begin.
  • Represents the percentage of the annual income goal that is guaranteed for life. Remember guarantees are based on the claims paying abilities of the Social Security Administration, pension providers and any issuing insurance carrier.
  • Represents the percentage of the overall income, Social Security and other sources, that will be considered taxable. This is an estimate, all tax estimates should be verified by a tax professional.
  • Represents value of all guaranteed sources of income recommended in this scenario. This includes Social Security, other sources of guaranteed income and the Deferred Annuity with Income Rider benefit found on the input page. Remember all guarantees are based upon the claims paying ability of the issuer.
  • Represents the percentage of all income that is automatically and annually adjusted for inflation. For Social Security purposes the adjustments are based upon the Consumer Price Index for Urban Wage Earners or CPI-W. Input provided by applicant was used to determine the amount of “other sources of guaranteed income” that are considered inflation adjusted. The advisor provided input relative to whether or not the Deferred Annuity with Income Rider is inflation adjusted.
  • Represents the percentage of the overall income, Social Security and other sources, that will be considered taxable. This an estimate, all tax estimates should be verified by a tax professional.
  • Value of the survivor income assumes applicant were to pass away at the time Social Security benefits were scheduled to begin in each scenario. Actual survivor benefits may vary depending upon the age applicants commence benefits. In addition, survivor benefit calculations include any survivor benefits payable from a pension or an annuity contract.
  • Demonstrates the capital required to build a successful retirement income plan utilizing the various scenarios explored in this report. The capital requirement is predicated on closing any remaining income gap for life once the plan in question culminates. Specifically, the analysis takes the remaining income gap and divides it by the selected Morningstar safe withdrawal rate selected by the applicant and listed on the corresponding output/assumption pages. Plans with no excess capital are considered “underfunded” for the purposes of fully self-funding the duration of the desired retirement income plan and, as a result, have greater likelihood of failing. By signing the disclosure below you are acknowledging that you have been informed of the potential risks underfunded plans may face.
Plan Capital Requirement Current Optimized Alternative
Capital Available $800,000 $800,000 $800,000
Capital Required $800,000 $800,000 $800,000
Excess Capital $800,000 $800,000 $800,000
Spouse1 : ___________________________ | Spouse2 :____________________________