Tutorial: Retirement Planning

Note: This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith, and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged consult with the professional advisor of their choosing. The success rate is not guaranteed, and actual results may vary widely

Start Here: What Do You Want to Test?

Most users come to the Retirement Planning tool to answer one of the following questions:

• Can I retire earlier?
• What happens if I increase my spending?
• Should I implement a Roth conversion strategy?
• How resilient is my plan during a market downturn?
• Will I be forced to liquidate assets in a stress scenario?

This tutorial will walk you through:

• How to adjust your core retirement assumptions
• How to create and test custom scenarios
• How to model life events and recurring expenses
• How to run a Liquidity Stress Test
• How the Monte Carlo engine calculates the probability of success

If your goal is to test strategic changes such as Roth conversions, early retirement, or stress resilience, you may want to begin with the Custom Scenarios and Liquidity Stress Test sections below.

Introduction to the Scenario Modeling Tool

PortfolioPilot's Scenario Modeling Tool is a powerful feature designed to help you assess the likelihood of achieving your retirement goals. By simulating various financial scenarios, you can visualize how different variables - such as contributions, retirement age, and risk preferences - impact your financial future. The tool uses sophisticated algorithms, including Monte Carlo simulations and detailed tax calculations, to provide financial projections.

Key Features and How to Use Them

1. Scenario Settings

To get started, input your personal details to tailor the projections to your situation:

• Current Age: Enter your current age to personalize the projection timeline.
• Retirement Age: Specify the age at which you plan to retire. This adjusts the timeline and impacts your savings growth.
• Life Expectancy: Input your expected lifespan to determine how long your retirement savings need to last.
• Social Security Benefits: Add any expected Social Security benefits you anticipate receiving annually.
• Pension & Other Retirement Income: Include any additional retirement income you expect to receive annually.

2. Understanding Your Probability of Success

Once your details are entered, the tool calculates your chance of success - the estimated probability of meeting your retirement funding goal through your selected life expectancy. This success rate, prominently displayed, is based on expected returns, allowed risk (volatility), and thousands of Monte Carlo simulations.

• Monte Carlo Simulations: The tool runs 1,000 simulations, each representing a possible future, taking into account market volatility and providing a range of potential outcomes. The results are presented as percentiles, showing the median outcome (50th percentile) and a poor outcome (10th percentile).

3. Try Different Scenarios

The tool includes pre-calculated scenario adjustments designed to help you quickly evaluate strategic changes.

Under Try different scenarios, you may see examples such as:

• Increasing Portfolio Score
• Applying Monthly Tax Loss Harvesting
• Increasing Monthly Retirement Contributions

Selecting one of these scenarios automatically adjusts the relevant inputs and recalculates projections.

You may also:

• Create a scenario manually
• Use AI to generate a custom “what-if” scenario

Example: Modeling a Roth Conversion

You can model a Roth conversion strategy within your retirement scenario.

For example:

• “Convert $50,000 per year from traditional IRA to Roth between ages 60 and 65.”
• “Show me the impact of a partial Roth conversion before RMD age.”

By modeling Roth conversions, you can analyze:

• Short-term tax impact
• Long-term tax-free growth
• Changes in Required Minimum Distributions
• Impact on probability of success

This allows you to evaluate whether accelerating taxable income today may improve long-term retirement outcomes.

All scenarios update the probability of success, projected asset values, and graphical outcomes in real time.

4. Liquidity Stress Test

The Liquidity Stress Test evaluates whether you could sustain a market downturn without being forced to liquidate illiquid assets such as retirement accounts, real estate, or private equity.

The model runs 1,000 stress simulations over a 10-year period to determine:

• Whether liquid assets remain sufficient
• Whether forced liquidation would be required
• The probability of maintaining liquidity during adverse conditions

In favorable simulations, the projections show that your expenses could be covered without needing to sell certain liquid investments.

This test is particularly useful for investors with:

• Concentrated equity positions
• Significant real estate exposure
• Private investments
• High retirement spending relative to liquid assets

The Liquidity Stress Test provides an additional layer of risk analysis beyond traditional retirement probability metrics.

5. Adjusting Contributions and Budget

Experiment with different financial inputs to see how they affect your retirement outlook:

• Monthly Retirement Contribution: Set how much you plan to contribute to your retirement accounts each month. This will dynamically update the projections.
• Monthly Taxed Investment Contribution: Adjust your monthly contributions for taxable investment accounts.
• Monthly Retirement Budget: Set your anticipated monthly spending during retirement. This is crucial for determining the longevity of your savings.

6. Life Events

The Scenario Modeling Tool allows you to model significant one-time life events that may impact your financial trajectory. These events can either increase or decrease your wealth and may also affect your long-term projections.

To add a life event, click “Add life event” and select from the available options:

• Down Payment
• College Tuition
• Severance
• Insurance Proceeds
• Sell Business
• Inheritance
• Funeral Expenses
• Home Improvement
• Marriage
• Divorce
• Big Trip
• Purchase Another Property
• Move to a Different State
• Custom Event

Each life event allows you to:

• Define the timing of the event
• Specify the dollar amount
• Indicate whether it increases or decreases wealth

These events are fully integrated into the Monte Carlo simulations and will immediately update your probability of success and projected outcomes.

7. Ongoing Expenses and Earnings

In addition to one-time life events, the tool allows you to model recurring financial changes over specific time periods.

