Target-Maps are transparent when it comes to showing funding and assumed growth of assets from today. Everything is shown on the What it Means page to quickly and easily determine what the client needs to do today to make up for a funding deficit.
Blended Growth Rate
You have the ability to set an expected, blended growth rate on the investible assets that fund the desires using the Expected Net Return on Capital field. Out of the box we offer a modest growth rate of 5%, net of fees, taxes or other costs, fully expecting that the planner will determine if this percentage is in line with what they wish. This should be considered a blended rate of all investible assets that will fund the desires, net fees and other expenses.
Discount Rate on Future Cash Flows
A Target-Map uses the same percentage rate to calculate the present value equivalent of future cash flows. In other words the Expected Net Return on Capital behaves as a Discount rate of the value of a future cash flow to calculate today's present value equivalent dollars.
For example:
On a Retirement plan:
Let's say that a Social Security cash flow is $10,000 annually from the ages of 67 to 100 = $330,000 in total by age 100.
$330,000 is therefore the sum value of the future cash stream for 33 years until age 100.
Let's now say that our blended rate of investible assets is 5% growing from today (Expected Net Rate of Return is set to 5%).
To display the value of the Social Security sum in today's present value, we use the same rate as the growth rate of assets (5% in our example).
Therefore $330,000 ($10,000 from the ages of 67 to 100) is equivalent to $73,578 today if the discount rate is 5%.
$73,578 today at 5% rate of return is the present value equivalent of $330,000 at age 100.
To describe this to your client some have suggested that when we determine what you need to do today we need to know how much you have in today's equivalent dollars.
Cash Flow Details of a Target-Map
When looking at the Cash Flow Details page of a Target-Map you can see that Social Security would begin at age 67 ($10,000 year over year) and that the nest egg of assets had indeed been growing through the accumulation years (pre-retirement), and continue to grow at 5% until end of life.
(In the image below, Social Security does not pay for all of the annual desires of spending. We pull the difference out of the growing nest egg on the far right.)
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1/2024