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The retirement income results are presented as a snapshot of the first month in retirement. These estimates are displayed in today's dollars and do not take any taxes into account that may be due upon withdrawal. The dollar amounts are assumed to increase by 3% each year throughout the retirement horizon.
Any Social Security estimates are based on your current annual salary, current age, and age at retirement. The accuracy of the estimate depends on the pattern of your actual past and future earnings. The estimate may not be representative of your situation. Estimates for retirement ages prior to age 62 and some spousal estimates may also be included for illustrative purposes only. Visit socialsecurity.gov for more information.
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| Monte Carlo Simulation |
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Monte Carlo simulations model future uncertainty. In contrast to tools generating average outcomes, Monte Carlo analyses produce outcome ranges based on probability thus incorporating future uncertainty.
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| Material Assumptions Include: |
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Underlying long-term expected annual returns for the asset classes are not based on historical returns, but estimates, which include reinvested dividends and capital gains.
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Expected returns plus assumptions about asset class volatility and correlations with other classes are used to generate random monthly returns for each class over specific time periods.
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These monthly returns are then used to generate hundreds of scenarios, representing a spectrum of possible performance for the modeled asset classes. Success rates are based on these scenarios. Success rate is defined as the percent of market simulations that result in a positive balance at the end of the time horizon.
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Taxes on withdrawals are not taken into account, nor are early withdrawal penalties. But fees average expense ratios for typical actively managed funds within each asset class are subtracted from the expected annual returns.
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Required minimum distributions (RMDs) are included. In the simulations, if the RMD is greater than the planned withdrawal, the excess amount is reinvested in a taxable account.
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| Material Limitations Include: |
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Extreme market movements may occur more often than in the model.
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Some asset classes have relatively short histories. Expected results for each asset class may differ from our assumptions with those for classes with limited histories potentially diverging more.
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Market crises can cause asset classes to perform similarly, lowering the accuracy of projected portfolio volatility and returns. Correlation assumptions are less reliable for short periods.
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The model assumes no month-to-month correlations among asset class returns. It does not reflect the average periods of "bull" and "bear" markets, which can be longer than those modeled.
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Inflation is assumed to be constant, so variations are not reflected in our calculations.
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The analysis assumes a diversified portfolio which is rebalanced on a monthly basis. Not all asset classes are represented and other asset classes may be similar or superior to those used.
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| Portfolio and Initial Withdrawal Amount: |
| The underlying long-term expected annual return assumptions (without fees) are 10% for stocks; 6.5% for bonds; and 4.75% for short-term bonds. Net-of-fee expected returns use these expense ratio: 1.211% for stock, 0.762% for bonds, and 0.648% for short-term bonds. The portfolio is either determined by the user or based on pre-constructed allocations that consider the user's current age and shift throughout the retirement horizon (as displayed in the graphic "Why should I consider this?" in the Asset Allocation section). The initial withdrawal amount is the percentage of the initial value of the investments withdrawn on the first day of the first year. In subsequent years, the amount withdrawn grows by a 3% annual rate of inflation. Success rates are based on simulating 1,000 market scenarios and various asset-allocation strategies. |
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| IMPORTANT: The projections or other information generated by the T. Rowe Price Investment Analysis Tool 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 simulations are based on assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts present only a range of possible outcomes. Actual results will vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations. |
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The results are not predictions, but they should be viewed as reasonable estimates. Source: T. Rowe Price Associates, Inc.
Copyright 2009, T. Rowe Price Investment Services, Inc, Distributor. All rights reserved. |
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