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WO2001053975A1 - Systeme d'evaluation de retraite et de recommandation relative a la retraite - Google Patents

Systeme d'evaluation de retraite et de recommandation relative a la retraite Download PDF

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Publication number
WO2001053975A1
WO2001053975A1 PCT/US2001/001829 US0101829W WO0153975A1 WO 2001053975 A1 WO2001053975 A1 WO 2001053975A1 US 0101829 W US0101829 W US 0101829W WO 0153975 A1 WO0153975 A1 WO 0153975A1
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WO
WIPO (PCT)
Prior art keywords
retirement
user
plan
income
financial
Prior art date
Application number
PCT/US2001/001829
Other languages
English (en)
Inventor
John A. Rekenthaler
David L. Harrell
Martha Dustin Boudos
Paul D. Kaplan
Robert C. Wamsley
Original Assignee
Morningstar Associates, Llc
Priority date (The priority date is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the date listed.)
Filing date
Publication date
Application filed by Morningstar Associates, Llc filed Critical Morningstar Associates, Llc
Priority to AU2001227962A priority Critical patent/AU2001227962A1/en
Publication of WO2001053975A1 publication Critical patent/WO2001053975A1/fr

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Classifications

    • G—PHYSICS
    • G06—COMPUTING OR CALCULATING; COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/02—Banking, e.g. interest calculation or account maintenance

Definitions

  • the present invention relates in general to a retirement evaluation and recommendation system, and in particular to a retirement evaluation and recommendation system which provides users with specific advice regarding the users' financial retirement planning and investments based upon the users' current financial and retirement information.
  • the retirement evaluation and recommendation system of the present invention provides a user or an employee of an organization with specific retirement planning and investment recommendations based on the user's desired or acceptable retirement income range.
  • the retirement evaluation and recommendation system of the present invention is referred to herein for brevity as the "system” or the "retirement system.”
  • the system gathers information about the user's current situation and retirement goals, calculates whether the user is on track to meet his or her retirement goals, identifies the changes the user could make to have a better chance at reaching the user's retirement goals, tests the user's short-term risk tolerance with realistic loss scenarios, recommends specific 401 (k) investments that balance with the user's other retirement assets, and provides the user with a detailed action list of what to do to achieve the user's retirement goals.
  • the system may be adapted to be implemented on and accessed through the internet or through an organization's intranet or extranet.
  • the first step of the retirement system of an embodiment of the present invention is to ask the user to state the user's expectations for income at retirement.
  • Previous retirement-planning systems implicitly treat this stage as unimportant, by defaulting to an arbitrary ratio of a hypothetical figure (e.g., 70% of the user's estimated salary prior to retirement).
  • Such systems give the user little encouragement or opportunity to address the fundamental question of retirement, which is "What will my life be like?" If the goal is incorrect, the plan that the system provides is incorrect. Requiring the user to think about and specify the user's retirement income goals or range dramatically improves the odds that the plan will be successfully implemented.
  • Top financial planners have long understood this and have spent a good deal of time having their clients articulate their views of the future. Most previous retirement-planning systems did not make such an attempt.
  • one embodiment of the system asks two questions about the user's retirement income goals.
  • the system asks the user his or her desired retirement income (i.e., "What income would you like to receive each year in retirement?").
  • the system also asks the user his or her acceptable retirement income (i.e., "But if things don't work out as planned, how much would you settle for?”).
  • This two-goal approach permits the system to communicate with the user in terms of range of retirement income.
  • the user is focused on the long- term dangers associated with a riskier portfolio, as well as the potential upside of a higher return.
  • asking for two goals or a range of retirement income reinforces the message to the user that forecasting future income levels is a matter of probabilities, not an absolute certainty.
  • the system also provides information for the user if the user has trouble answering questions or is uncertain of what the user's retirement income needs might be. For instance, the system preferably offers resources for assisting the user to set his or her retirement income targets. Such resources outline general rules of thumb for estimating retirement income needs and provide information on lifestyles corresponding to various retirement income ranges.
  • the system focuses on long-term risk rather than short-term risk.
  • Most prior asset-allocation programs seek the optimal portfolio for a specified level of short-term volatility (i.e., daily or monthly changes in the value of the user's portfolio).
  • the present system seeks the portfolio that is most likely to achieve a long-term objective which meets or exceeds the user's targeted range of retirement income.
  • the system also pays attention to short-term risk, as discussed below, only after addressing the larger, more important risk to the user of not meeting the user's long-term goals.
