Watch an Income InSight software demonstration video.
Video Transcription
Hi, I'm Dan with Covisum. Welcome to Income InSight. Today, I'm going to show you a brief tutorial. I pre-loaded a case that we might expect to see when helping the mass affluent. Income Insight was designed to help you visually answer your client's biggest questions about retirement and help you quantify the value you deliver by virtue of making different plans, suggestions, different ways of harvesting assets, different ways of using assets to produce efficient retirement.
And what you see on the screen is the results of an Income Insight analysis. We start off at the top with three basic metrics:
- portfolio longevity
- income floor
- estate value
Then you see a variety of stress tests.
Portfolio Longevity
Now, ultimately our clients want to know if their money is going to last through retirement. That's what portfolio longevity is about.
Income Floor
If portfolio longevity does not meet the need, then obviously a client who has 95% of their income need met by pensions or other guaranteed income sources is in a very different position than someone who has 20% of their income needs met by guaranteed income sources. This is the income floor metric. In our example, the client has all their income needs met throughout the portfolio longevity period.
Estate Value
And finally, if their money does last, they care about how much after tax is leftover to the people and causes that they care about. The estate value is a present value figure of what the eventual estate value would be.
Stress Tests
But these metrics are only important if everything goes okay–if we experience a normal economic future. The fact is that most clients can't relate to a Monte Carlo-type simulation because a 90% certainty of being able to make it through retirement, does nothing to describe the consequences of what happens if their portfolio doesn't make it through retirement. Instead, people are much better able to relate to what happens if they experience a specific event, and so the stress tests in Income Insight are designed to do just that.
The downmarket stress test we noticed in this case is red. We can take a look at it by clicking on the stress test and clicking "show me". Why is it red? Because in this case, the portfolio does not last or retirement. It makes it 25 years, and at that point only 45% of their income need is coming into the household. And of course they don't leave any money behind to the people and causes that they care about. So, this is definitely an area of concern for these particular clients.
Charts and Graphs
Let's move back to our everything is fine stress test. What I noticed down below is that I have four primary charts
- Account balances–How long does my money last?
- Income by source–Which account does my money come from?
- Income by result–How much can I spend versus how much is lost to federal income taxes or insurance premiums or other debt?
- Each year's Tax Map–Tax efficiency throughout retirement is really all about making great decisions about which accounts are going to be used at which points in retirement. And if you've used Tax Clarity before, you know that it's a great way to visually illustrate whether or not there are opportunities.
Once we've diagnosed the client's current situation, we have the ability to implement a variety of techniques through the plan that that will allow us to put the client's retirement on a more sound footing. Our base case assumes that the client is going to do what most people do, which is take Social Security as soon as possible, use non-qualified money for as long as possible until they're either forced to start taking IRA money because they have required minimum distributions, or they run out of non-qualified money, which again, requires them to use IRA money.
So, in our plan, one of the most common things advisors are doing right now is changing the harvesting pattern, implementing a Social Security strategy alongside it, either harvesting from IRA to bridge the gap or doing some Roth conversions.
Roth Conversions in Income InSight
I'm going to demonstrate the Roth conversion to the lifetime effective rate. This is one unique element of Income Insight. Implementing a different harvesting pattern, we're actually able to meet the need for Dan's early death and increase the estate value. Now I can compare our base case against the plan case for an early death.
I can see a side-by-side comparison of the account balances, and in the base case we're running out of money. I can see the Roth conversions and the Roth accounts growing in the plan case, and now we're not running out of money.
- I can see on the income by result chart that in the base case they're running out of money, and I can see the gap in the plan case.
- Under income by source I can see which accounts they are harvesting from and at which points in retirement.
- I can check to validate that the strategy that I've chosen in terms of tax efficiency has actually put us where we want to be on the Tax Map.
Some of the other more common plan changes include: reallocating a client's portfolio to be more in line with when they'll actually use those assets in retirement, changing the Social Security strategy to create a larger guaranteed monthly income, increasing the widow's benefit amount for their surviving spouse and refined spending. This can help you answer a lot of the questions that clients have about spending a little bit more money in retirement. But you'll also notice there's a whole host of other plan changes that you can make, including adding life insurance, long-term care, annuities, and so forth.
Do you have any questions on this case or how to use this software? Please feel free to reach out to our customer experience team.