Life Path Spending Methodology and Assumptions:

Estimated Spending and Estimated Spending Range:

Estimated Spending and Estimated Spending Range represent a projection of the amount of income a retiree, aged 63 to 95, could spend annually (in real terms) with the goal of maintaining a consistent level of spending throughout retirement.  Estimated Spending is derived using the Current Age and Current savings input by the user.

Current Savings is assumed to be invested in a 40% U.S. Large Cap Equities (indexed to the MSCI USA Index) and 60% U.S. Investment-Grade Bonds (indexed to the Bloomberg Barclays Aggregate Bond Index) portfolio. Please refer to the Long-term Capital Market Assumptions (LTCMAs) discussion below.

The tool also assumes the user is already in retirement and therefore not collecting labor wages and does not factor in required minimum distributions, which are set by the Internal Revenue Service (IRS), or any taxes that may incur.  

Estimated Spending and Estimated Spending Range projections are calculated using a Monte Carlo simulation, which is a statistical modeling technique that forecasts a set of potential future outcomes based on the variability or randomness associated with historical occurrences. These projections are based on a number of factors including the Current Age and Current Savings inputs by the user, longevity assumptions, risk aversion assumptions, LTCMAs, and asset class risk premium assumptions (each assumption is discussed in greater detail below).

The Estimated Spending Range shows a low and high value at a 68% confidence level. This reflects a 68% probability that the annual Estimated Spending projection will fall within the Estimated Spending Range shown.

Year-over-year, this estimated amount will vary based on changing age, remaining savings balances, and updated assumptions described above.

This information is provided for educational purposes only and is intended to provide current retirees between the ages of 63 and 95 with an estimated spending amount and range based on their current age and current savings, but is not individualized investment advice. A retiree’s retirement needs may be influenced by a variety of factors that are not included in this analysis. Investors should consult with their advisors to help evaluate their retirement needs.

Estimated Spending and Estimated Spending Range are projections based on the probability or likelihood of generating a particular level of retirement income.  Projections are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.  Actual retirement income could be higher or lower based upon a number of factors and circumstances not addressed herein.

All retirement spending estimates are pre-tax.

Asset Allocation:

In order to help address the risk of premature depletion of one’s Current Savings, we assume all Current Savings entered in the tool are invested in a portfolio of 40% of a broad basket of securities covering the U.S. Large Cap Equities market (represented by the MSCI USA Index), and 60% in a diversified portfolio of U.S. Investment Grade Bonds, representing the entire U.S. rates and credit market (represented by the Bloomberg Barclays Aggregate Bond Index).

Other investments not considered may have characteristics similar or superior to those that are identified in this tool. 

Longevity Assumptions:

‘Longevity risk’, the risk that a retiree will outlive their savings, is one of the greatest sources of risk any retiree faces and can complicate retirement savings decisions.

To reflect the probability of being alive at a given age, the tool utilizes the Annuity 2000 mortality (life) tables, published by the American Society of Actuaries. While these tables project life expectancy until age 115, the tool is designed for use only up to age 95.

Risk Aversion Assumptions:

Risk aversion controls how retirees value the tradeoff between potential spending power (higher returns) for certainty of outcome (lower risk). This drives the risk (and therefore level of equity exposure) in the assumed 40% U.S. Large Cap Equities and 60% U.S. Investment-Grade Bonds portfolio and impacts estimated spending and estimated spending range. The tool assumes a moderate risk aversion resulting in a ratio of 40/60 between U.S. Large Cap Equities and U.S. Investment Grade Bonds utilized in the tool, as proxied by the indices below.

Long-term Capital Market Assumptions:

LTCMAs refer to BlackRock's return, risk and correlation expectations for each asset class, which are published periodically on the BlackRock Investment Institute’s (BII) Capital Market Assumptions (CMAs) page on the BlackRock website, which can be accessed here. (Correlation measures how asset classes move in relation to each other).

The tool currently uses a blending strategy of the prior and present year’s LTCMAs that employs (i) a 75% weight on the LTCMAs as provided by BII for 2018; and (ii) a 25% weight on the LTCMAs for 2019. For the latest BlackRock capital market assumptions and methodology, please visit the BlackRock Investment Institute’s capital market assumptions page.

Within the tool, these return and risk assumptions are updated periodically and are incorporated into the tool in line with BlackRock’s proprietary LifePath Retirement Spending methodology. LTCMAs 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 LTCMAs will be achieved, and actual returns could be significantly higher or lower than those shown. LTCMAs 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.

Past performance is no guarantee of future results.  Indexes are unmanaged and one cannot invest directly in an index.

Asset Classes/Risk Premiums:

Risk premium is defined as the return above a very low risk investment in U.S. Cash (represented by FTSE 3-Month Treasury Bill Index).

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.

U.S. Fixed Income is based on the Bloomberg Barclays Aggregate Bond Index, which is designed to measure returns and risk associated with U.S. investment grade bond related investments.

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.