  • the retirement evaluation and recommendation system of the present invention provides a user with specific retirement planning and investment recommendations based on the user's current information and desired retirement range.
  • This embodiment of the present invention does not initially ask the user for the user's expectations for income at retirement.
  • This embodiment of the system gathers information about the user's current financial, retirement and biographical information including the user's retirement balance and savings rate, calculates at least one range of income the user is on track to obtain, identifies the changes the user could make to have a better chance at obtaining higher or lower retirement goals, enables the user to specify specific retirement income ranges after providing the calculated range of income for the user based on the user's information, tests the user's short- term risk tolerance with realistic loss scenarios, recommends specific 401 (k) investments that balance with the user's other retirement assets, and provides the user with a detailed action list of what to do to achieve the user's retirement goals.
  • system provides recommended percentages of investments in each asset class instead of specific investment recommendations.
  • a further advantage of the present invention is to provide an improved retirement evaluation and recommendation system which provides users with specific advice regarding the users' financial retirement planning and investments based on the users' current financial, retirement and biographical information.
  • FIG. 1A is a high-level flow diagram illustrating the retirement evaluation and recommendation system of the present invention
  • Fig. 1 B is a schematic diagram of the system
  • Fig. 1C is a flow diagram illustrating the plan selection process of the system
  • Fig. 1 D is a table of the financial information provided by the user
  • Fig. 2 is an illustration of a user log-in interface of the system of the present invention
  • Fig. 3 is a welcome interface provided to the user by the system;
  • Fig. 4 is an illustration of the retirement income goal setting interface of the system;
  • Figs. 5A, 5B, 5C and 5D are illustrations of the current financial situation input interfaces of the system;
  • Figs. 6A, 6B, 6C, 6D, 6E, 6F, 6G, 6H, 61, 6J, 6K and 6L are illustrations of the plan selection and tool interfaces of the system;
  • Figs. 7A, 7B, 7C and 7D are illustrations of the test interfaces of the system;
  • Figs. 8A, 8B and 8C are illustrations of the investment recommendations interfaces of the system
  • Figs. 9A and 9B are illustrations of the action list interfaces of the system.
  • Figs. 10A and 10B are a high-level flow diagram illustrating an alternative embodiment of the retirement evaluation and recommendation system of the present invention.
  • Fig. 10C is a flow diagram illustrating an alternative embodiment of the plan selection process of the system of the present invention.
  • Fig. 11 is an illustration of the initial information gathering interface of an alternative embodiment of the system of the present invention.
  • Figs. 12A, 12B, 12C, 12D, 12E and 12F are illustrations of the financial information or situation input interfaces of an alternative embodiment of the system of the present invention.
  • FIGS. 13A, 13B, 13C, 13D and 13E are illustrations of the plan selection and tool interfaces of an alternative embodiment of the system of the present invention.
  • Figs. 14A, 14B, 14C and 14D are illustrations of the test interfaces of the alternative embodiment of the system of the present invention.
  • Figs. 15A, 15B, 15C and 15D are illustrations of the investment recommendation interfaces of the alternative embodiment of the system of the present invention.
  • Figs. 16A, 16B, 16C, 16D, 16E, 16F and 16G are illustrations of the action list interfaces of the alternative embodiment of the system of the present invention.
  • Figs. 17A, 17B, 17C, 17D and 17E are illustrations of the recommendations interfaces of the alternative embodiment of the present invention.
  • an embodiment of the retirement evaluation and recommendation system of the present invention includes a multiple step process for evaluating the user's current situation and retirement income goals, and for making specific recommendations to the user.
  • the system 10 includes a multiple step process for evaluating the user's current situation and retirement income goals, and for making specific recommendations to the user.
  • the system 10 After the user logs onto 12 the system 10, the system 10: (i) obtains the user's desired and acceptable retirement income goals or range 14; (ii) obtains information regarding the user's current investments and retirement plan 16 (including 401 (k) plan); (iii) calculates potential investment plans for the.
  • the system architecture is generally illustrated in Fig. 1 B.
  • the system 10 preferably has a multi-tier system, including a raw securities data server 30, statistical processing systems 32, a processed securities data server 34, a client data server 36, an archival data server 38, one or more computational model servers 40 and one or more presentation servers 42. All of the components of the system communicate via communications links, which could be a high-speed network, a modem, or other telecommunication devices. In this manner, the system can be coupled with other resources that can be used to provide data for the computational model server 40.
  • the raw securities data is preferably compiled from many data feeds. This data is processed preferably, on a monthly basis, by a suitable combination of statistical systems to produce analytically useful data. Once the raw securities data has been processed and verified, it is placed onto the processed securities data server 34 which is a standard relational database management system (RDBMS).
