Retirement Analysis - RightCapital Help Center

A common question from clients is, "Will our future be okay?"

RightCapital is perfectly poised to give you answers to this question. Effectively using the tools in RightCapital inspires confidence from your clients and lowers stress, worry, and anxiety. Using the Retirement Analysis is perhaps the most common and effective method to address your client's concerns head-on. You can access the Retirement Analysis by opening a client plan, and navigating to the Retirement > Analysis tab:

Key Takeaways:

Create additional proposals and model what-if scenarios using the Action Items
Use the Probability and Confidence tabs to analyze your client's Probability of Success
Directly compare two different plans using various charts in the Comparisons tab
Use the Savings and Retirement Details tabs to glean valuable insights on your proposals

Probability Tab

The Probability tab is the first of five sub-tabs available within the Retirement Analysis. This area allows you to create additional proposed plans, and to see the Probability of Success and Median Ending Asset Values for two plans side by side:

Every plan in RightCapital will start with a Proposed Plan on the left, and a Current Plan on the right. The Current Plan is always a direct reflection of the data entry coming from the Profile tab, and is meant to represent the client's current financial picture. The Proposed Plan on the left will use the Current Plan as a baseline, and will factor in any changes made using the Action Items at the bottom of the page. This setup allows you to dynamically model recommendations and what-if scenarios, and see the impact on a client's probability of success in real time.

Action Items

The Action Items represent adjustable data entry inputs and planning strategies that contribute to a successful retirement plan. Here you can adjust every input and variable feeding in from the client's Profile, import curated strategies from a variety of planning modules, and even add new items that do not currently exist in the Current Plan. Any changes made or new items added will impact the Proposed Plan, highlighting the change in Probability of Success, Median Ending Invested Assets, and more:

For more details on the Action Items...

Please see the article below for a comprehensive overview of the Action Item functionality, including proposing changes, implementing strategies, and adding new items:

Action Items - Retirement Analysis

Create Additional Proposals

To create additional proposed plans within the Retirement > Analysis > Probability tab, you can click the Pencil & Paper icon next to the Current Plan on the right side of the page. When creating a new plan, you can either start fresh by clicking the Add New Plan button in the lower right of the drawer, or you can copy an existing proposal by hovering over that plan and clicking Copy:

After naming your plan and clicking OK, that plan will become available to select on both the left and right sides of the Probability tab via dropdown menus. Selecting a plan on the left-hand side allows you to make edits to that proposal using the Action Items. The plan selected on the right-hand side is for comparison.

For more details on the Creating Multiple Proposals...

Please see the article below for a comprehensive overview of creating and working with multiple proposed plans:

Creating Multiple Proposed Plans

Probability of Success

The probability of success is based on a Monte Carlo simulation that runs a client's plan through 1,000 trials. The simulation factors varying levels of market volatility into each and every trial to create a comprehensive range of potential outcomes. The probability of success demonstrates the percentage of those trials that are successful, i.e. the trials that do not run out of money at any point during the client's plan.

Even if the simulation registers assets remaining in the last year of their plan, the overall probability of success will decrease if there are any years in which the simulation reports $0 within their projection. This can be best visualized by using the Confidence chart in the tab to the right of Probability (more on this below).

While it is difficult to pinpoint a universal percentage that qualifies as a "good" probability of success, 80% is often cited as a standard benchmark for a reasonable PoS%. That being said, there are various schools of thought when it comes to interpreting Monte Carlo, and in many cases the "target" probability of success is highly dependent on a client's age and willingness to make adjustments in the case of poor markets or unforeseen circumstances. Please feel free to use and interpret RightCapital's Monte Carlo analysis in accordance with your own perspective and advising philosophy.

Median Ending Invested Assets

The value in the green bar chart next to each PoS% reflects the ending invested asset value for the median Monte Carlo trial. While the median (also referred to as trial 500) only represents one possible outcome of many, this trial represents the "middle outcome" and is therefore a useful frame of reference. The median trial is visualized as a solid blue line within the Confidence chart:

Pro-Tip: Today's Dollars

By default, values displayed in the Retirement Analysis are "future" dollars. Future dollars illustrate the real projected dollar value in future years, factoring in all growth, inflation, and annual increase rates.

