Methodology and Assumptions
Estimated Retirement Savings and Income
The site generates retirement savings and income projections based on each user’s inputs, taking into account the user's reported age, retirement savings, savings rate, anticipated retirement age, and risk tolerance. The validity of the projections is dependent upon the accuracy of the data entered by the user. Differences in account size, investment horizon, risk tolerance, asset allocation, timing of transactions, and market conditions prevailing at the time of investment may lead to different results, and you may lose money.
The retirement savings and annual retirement income projections are generated using a Monte Carlo simulation, which is a statistical modeling technique that forecasts a set of potential future outcomes based on the variability and central tendencies we believe are associated with relevant investments. The projections are drawn from the median outcome of the simulations. The projections assume annual retirement contributions and a default life expectancy of 90 years, which may be modified to up to 99 years by the investor. The projected growth rate and the projected total value of the portfolio are not adjusted for inflation. The projected yearly income calculation assumes an average inflation rate of 2.25%. The initial value of an investor's assets is combined with the value of their annual contribution for every subsequent year, and that total is adjusted each year by the potential expected returns of the chosen portfolio. The simulation runs over a maximum investment horizon of 50 years. Projections are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. No representation is made that an investor will achieve results similar to those shown. Actual retirement income could be higher or lower based on a number of factors and circumstances not addressed herein.
In the Educational Service, retirement saving and income projections assume annual rebalancing. These projections are presented on a gross basis and therefore does not take into account management fees, commission fees, taxes or other miscellaneous fees and expenses that you may incur through any other investment management or brokerage service, which if included would reduce the portfolio's performance. The Current Path projections are based on the investor’s current investment.
In the Managed Service, retirement savings and income projections assume quarterly rebalancing, are net of fund expenses, and are net of the annual management fee of 0.50%. Taxes and trade commissions are not considered in these projections.
Long Term Capital Market Assumptions (As of April 26, 2017)
The Monte Carlo simulation used on the site is based on long-term capital market assumptions. Long-term capital markets assumptions refer to BlackRock's return, risk and correlation expectations for each asset class. (Correlation measures how asset classes move in relation to each other). These assumptions are based jointly on historical asset class returns (as reflected by certain indices), proprietary models, and BlackRock’s subjective assessment of the current market environment and forecasts as to the likelihood of future events.
|Asset Class||Benchmark||Annualized Assumed Return||Annualized Assumed Risk|
|U.S. Equities Total||S&P 500 Index||7.13%||15.41%|
|U.S. Value Equities||S&P 500 Value TR Index||7.07%||15.34%|
|U.S. Small Cap Equities||S&P 600 Small Cap TR Index||7.51%||18.44%|
|Non-U.S. Developed Equities||MSCI EAFE IMI NR||8.50%||18.53%|
|Non-U.S. Developed Value Equities||MSCI EAFE Free Value Open USD Gross TR Index||8.98%||20.58%|
|Non-U.S. Developed Small Cap Equities||MSCI EAFE Small Cap Index||8.44%||18.81%|
|Emerging Market Equities||MSCI Emerging Markets IMI Net Index||8.57%||23.24%|
|U.S. Fixed Income||Bloomberg Barclays U.S. Aggregate Index||3.17%||4.58%|
|Non-U.S. Fixed Income||S&P/Citigroup International Treasury Bond Index Ex-US Index||3.04%||9.23%|
|Treasury Inflation Protected||Bloomberg Barclays US TIPS 0-5||2.39%||2.75%|
|U.S. Real Estate||MSCI U.S. REIT Index Total Return||8.06%||18.11%|
|Non-U.S. Real Estate||MSCI World Real Estate Large Cap Index||8.91%||17.79%|
Long-term capital markets assumptions are subject to high levels of uncertainty regarding future economic and market factors that may affect actual future performance. There is no guarantee that the capital market assumptions will be achieved, and actual returns may be significantly higher or lower than those shown. Capital market assumptions should not be relied on as a forecast or prediction of future events, and they should not be construed as guarantees as to returns that may be realized in the future from any investment or asset class described herein.
Because of the inherent limitations associated with the use of retirement savings and income projections and illustrative asset allocations based on capital markets assumptions, investors should not rely exclusively on the asset allocations or funds shown in the tool when making an investment decision. The illustrative asset allocations and funds shown in the site cannot account for the impact that economic, market, and other factors may have on an actual investment. Unlike actual investments, the retirement savings and income projections, asset allocations and funds shown in the Site do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact an investor’s realized future returns.
Past performance is no guarantee of future results.
The asset allocation and securities portfolios generated by the site are constructed by the BlackRock Multi Asset Strategies group. The asset classes were selected to broadly reflect the types of core equity and fixed income exposures that are commonly included within diversified portfolios. Other asset classes not considered in the portfolios may have characteristics similar or superior to those included in this analysis. To estimate how your account might benefit from diversification, we determine the projected value of Your Current Path and Your Recommended Path at your retirement age using a Monte Carlo simulation. The difference (net of the advisory management fee) is reported as the “at retirement” dollar impact due to diversification. This projected performance does not represent the projected performance of the actual securities held in your current portfolio or to be held in your recommended portfolio, rather the Monte Carlo simulation is based on the fee-adjusted expected returns of the applicable asset classes in Your Current Path and Recommended Path. Diversification and asset allocation strategies do not guarantee low volatility, profit or protection against loss.
An investment in any fund identified in this tool is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and the fund's return and yield will fluctuate with market conditions. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or in concentrations of single countries. Investing in small-cap companies may entail greater risk than large-cap companies, due to shorter operating histories, less seasoned management or lower trading volumes.
Idle Cash Projected Returns Analysis
The site identifies any cash (currency or cash equivalent securities) held within an account reported by a client or user. We take the aggregate amount of cash across all accounts in the portfolio and apply the Recommended Path’s hypothetical projected growth rate per year (as determined using the Monte Carlo simulation) to such amounts to estimate how the idle cash could grow if invested. The purchasing power of uninvested cash can be eroded by inflation. The simulation for the Idle Cash Projection assumes an average inflation rate of 2.25%.
Tax Efficient Asset Placement
The site determines the percentage of your aggregated assets that are tax inefficient (e.g., taxable fixed income) and would benefit from “tax sheltering”. Tax-efficient investing is designed to help optimize your portfolio by allocating less tax-efficient assets to tax-advantaged accounts. The Site analyzes your portfolio to identify what portion of your assets we consider to be tax-inefficient based on the type of securities you are holding.
Tax Loss Harvesting Analysis
The site simulates the projected returns from a tax loss harvesting strategy. This strategy enables U.S. taxpayers to potentially offset capital gains with capital losses in order to reduce or eliminate federal and state income tax obligations. For more information on our tax loss harvesting strategy and research please see the FAQ.
FutureAdvisor's automatic tax loss harvesting should not be interpreted as tax advice and there is no representation that the projected tax consequences will be obtained or that the tax loss harvesting strategy will result in any particular tax consequence. Users should consult with their personal tax advisors regarding the tax consequences of investing through the Site and engaging in this tax loss harvesting strategy, based on their particular circumstances. FutureAdvisor assume no responsibility for the tax consequences to any user of any transaction.
Returns from Income Contributions
The recommended contribution rate reflected on the Site is based on the contribution rate you have initially set, or if none has been selected, the lowest contribution rate that will provide you with 80% of your income at retirement age based on the Monte Carlo simulation for Your Recommended Path.
Last updated July 27, 2017