  • RDBMS relational database management system
  • the client data server 36 is an RDBMS that stores all information needed by the computational model server 40 that the end user has provided. These include, but are not limited, to the state of the end user's finances, the funds that are available in the end user's defined contribution savings plan, the end user's preferences for types of funds and the end user's tolerance to risk and volatility.
  • the client data server 36 also performs archival functions, storing historical data from the client in the archival data server 38.
  • An end user of the system uses the client 44, which could be a web browser, or other standalone application to interact with the presentation server 42 using the Hypertext Transfer Protocol (HTTP).
  • the client 44 provides data that is needed by the computational model server 40. This data is verified by a routine on the computational model server 40 before being stored in the client data server 36.
  • the computational model server 40 aggregates the data from the processed securities data server 38 and the client data server 36. This data is used to perform forecasting of potential returns for the end user. The computational server 40 also selects funds from the end user's portfolio to meet the returns given the end user's tolerance of risk and volatility. The computational model server 40 then displays these results using the presentation server 42 to format the data for display using HTML which is then transferred to the client 36 via HTTP.
  • a user may access the system using a conventional computer by entering the system URL in a standard internet access browser or intranet/extranet access device. The system is adapted to be used by the employees of a plurality of organizations or through a public website.
  • the system is accessed by an employer or user through the intranet of the user's employee or organization.
  • the system displays a login interface 50 which requires the user to enter the appropriate pre-assigned or predetermined company code, user name and password.
  • the system will know the user's organization and will not need to obtain a company code from the user.
  • Each organization has a specific 401 (k) plan or other retirement plan which provides the user with a plurality of investing options.
  • the organization's plan may provide the user with relatively safe investment options, moderately safe investment options and aggressive investment options.
  • the employees of the organization must choose how their investment savings will be divided among or invested in each of the options. Most often the options are mutual funds which have differing investment strategies.
  • the system implementer When the system implementer and an organization agree that the system implementer will provide the organization's employees with access to the system, the system implementer will obtain the necessary information from the organization regarding the organization's 401 (k) plan, and other relevant information. The system implementer may additionally obtain specific information including current investments for all of the organization's users from the organization. The system implementer will add the organization's 401 (k) or other retirement investment options to the system's database. This enables the system to make specific recommendations based on the specific investment options available to the individual users.
  • the system is implemented on a publicly available data network such as the internet, the system will preferably be set up with suitable defaults or ask the user to input the necessary information.
  • the system provides a welcome interface 60 to the user.
  • This interface 60 generally describes the system, what the system does, how long it will take the user to use the system and how the user can begin to use the system.
  • the system preferably provides other information to the user such as general information regarding the system such as a glossary, general investment information and a more detailed explanation of how the system works. These tools or resources are accessible through the various interfaces provided by the system.
  • the welcome interface may require the user to select the user's 401 (k) plan, or another organization's 401 (k) plan.
  • Setting Retirement Income Goals or Range (Step 1)
  • one embodiment of the system provides an interface 70 enabling the user to initially set or input the user's retirement income goals or range.
  • this interface 70 enables the user to input the user's name, date of birth, year of birth and whether the user is a male or a female.
  • the system also asks the user to determine whether the system will include information regarding the user's spouse or partner (if applicable).
  • the interface enables the user to input a desired annual retirement income goal, level or amount 72 that the user would like to receive each year in retirement and an acceptable annual retirement income goal, level or amount 74 that the user would settle for in retirement.
  • the system enables the user to access resources or information to help the user determine these retirement income goals, levels or amounts.
  • This retirement income goal or range approach is relatively easy for the vast majority of users to understand because it is not based on general knowledge about the marketplace, the risk of investments, the type of investments or any other economic conditions. It is simply based on the individual knowledge of what the user would like to receive in income each year in retirement and what the user would settle for in each year of retirement.
  • the retirement system of the present invention uses these two retirement income goals throughout the interaction with the user, for evaluating the user's current situation and for making specific recommendations for the user to achieve the retirement income goals or range provided by the user.
  • the system as discussed below will ask the user to re-adjust the user's retirement income goals or range because it may be impossible or improbable for the user to achieve the initial retirement income goals or range provided by the user based on the user's current financial situation.
  • the system also enables the user to input the amount in the user's estate that the user desires to leave descendants, a charity or the like.
  • the system stores this user imputed information in the appropriate system databases as described previously.
  • Current Financial Situation Information Gathering (Step 2) Referring now to Figs.