However, you can toggle from future dollars to "today's" dollars at any time using the toggle in the lower right of the chart/visuals. With today's dollars selected, RightCapital will discount the values calculated by your general inflation rate, which can help put things into perspective for you and your clients (especially for younger clients with long plan durations):

Confidence Tab

The Confidence tab provides a visual representation of the Monte Carlo analysis, reflecting the range of outcomes throughout the projection. Hovering your mouse over the chart allows you to see dollar values for each year:

Put simply...

A client's assets will most likely fall somewhere in one of the blue-shaded areas. The lightest blue covers the widest range of possibilities, which means that there is a high degree of confidence a client will land somewhere in that range (90% of results). But it can be hard to plan a lifestyle around such a large bandwidth! The darker blue area is still likely and easier to plan around (50% of results, clustered around the median, are captured by the darker blue band). The solid blue line is the median - possible, but likely not exact.

At each age (reflected on the x-axis), the 1,000 Monte Carlo trials are ordered by asset value. For the 5-95% Confidence Level, only the highest and lowest 5% of the values are excluded. So, the results of trials 51 - 950 (in asset value order) are reflected within the light blue shaded area in the confidence chart. This means that 90% of the time, a client's assets will fall somewhere between the upper and lower boundary of the light blue area. The 25-75% confidence range reflects trials 251 - 750, and the Median reflects "trial 500".

Median

Many clients often latch onto the median value as their expected retirement value at any given point. However, at best, this only has a 1/1,000 chance of being exactly true! Some successful advisors carefully disclose both the reality of a simulation ("we can't know the future until we're there") and the reality of probable range over exact value.

Using the legend underneath the chart, you can toggle the displayed values and zero in on a specific confidence interval. As a reminder, the dollar value for the median trial in the final year of the plan is the Median Ending Invested Asset value- this will align with the value displayed within the green bar graph in the Probability tab.

Comparisons Tab

The Comparisons tab allows you to directly compare two plans against each other, highlighting the differences in invested assets, taxes and more. The two plans displayed here are determined by the plans you've selected on the left and right sides of the Probability tab.

Scenario Analysis Charts

There are four different scenario analysis charts within the Comparisons tab: Invested Assets, Net Worth, Taxes, and Assets at Retirement. Hovering your mouse over each chart allows you to see dollar values for each year:

Invested assets (initial view): Compares the value of invested assets over time (excludes real estate and other assets)
Net Worth: Compares the client's total net worth over time (all assets and liabilities)
Taxes: Compares the client's estimated tax burden throughout the plan
Assets at Retirement: Compares the client's invested assets at the beginning of their retirement

Demonstrate your value!

Some successful advisors use the Comparisons tab to demonstrate the value of shifting assets from one allocation style to another. This can be a powerful tool to elevate your expertise to your clients in a visual format. Build an excellent proposal based on your client's unique needs and goals and compare it to how they are currently holding their assets -- your value will be clear as day, and your clients will stick with you over the long haul!

Return Scenarios

Unlike the Probability and Confidence tabs, the Comparisons tab is not using the Monte Carlo analysis. By default this tab will be using the Baseline projection, which is a straight-line, linear growth model using your advisor-specific return assumptions to project growth on the client's assets. This is the same projection used by the Cash Flows in RightCapital, and the dollar values you see listed here will align with those in the Retirement > Cash Flows tab for each plan.

To inject some volatility into the Comparisons tab, you can implement custom return scenarios to recalculate the values shown using a different sequence of returns. Use the dropdown box on the right to toggle between return scenarios:

Return Scenarios

There are four pre-built return scenarios:

Bad decade followed by slow growth
Fed adverse scenario followed by modest growth
Strong growth scenario
Flat 0% return

To see the specific values for each scenario, and to create your own custom scenarios to use within your client plans, navigate to Advisor Portal > Models > Scenarios tab.

