Methodology and Assumptions:
Portfolios:
The iRetire tool (the “tool”) generates illustrative asset allocation portfolios based on each user’s inputs, taking into account the investor’s current age, retirement savings, anticipated retirement age, desired retirement income and risk tolerance. This information is intended to provide potential investment options, but is not comprehensive investment advice. An investor’s retirement needs may be influenced by a variety of factors that are not included in this analysis. Investors should consult with their financial professionals to help evaluate their retirement needs and consider the information provided by the tool.
The asset allocation portfolios generated by the tool are constructed using a multi-factor methodology based on the risk and return characteristics of five basic asset class exposures (U.S. equity, non-U.S. equity, U.S. rate (bonds), non-U.S. rate (bonds) and U.S. credit risk). The asset classes were selected to broadly reflect the types of core equity and fixed income exposures that are commonly included within diversified portfolios. The universe of investments available in the portfolios is limited to iShares exchange-traded funds (“ETFs”). Other asset classes and investments not considered in the portfolios may have characteristics similar or superior to those that are included in the tool.
Although this analysis does not consider the actual returns of particular funds, BlackRock does consider the risk characteristics of the underlying holdings of specific iShares ETFs in order to determine representative exposures to each asset class. The investments within the portfolios that are shown in the tool reflect those iShares ETFs in each asset class that are most closely aligned to the risk and return characteristics of the particular asset class.
Estimated Annual Retirement Income Range:
The estimated annual retirement income range represents a projected range of annual retirement income derived by first growing the investor’s current retirement savings and additional annual savings from now until the investor’s anticipated retirement age by the assumed return of the portfolio shown. The assumed return of the portfolio is calculated using each applicable asset class’s assumed return. Please refer to the Long-term Capital Market Assumptions discussion below for the assumed return and assumed risk figures for each asset class.
Next, the investor’s projected portfolio balance at retirement is divided by the corresponding projected CoRI value in order to calculate an average estimated annual retirement income. The low and high range estimates reflect the assumed volatility (risk) of the components of the portfolio, as well as the assumed volatility (risk) of lifetime retirement income costs as measured by BlackRock’s CoRI methodology. These estimates can be shown for two time periods: assumed volatility (risk) accumulated in the next one year and assumed volatility (risk) accumulated over the full time horizon until the investor’s time of retirement. CoRI values are updated daily, so results may vary with each use and over time. CoRI values and BlackRock’s CoRI methodology are designed to help estimate today’s cost of generating each dollar of future annual lifetime income in retirement, and take into account current interest rates, inflation expectations, life expectancy and other factors. Such estimates are not guaranteed. A number of factors may contribute to variations in retirement income. For example, the CoRI methodology does not reflect the fees, expenses and cost that may be associated with an annuity or any other retirement income product that an individual may purchase, nor does it reflect any assumption that such a product will be available for purchase at the time of retirement.
Once the investor’s low, average and high annual retirement income estimates are calculated, the investor’s additional anticipated annual retirement income from other sources is then added to each estimate. Investors should consult with their financial professionals on whether they included the right amount of retirement income from other sources.
These annual retirement income estimates are generated using a statistical modeling technique that forecasts a set of potential future outcomes based on the variability or randomness associated with historical occurrences. These estimates are projections based on the probability or likelihood of generating a particular level of retirement income. These figures include a range of the estimated average annual retirement income, reflecting a low and high range value at a 68% confidence level. This reflects a 68% probability that the investor’s estimated annual retirement income will fall within the range, either in the next one year or at the investor’s time of retirement. 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 upon a number of factors and circumstances not addressed herein.
Long-term Capital Market Assumptions (31 December 2023):
Long-term capital market 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 on historical asset class returns (as reflected by certain indices), proprietary models, BlackRock’s subjective assessment of the current market environment and forecasts as to the likelihood of future events.
|
|
Index |
Annualized |
Annualized |
|
|
MSCI USA Index |
5.56% | 17.36% |
|
|
MSCI World ex USA Index (unhedged) |
8.31% | 17.04% |
|
|
Bloomberg Barclays U.S. Government Index |
3.49% | 4.92% |
|
|
Bloomberg Barclays Global Aggregate Treasury Index ex U.S. (unhedged) |
3.98% | 7.85% |
|
|
Bloomberg Barclays U.S. Credit Index |
4.11% | 5.93% |
Assumed return is calculated as the expected amount of return generated by the corresponding level of risk for each asset class, plus a short term U.S. Treasury bill investment return. U.S. and non-U.S. equity return is estimated based on the historic correlation between equity valuations and long-term returns. U.S. credit return is estimated based on the additional yield that has historically been generated over equivalent maturity treasuries provided by corporate bonds, net of potential losses stemming from worsening credit quality. U.S. and non-U.S. rate return is calculated based on the relative yields of long term government bonds in those markets.
BlackRock typically reviews the assumptions quarterly. Actual calculations may include more recent risk and return information. Long-term capital market 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 could 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. Ultimately, the value of these assumptions is not in their accuracy as estimates of future returns, but in their ability to capture relevant relationships and changes in those relationships as a function of economic and market influences.
Because of the inherent limitations associated with the use of illustrative asset allocations based on capital market 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 cannot account for the impact that economic, market, and other factors may have on an actual investment portfolio. Unlike actual investments, the asset allocations shown in the tool 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.
Asset Classes/Risk Premiums:
Risk premium is defined as the return above a very low risk investment in short term U.S. Treasury Notes.
U.S. Equities are based on the MSCI USA Index, which is designed to measure returns and risk associated with U.S. equity related investments.
Non-U.S. Equities are based on the MSCI World ex USA Index, which is designed to measure returns and risk associated with non-U.S. equity related investments.
U.S. Rates are based on the Bloomberg Barclays U.S. Government Index, which is designed to measure returns and risk associated with U.S. sovereign bond related investments.
Non-U.S. Rates are based on the Bloomberg Barclays Global Aggregate Treasury Index ex U.S., which is designed to measure returns and risk associated with non-U.S. sovereign bond related investments.
U.S. Credit is based on the Bloomberg Barclays U.S. Credit Index, which is designed to measure returns and risk associated with U.S. credit related investments.
Indexes are unmanaged and one cannot invest directly in an index.
Asset allocation and diversification strategies do not guarantee a profit and may not protect against loss. 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. An investment in any fund identified in the tool is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and their return and yield will fluctuate with market conditions. 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. Small-capitalization companies may be less stable and more susceptible to adverse developments, and their securities may be more volatile and less liquid than larger capitalization companies. Investments that are concentrated in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and the general securities market.