The Investment Strategies panel is used to model the withdrawal order for the investment accounts as well as the asset allocation glide strategy. Each account entered by a user in the Accounts tab must be used in the Investment Strategy.
The withdrawal order refers to the order in which the required withdrawals are made through various tax-type accounts. The user specified withdrawal order is invoked in generating the withdrawal pending after all fixed-cash flow sources like Social Security, Incoming Cash Flows, Annuities, etc. and RMDs from TDAs have been used up for generating the total pre-tax retirement income. The rest of the withdrawal is made from the first account in the withdrawal order and then going down to subsequent accounts, until the withdrawal is complete. If the cash flow from all fixed sources and RMDs is more than the pre-tax retirement income in a year, then the extra cash flow is deposited into the first Taxable account in the withdrawal order.
Asset Allocation Glide
The asset allocation for each tax-type account can be configured to change over the retirement planning horizon. Such changes are implemented, in the model, at the time of annual rebalancing. A user selects the starting portfolio allocation, the least risk portfolio allocation and the step-down period. The account will move one allocation down in the risk order at the end of each step-down period until reaching the lowest risk portfolio or being depleted.
Investment Strategy Configuration
Investment strategies can be setup using the auto-configure button () or by adding accounts individually using the green plus button ().
In the investment strategy configuration pop-up, you are able to quickly set up multiple investment strategies with limited inputs. Using this method will apply the same asset allocation and step-down period to each account configured in the Accounts tab. The following inputs are used:
For each strategy, enter a short, descriptive name which will be used in both the Income Plans panel and the PDF report.
Starting Asset Allocation
The allocation applied to the assets of the accounts at the start of the plan. The asset allocation is the diversification of assets in an account among various asset classes as defined in the selected capital market assumptions (CMAs).
Step Down Period
The portfolio can either continue to be annually rebalanced in the same allocation over the plan horizon (Remain Constant) or use a Glide Strategy in which the portfolio adjusts to a more conservative posture over time. The step-down period is the number of years the account will stay in an allocation before rebalancing to the next allocation in the risk order as established in the CMAs.
Lowest Risk Portfolio
The lowest risk portfolio is the lowest allocation on the risk order list to which the portfolio will step down. Depending on the step-down period and length of the plan horizon, the portfolio may or may not reach this allocation.
Clicking the green plus button will add accounts individually. Using this method allows each account to have a unique strategy (starting allocation, step-down period and lowest risk portfolio). Strategies for individual accounts can also be edited after being created either with auto-configure or manual entry.
The inputs are the same as autoconfigured investment strategies but will only be applied to the selected account. A complete investment strategy will include all accounts configured in the Accounts tab.