Let's consider retirement contribution savings.

Contributions from a paycheck are commonly not taxed. Why does Target-Map accomodate for a Loss to Tax upfront instead of allowing the expected net rate of return to impact that lost tax money?

The answer is because at time of retirement you would likely want to consider framing your conversation around a dollar value that is spendable. In other words, by asking the question, "how much of your savings can be spent on your retirement desires?" you provide better clarity around your retirement savings goal discussion.

In our example below, our 30 year old member wants to accumulate until the age of 60.

He is saving $10,000 annually and we are applying a net rate of return of 5% (net of fees and expenses).

One line item shows the impact of no loss to tax ($155,332 pv) while the other displays the impact of a loss to tax of 10%, ($139,799 pv); present value of the future values at age 60.

🎉Now retirement has arrived (60 and beyond)!🎉

How much of that $654,388 of that un-taxed savings is spendable? Or, to put it another way, how much could you predict will be lost to taxes to show the client how much is spendable?

Let’s take a guess: 10%.

Let's do the math: $654,388 – 10% = $588,949, which is the same future value of the taxed present value cash flow.

Illustrating what the impact of Loss to Taxes is upfront leads to an improved client conversation. The impact of considering a Loss to Taxes upfront results in the same future dollar value to spend during retirement years when you consider the same tax implication at time of retirement. The only difference is that Target-Maps are transparent and immediate with this valuable information.

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7/2023