Under Ongoing expenses/earnings, you can add recurring payments or income adjustments that impact your financial plan during selected age ranges.

Examples include:

• Travel expenses
• Long-term care
• Medical expenses
• Family support
• Charitable contributions
• Reverse mortgage income
• Custom payments

For each entry, you can:

• Set the start and end ages
• Enter the annual amount
• Indicate whether it increases or decreases your wealth

These recurring adjustments are applied annually within the simulation and affect both accumulation and retirement drawdown phases.

8. Advanced Settings

For a more customized projection, adjust the advanced settings. Most of these are automatically pulled from the rest of your PortfolioPilot profile, so having your account up-to-date helps:

• Starting Tax-Advantaged Assets: Enter any tax-advantaged assets (like Roth IRAs or 401Ks) you currently have.
• Starting Taxed Assets: Input the value of your taxable investments.
• Risk Preference: Choose your risk tolerance - conservative, moderate, or aggressive - which affects your pre-retirement returns.
• Retirement Risk Preference: Similar to your general risk preference, but specific to your retirement investments.
• Yearly Taxable Income: Enter your current annual income for more accurate tax projections.
• Tax Filing Status: Select your tax filing status (e.g., Married, Filing Jointly).
• Country of Residence: Choose your country to account for regional tax differences.
• Pre-Retirement and Retirement Return Rates: Specify the expected annual return rates before and during retirement. These are automatically calculated from the risk preferences, though you can override them for more control.

How the Scenario Modeling Tool Works

1. Monte Carlo Simulations: Managing Uncertainty

Monte Carlo simulations are at the heart of the Scenario Modeling Tool. These simulations account for the unpredictability of financial markets by running 1,000 different scenarios for your retirement plan. Each scenario includes varying returns, reflecting market volatility, which helps you understand the range of possible outcomes.

2. Tax and Tax-Advantaged Calculations: Optimizing Your Withdrawals

The tool distinguishes between taxed and tax-free assets:

• Tax-Advantaged Assets: Includes assets like IRAs, where withdrawals are not taxed. The tool tracks the growth of these assets separately calculates the drawdown separately for disbursement during retirement.
• Taxed Assets: Includes assets like brokerage accounts, cash, real estate, and private equity, where withdrawals are taxed as long-term capital gains. The tool calculates the tax impact based on your expected retirement income and country-specific tax tables.
• Balanced Withdrawals: The tool models withdrawals across account types in an effort to improve after-tax outcomes based on your inputs.

3. Pre-Retirement Growth: Maximizing Your Contributions

Before retirement, the tool simulates the growth of both taxed and tax-advantaged assets:

• Growth Calculations: Each year, your assets grow based on a return rate associated with your risk preference, adjusted for market volatility.
• Progression to Retirement: The tool calculates your portfolio growth annually until retirement age, then shifts focus to the disbursement phase.

4. Post-Retirement Disbursements: Longevity of Your Savings

In retirement, the tool simulates portfolio withdrawals:

• Yearly Disbursement: Calculated based on your retirement budget, expected social security benefits, and other income. Taxes are factored in to help account for your estimated spending needs.
• Asset Drawdown Strategy: The tool models withdrawals across taxable and tax-advantaged accounts based on embedded assumptions designed to improve projected after-tax outcomes.
• Success Probability: The tool calculates the likelihood of your savings lasting until your life expectancy by analyzing how many of the 1,000 simulations result in a positive end-of-life balance.

Visualizing and Controlling Your Financial Future

The Scenario Modeling Tool provides a clear, graphical representation of your potentia financial future, with two key scenarios:

• Expected Outcome (50th Percentile): The median outcome based on all Monte Carlo simulations.
• Poor Outcome (10th Percentile): A more conservative outcome, showing the lower end of possible returns.

As you adjust contributions, budgets, and risk levels, the tool recalculates your probability of success and updates the model. All settings are saved as part of your PortfolioPilot profile, ensuring that your scenario models remain up-to-date as your financial situation changes.

Keep in mind, these projections are hypothetical, are based on assumptions, and are not guarantees of future results.

Assumptions and Limitations

• Standardized Tax Assumptions: The tool assumes a standardized cost basis for taxed investments and applies modeled federal and regional tax rules. It does not account for highly specific tax nuances, complex entity structures, or unpredictable legislative changes.
• Inflation and Income Growth Assumptions: Future expenses and pre-retirement income growth are projected using the inflation rate and salary increase assumptions selected in the model.
• Social Security Assumptions: Assumes Social Security benefits begin at the selected start age, with sufficient work history as entered.
• Required Minimum Distributions (RMDs): If enabled, the model applies current RMD rules during retirement based on applicable regulations. Future regulatory changes are not predicted.
• Withdrawal Strategy and Tax Efficiency: The drawdown strategy aims to balance withdrawals between taxable, tax-advantaged, and tax-free accounts in a tax-efficient manner. Alternative withdrawal strategies may produce different outcomes depending on individual objectives, such as maximizing legacy assets.
• Portfolio Rebalancing and Management Fees: Portfolio returns are influenced by the selected rebalance frequency and any management fee assumptions entered.

By understanding how PortfolioPilot's Scenario Modeling Tool works and using its powerful features, you can take control of your retirement planning, helping to properly plan for your financial future.