  • the system 10 provides interfaces 80A, 80B, 80C and 80D which enable the user to input more detailed information regarding the user's current financial situation, and particularly the user's current retirement investments. If the system is not pre-loaded with this information from the user's organization, the user is asked to input the user's: (a) annual salary; (b) desired retirement age; (c) spouse's or partner's salary (if applicable); (d) spouse's or partner's desired retirement age (if applicable); (e) if the user is willing to take a part-time job during retirement, and if so, the estimated annual income from the job and the number of years the user is willing to work during retirement; and (f) if the user wants to use the system's suggested annual Social Security amount or the annual amount the user thinks he or she will receive from Social Security.
  • the system also obtains 401 (k) information from the user if the system is not preloaded with this information from the user's organization. Specifically, as partly illustrated in Fig. 5B, the system enables the user to input: (a) the maximum percentage of the user's salary allowed by the 401 (k) plan; (b) the percentage of user's salary the user is contributing or will contribute to his or her 401 (k) plan; (c) the breakdown of the user's employer's matching funds; (d) if the company's matching contribution is in the form of company stock; (e) the current amount in the user's 401 (k) plan; (f) the amount, if any, of assets in the user's 401 (k) plan that is invested in company stock; (g) if the user has an existing loan against the user's existing 401 (k) plan, and if so, the payment period and the date the loan will be paid off; (h) whether the user plans to take a future loan on the user's 401 (k) assets,
  • a list of the information the system preferably obtains is provided in Fig. 1 D.
  • the system also inquiries whether the user has a spouse or partner. If the user has not already entered the spouse's or partner's information, the system enables the user to input all the spouse's or partner's relevant information (if applicable).
  • the system also determines if the user or the user's spouse or partner (if applicable) have: (i) other 401 (k) accounts; (ii) traditional IRA's; (iii) Roth IRA's; (iv) variable annuities; (v) brokerage accounts; (vi) company stock held outside 401 (k) plan; (vii) other pension plans; or (viii) funds from selling the user's primary residence.
  • the system enables the user to input the details of the investment or simply enter the overall balance of the investment and any current annual contribution that the user makes to it. It should be appreciated that the system could be adapted to prompt the user to input a variety of different or additional information as desired by the system implementer. The system stores this information in the appropriate system databases.
  • Step 3 the system makes a series of calculations 18a as described below to determine a range of expected lump-sum values for the user's portfolio at retirement. This determination is based on the inputs the user provided in Steps 1 and 2 as well as the system implementer's own forecasts for return, risk (measured by standard deviation), and correlation (the degree to which it moves in tandem with other assets) for each of the three major asset classes (i.e., stocks, bonds and cash).
  • the system calculates portfolio values based on a plurality of different asset allocations (which range from 0% stock to 100% stock) using the mathematical model described below, sometimes referred to as a lognormal distribution.
  • the system then uses an annuity calculation to translate the expected lump sums into a range of projected retirement incomes.
  • the system uses published mortality tables to determine how an annuity provider might price an annuity that would pay a certain constant dollar amount each year as long as the user or the user's spouse were living ' oint and survivor annuity).
  • the calculation of the potential range of retirement incomes also takes into account Social Security, income from a part-time job during retirement, income from defined-benefit retirement plans, cash freed up by moving into a smaller home after retirement, and one spouse's salary after the other has retired (if applicable). It should be appreciated that the system could take into account other factors as desired by the system implementer.
  • the system determines the amount of money which would have to be set aside at the beginning of the user's retirement to be a percent (preferably 50%) certain of obtaining the desired estate goal by the time both the user and the user's spouse or partner (if applicable) are likely to have died. This amount is deducted from the user's lump-sum retirement assets before the annuity calculation is performed.
  • the desired and acceptable figures are calculated for each of the possible asset allocations.
  • the system preferably estimates that there is a 50% chance of meeting or exceeding the desired retirement income goal and the system preferably estimates that there is a 95% chance of meeting or exceeding the acceptable retirement income goal.
  • the system provides interface 90A which displays 18b to the user one or more plans with asset mixes of stocks, bonds and cash that are likely to meet both of the user's stated retirement income goals.
  • the system displays the achievable retirement income range 91 , a comfort prediction 92, and an asset mix 93.
  • the user can select the plan that the user finds most attractive.
  • the system preferably presents the plans in the context of their relative short-term volatility (i.e., smooth, moderate and bumpy).
  • the user's goals may not match the user's current situation, as illustrated in interface 90 in Figs. 1C and 6B.
  • the system will display 18C up to three potential plans that have lower retirement income ranges 91.
