The Client Analyzer was updated on September 16, 2009 to include the following changes:
If you are currently using the previous version of the analyzer, we recommend that you upgrade.
The Client Analyzer helps you assess your clients' retirement-funding status, and then maps each outcome to one of several advice profiles. The profiles include recommendations for specific actions you might take to increase the likelihood that your clients will achieve their retirement objectives.
Use it to analyze an individual client — or your entire client roster. This tool is flexible enough to provide either analysis. It also gives you the option to print a brief report summarizing the analysis of any single client you select.
You'll be able to see which clients have been most affected by market events and need immediate attention. Then, the tool output points you to specific recommendations for each client based on the profile the client maps to.
The Client Analyzer is based on two related tests. The first assesses the feasibility of achieving an investor's desired spending goal. The second assesses the viability of establishing a minimum-spending floor based on the cost of a guaranteed immediate lifetime annuity1. The two tests are:
Desired Spending Test (applicable for all clients in or near retirement):
Minimum Spending Test (recommended for clients needing immediate attention):
The analyzer relies on basic client data that you, or your staff, enter into a workbook. All spending amounts are stated in annual terms gross of taxes (any taxes owed are to be paid out of the spending level that you input).
For the Desired Spending Test, the following inputs are required:
The analyzer calculates a spending gap by subtracting Income from Other Sources from the Desired Spending Goal. (The resulting Spending Gap is assumed to be adjusted for inflation every year.) The analyzer then applies a number of the data points to Monte Carlo simulation calculations (Methodology), using Russell capital markets forecasts and actuarial mortality tables. This produces a sustainable-withdrawal-rate analysis that is rigorous enough to be useful in guiding conversations with your clients. Retirement planning is complicated with multiple factors to address. The analyzer models three of the major risks — investment, inflation and longevity.
The withdrawal-rate analysis matches the output of each client's situation to one of these four categories:
Because clients nearing retirement have different options than those already in retirement, each zone has two advice profiles (one for each retirement status), resulting in eight different profiles for you to use with your clients.
Investors in any situation (with the possible exception of those in the Green Zone) should consider their choices based on several factors. These include, but are not limited to, future income potential, spending habits, and investment decisions. Each of the eight advice profiles addresses the priority and potential impact of each decision. The information represents general guidelines. Each investor's situation may be different, and the analyzer may not take into account all variables which could affect the outcome. Advisors are responsible for making appropriate recommendations.
For clients in the Red Zone, the Orange Zone and perhaps the Yellow Zone, consider conducting further analysis using the analyzer's Minimum Spending Test. This test requires two additional client inputs:
This second analysis evaluates the client's portfolio value based on assets required to meet the stated Minimum Spending Floor if the client needs a guaranteed income level.
Like the withdrawal-rate analysis, the Minimum Spending Test matches the output of each client's situation to one of four color-coded Funding Ratio categories. These categories are based on the value of assets in a portfolio relative to the cost of buying an annuity to meet the spending gap. The specific threshold values are defined so that a "favorable" status requires a surplus of assets relative to the cost to annuitize.
The rationale for this is that it's important to have a cushion of assets in case portfolio losses or changing annuity prices reduce a client's ability to establish this income floor. The color-coded labels associated with these percentage ranges (outlined below) are based on Russell's judgment of what constitutes funding ratios ranging from imprudent to prudent.
Funding Ratio categories:
While the Desired Spending Test always assumes you'll adjust spending for inflation, the results for the Minimum Spending Test depend on the type of annuity price quote you use. The results will only reflect inflation-adjusted future income if you enter the price for an inflation-adjusted annuity.
You'll find detailed instructions for using the Client Analyzer on the Instructions tab in the downloadable workbook.
The problem is likely caused by one of two things:
From the “Help” menu, choose “About Microsoft Office Excel.” You can see your version numbers in the pop-up box. The Client Analyzer was developed to work with both Excel 2003 and Excel 2007.
The Client Analyzer requires Excel macros to function properly. Since macros from non-trusted sources can represent an increased security risk, your default settings most likely disable macros. To enable them, follow the steps below for the appropriate version of Excel.
With this setting, you will be asked to grant the Client Analyzer permission to run macros each time you use it. To do so, click the “Enable Macros” option after opening the file. It is possible to bypass this step, by choosing “Low” in Step 4. However, it is not as secure since any file containing macros will be allowed to run them, which could be harmful for your computer.
Microsoft Office buttonWith this setting, you will be asked to grant the Client Analyzer permission to run macros each time you use it. To do so, follow the steps below. It is possible to bypass this step, by choosing the “Enable all macros” option in Step 6. However, it is not as secure since any file containing macros will be allowed to run them, which could be harmful for your computer.
1 Subject to the claims-paying ability of the insurer.
2 While there are other approaches to creating secure income streams, including the use of CDs and fixed income strategies, they do not have the same characteristics as annuities.
3 Note that if you want to plan for the Minimum Spending Gap to be adjusted for inflation each year, the annuity price must reflect inflation-indexed payments. Inflation-indexed annuities are more expensive than fixed-payment annuities.
The projections or other information delivered through the Client Analyzer regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
The Client Analyzer results related to the Desired Spending Test are created with Monte Carlo simulation, a sophisticated mathematical approach used within the financial industry to model possible outcomes of future investment scenarios.
The process is designed to reflect the forecasted volatility of investment markets and other economic variables. These scenarios are created using Russell Investment's proprietary forecasting models incorporating historical data from market and economic indexes. The scenarios model investment performance for a set of asset classes (i.e., stocks, bonds, cash, etc.); the level of interest rates; and the rate of inflation, to estimate how each might affect the portfolio balance over time.
While this method may reflect the uncertainty and randomness of future events, it is important to understand that it is based on assumptions about the future risk and expected returns of each asset class.
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This site is brought to you by Russell Investments — helping advisors serve clients and build successful practices since 1988. Russell believes that investors are best served by qualified financial advisors. We created Helping-Advisors because we saw the need for a resource advisors could use to get their clients and their business through this unprecedented market environment.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. It is not intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.
This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. Investments do not typically grow at an even rate of return and may experience negative growth.
Important: The projections or other information generated by the Client Analyzer regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
There are no assurances that the investment goals and objectives stated in this material will be met.
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