Ready or Not? How to Help Clients Plan for Retirement

Here's how our Circle of Wealth® system can help your clients plan for their retirement.
Here's how our Circle of Wealth® system can help your clients plan for their retirement.

One area nearly all your financial planning clients wants help with is retirement. They want to know: How long will I need to work? How much do I need to save? What rate of return do I need to earn on my saved dollars? And what steps should I take to live the lifestyle I want once I’m retired?

How do you help answer their questions?

While the answers to clients’ retirement questions are helpful in guiding them towards successful planning, there are a lot of factors for you to guide them through. Our Circle of Wealth® system will help you show them the trajectory they’re currently on and how to project where they’ll be at retirement age, so you can help with their retirement planning more effectively.

Here’s an overview of how our system can help.

How Prepared are You?

Ask your clients, “On a scale from one to ten, how well are you doing at preparing for retirement?” The number your client selects does give you some feedback on their current perception of how well they are doing when it comes to preparing for retirement.

Retirement: Ready or Not? Initial Assumptions

Tell your client, “Using some simplifying assumptions, let's take a hypothetical look at what result your current efforts might produce for your future.”

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Most data elements are self-explanatory. However, the following are additional features or nuances that the Circle of Wealth® can explain to your client:

  • A pop-up calculator to help you determine an appropriate value for life expectancy or inflation.
  • A button to display an associated worksheet used to itemize the components that make up that field. Itemizing income and savings data is not required.
  • The ability to lower the current income value to project a more conservative lifestyle. The default is used to set the desired gross income level at retirement.
  • A way to show Beginning Accumulated Savings and Investment Asset Balances. Taxation, Risk and Accessibility options affect calculated taxes (if tax rate > 0) and asset placement in PEM visualizations.
  • Showing the amount they are saving for retirement each year. There is checkbox to indicate that they plan to increase their annual savings amount at a rate equal to inflation.
  • Two Growth Rate Assumptions:
    • The Accumulation Growth Rate is applied to assets during the accumulation (working) years.
    • The Distribution Growth Rate is applied during the distribution period (retirement).
  • The effective tax rate used to estimate potential tax liability on taxable income, growth and withdrawals.
  • A place to include any expected income stream into the projection as a “defined benefit.” Examples include pensions, Social Security benefits, structured income streams from the sale of a business or property, annuitization, etc.
  • The desired asset balance remaining at the end of the projection period (which could be left to heirs, charities, or other specified interests).
  • A way to indicate that retirement lifestyle should be increased to keep up with inflation – thus maintaining a level expected standard of living.

These assumptions are shared across the entire presentation system so data entered earlier in the presentation will be presented as the default value in follow-on presentation screens.

Retirement: Ready or Not? Present Projection

This part of the Circle of Wealth® system displays a high-level visual representation of the client's personal economy. If you click the Step checkbox, you can automatically increment year-by-year values for your client to see where their current retirement plan will leave them. If you enter a specific year or age you can advance to the associated values.

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Retirement: Ready or Not? Projection Calculator

Our Circle of Wealth® script will guide you in discussing adjusting your client’s retirement plan:

If in working together I could help you identify the areas of expense loss and return that money to you that will allow you to increase contributions to your personal savings and investment account, run more money through your company, or increase your present lifestyle and solidify your future lifestyle while at the same time reducing your risk, would that be of interest?

On a scale of 1-10 how does what I do meet with what you are looking for?

I am going to need the following information to do a more complete feasibility study. What is the best way to go about getting that information?

Our Projection Calculator displays a summary worksheet of the present projection (on the left of the table) and a revised projection (on the right of the table). The client’s age is displayed between the present projection and the revised projection.

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The initial projection is based on the client’s inputs entered on the Initial Assumptions screen. The present projection will stay the same, unless you return to the assumptions screen and change the initial assumptions. When the projection is displayed the first time, the revised projection is set equal to the present projection. However, you may change and recalculate the revised projection by clicking the buttons:

  • Spend Less
  • Work Longer
  • Save More
  • Increase ROR
  • Change Inflation

Each time you change one of these inputs, the revised projection is recalculated and the new results are displayed on the right side of the summary spreadsheet.