Savings Tab

The Savings tab illustrates the benefits of proposed savings strategies during the client's accumulation phase (today through retirement). This area focuses on whichever proposal is currently selected on the left side of the Probability tab.

This tab includes four graphs that reinforce the importance of growing a client's portfolio to sustain cash flow needs in retirement. These are Current Year Savings, Savings Over Time, Savings Rate, and Total Savings and Returns. Hovering your mouse over each chart allows you to see dollar values for each year:

If either the client or co-client is already retired, only the Current Year Savings chart will be available.

Current year savings

This chart highlights investment contributions occurring in year one of the cash flow projections:

The first year of each client plan can be customized using the "Cash Flow in simulation starts" methodology setting. The current year's savings are grouped into four buckets, which are color-coded for visual clarity:

Taxable account savings
Retirement account savings (including 401(k)s, IRAs, Roth IRAs, etc.)
Education account (529) savings
HSA account savings

Retirement savings and HSA savings will include both employer and employee contributions.

This tab will also display the total annual savings and the percentage of total income saved to the right of the graph.

Savings over time

This chart illustrates the annual investment contributions that occur until the first client retires:

Savings are grouped into the same four buckets described above, and are color-coded identically. The "total savings" and "average savings rate" will be listed on the right side of the graph.

"Total savings" represents the cumulative contributions made on top of the net worth values in the Profile tab.

As a reminder, you can use the "today's dollars" toggle in the lower right to discount the values displayed by your general inflation rate.

Savings rate

This chart recalculates annual savings as a percentage of the client's income:

The savings rate percentage for each year is equivalent to total savings divided by total income. You can hover your mouse over the bar chart to isolate the exact savings % for a particular year. The "average savings rate" will also be listed to the right of the graph.

Total savings and returns

This graph highlights the individual impact of investment contributions and portfolio return as a client's assets accumulate. It displays the current portfolio value, cumulative portfolio return, and total employer/employee savings each year until the first client retires:

Any pre-retirement withdrawals from invested assets will be shown as a reduction in the current portfolio value (potentially dipping beneath the "x-axis"). The total invested assets when the first client retires are listed to the right of the graph. This graph is using the Baseline scenario to project growth on investments.

Retirement Details Tab

The Retirement Details tab zeroes in on the client's decumulation phase, providing a closer look at income, withdrawals and other expenses in retirement. This area focuses on whichever proposal is currently selected on the left side of the Probability tab.

This tab offers three graphs that provide visual backdrops for crucial talking points: Income sources, Withdrawal rate, and Retirement spending. Hovering your mouse over each chart allows you to see dollar values for each year:

Just like the Comparisons tab, Retirement Details allows you to toggle between different return scenarios using the dropdown menu in the upper right.

Income Sources

The Income Sources chart provides a breakdown of the client's retirement income sources. Each income source is color-coded to provide a clear, visual distinction between each:

Social Security, Pension Income, Annuity Income, and Savings Withdrawals are always shown, even when not required to cover a client's yearly outflows. Other income represents the combined amount of all other income sources, and will only display in this chart if needed to cover additional outflows.

The Stable Income Percentage to the right of the graph measures the percentage of retirement expenses that are covered by income sources other than saving withdrawals. Social Security, Pension, Annuity, and Other Income are all considered stable income sources. Saving Withdrawals (RMDs, manual distributions, and negative net flows) are not considered stable.

Withdrawal Rate

The Withdrawal rate chart illustrates the percentage of invested assets withdrawn each year to fund retirement expenses. This number will include any RMDs, manual distributions, and negative net flows that occur due to cash flow deficits. Hover your mouse over the bar chart to see the withdrawal rate percentages for each year.

Retirement Spending

The Retirement Spending chart provides a breakdown of the client's retirement expenses. Each expense category is color-coded to provide a clear, visual distinction between each:

This chart excels at visualizing the impact of retirement spending strategies on a client's retirement expenses. Implement a spending strategy using the Action Items, and then isolate the "retirement expense" category using the legend underneath the chart:

Looking for a deep dive?

For a deeper dive into the Retirement Analysis module and all of its charts and features, feel free to watch our webinar on Maximizing the Retirement Analysis.