Clicking Documentation will display the actual worksheets used in the programs calculations. The summary worksheet, which is the one displayed on this screen, is just two columns (year-end balance and the annual withdrawal) from the Present Projection and two columns (year-end balance and the annual withdrawal) from the Revised Projection with age displayed in the center.

You can either show the annual withdrawal in nominal dollars (future dollars for the current age or year) or in present value dollars (today’s dollars). To toggle between the two displays, click the Revised Projection Annual Withdrawal column header on the top right of the spreadsheet.

Iterative Solutions: There are four buttons (Spend More, Work Longer, Save More and Increase ROR) the program presents to automatically solve the problem using iteration. Iteration is the process where the program guesses at an answer (result), and then checks the results. If the result is too large or too small, the program changes the guess (result) in the appropriate direction (a larger or smaller guess) and tries again. Using this process, the calculation engine is able to determine the correct solution.

Reset: The Reset Button allows you to quickly reset the Revised Projection assumptions back to the initial assumption values. That is, it allows you to start over quickly. It is necessary to reset after using an iteration solution, unless you wish to include the results of the iteration in the next calculation.

Summary of Results: Clicking the button “Summary of Results” will display a one-page narrative summary showing the results of the automated solution to each of the four buttons: Save More, Spend Less, Work Longer, and Increase ROR.

Defined Benefits: This provides the ability to manage the defined benefits used in the summary projection. Hidden benefits are still taken into account in the projection calculations. Excluded benefits are removed from calculations altogether.

Worksheet Auto-Row Positioning: The top row of the worksheet is automatically positioned one year prior to retirement whenever projection is recalculated. This allows you to see the balances in the year before retirement without needing to scroll.

Inflating Savings and Withdrawals: Selecting [x] Inflate Savings in the initial assumptions screen have the effect of increasing the savings amount by the inflation rate each year. For the present projection, the inflation rate entered on the input screen is used. For the revised projection, the inflation rate entered on the spreadsheet screen is used.

Similarly, the withdrawals can be inflated or not inflated by checking the [x] Inflate Withdrawals option on the initial assumptions screen.

If you inflate both Annual Savings and the Withdrawals in the Revised projection, be aware that changing the inflation rate may have surprising (or unexpected) results. For example, if you change the inflation rate to 10%, you would expect the retirement withdrawals to last fewer years. However, if that same 10% is being applied to the savings over many years, the withdrawals may last more years. That is, the inflated savings increased the fund’s growth during the accumulation years more than the inflated withdrawal reduced the fund in retirement years. Obviously, this is a function of the number of years of accumulation and the number of years of retirement.

Which Inflation Rate is used where?

The present inflation rate is used:

  • To calculate the required retirement withdrawal in the first year of retirement in both the present projection and revised projection.
  • To inflate the annual savings in both the present projection and revised projection.
  • To inflate the annual retirement withdrawal in the present projection during the retirement years.

The revised inflation rate is used:

  • To inflate the annual retirement withdrawal in the revised projection during the retirement period.
  • To calculate the Present Values of withdrawals (both including and excluding Defined Benefits).

Contact Us to Learn More

As you can tell, there is a lot of helpful information in this one section of the Circle of Wealth® system alone. Contact us if you’d like to know more about how to prepare your clients for their retirement as well as every other facet of financial planning!

About MoneyTrax:
MoneyTrax, Inc. was founded in 1994 by Don Blanton and has gained national recognition for its unique financial planning approach, intuitive client presentation software, advanced training, and effective marketing tools. Since inception, MoneyTrax, Inc. has helped thousands of financial advisors nationally better serve their clients by providing the tools and training necessary to educate and increase their client’s financial Circle of Wealth®. The Circle of Wealth® system significantly expands the financial advice available to a family beyond the industry accepted approach used by most advisors today. Click here to learn more.

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