  • Each plan shows a range of retirement income 91 which the user can achieve using the plan, the comfort prediction 92 and the asset mix 93 which the user will need to achieve each plan. If the range of retirement income, comfort prediction and asset mix in a plan is acceptable to the user, the user can accept one of the plans and move to the next step of testing the plan.
  • the system thus enables the user to lower the user's retirement income expectations and accept more realistic retirement income targets income or retirement range.
  • the system enables the user to change the user's retirement investment strategy.
  • the system preferably offers two tools 18d and 18e to help the user find a solution as discussed below.
  • the system provides the user with a first tool 18d as illustrated in Figs. 1C, 6C, 6D and 6E which enables the user to input the specific changes to the user's investment strategy to enable the system to create a plan that meets the user's retirement income goals.
  • the system also provides a second tool as illustrated in Figs. 1C, 6H, 61, 6J and 6K for enabling the user to explore alternative retirement income ranges if the user changes his or her retirement age, savings rate or other factors.
  • the first tool referred to as "Answer Machine” in Figs. 6C, 6D and 6E in a current embodiment of the present invention of the assignee, provides an interface 90C which prompts the user to rank his or her willingness to change the listed parameters to bring the user's goals in-line with a suitable financial plan.
  • This tool also suggests that certain parameters will have a bigger effect than others (e.g., desired retirement age and desired retirement income).
  • This tool preferably enables the user to rank certain variables such as: (i) desired retirement age; (ii) annual 401 (k) contribution; (iii) outside contribution; (iv) desired retirement income; (v) minimum retirement income; (vi) the number of years employee willing to work a part time job; (vii) the annual income expected from a part-time job; (viii) the amount that the user wishes to leave to his or her estate; (ix) the partner's 401 (k) contribution (if applicable); or (x) the partner's desired retirement age (if applicable).
  • interface 90C includes one or more blocks and a list of variables.
  • the interface 90C enables the user to move (i.e., point, click and drag) the blocks 94A and 94B as indicated in Figs. 6D and 6E to the boxes adjacent to the desired variables. This enables the user to select which variables the system should vary to select a plan for the user which will accomplish the user's retirement income goals or range. Based on the user's input using this tool, the system determines if there is a suitable plan for the user to meet its retirement income goals by reasonably adjusting the selected variables.
  • the system provides an interface 90F which preferably sets forth three plans which show the desired income ranges 91 , the comfort prediction 92, the asset mix 93 necessary to achieve those ranges and the changes 95 that the user must make in his or her current retirement plans or investment strategy to obtain these retirement income goals 91.
  • the first tool 18D thus asks the user to indicate the users flexibility on various factors, so that the system can recalculate and find a plan that meets both of the user's income goals. For example, if the user indicates flexibility on retirement age, years worked at a part-time job, and annual 401 (k) contribution, the system will seek solutions by changing these variables.
  • the system may calculate that by working two additional years, taking on a part-time job for four years, and increasing the 401 (k) contribution by 2%, the user can meet both of the user's previously stated retirement income goals.
  • the system preferably determines some workable solution, if by no other means than by decreasing the user's retirement income goals. In some cases, no reasonable solution can be achieved, and the system will ask the user to indicate flexibility on other factors.
  • the system also enables the user to use the second tool 18E to experiment with the different plans as further illustrated in Figs. 6G, 6H, 61, 6J and 6K. If the user wants greater control over the user's situation, the user may opt for the second tool.
  • the second tool 18E lets the user experiment.
  • the user can manipulate a plurality of variables such as: (i) retirement age; (ii) spouse's or partner's retirement age (if applicable) (Fig. 6K); (iii) 401 (k) contribution; (iv) spouse's or partner's 401 (k) contribution (if applicable) (Fig. 6K); (v) outside contributions; (vi) spouse's or partner's outside contribution (if applicable) (Fig. 6K), etc. to instantly see how these changes play out on the various portfolio mixes and to see the change to the range of retirement income.
  • the second tool 18E is referred to as the "What If?
  • interface 90G has a control panel 96 and a graph 97 of the acceptable income goal and the desired income goal.
  • the interface 90G enables the user to change (i.e., by pointing, clicking and dragging) the user's retirement age, 401 (k) contribution, outside contribution, years of working part-time during retirement, the estate amount, the future 401 (k) loan amount and the loan start years and loan length. By changing these factors, the user can see in the graph 97 how the user's range of retirement income can change based upon the user's asset mix.
  • the graph 97 includes a plurality of vertically arranged asset mixes ranging from no stocks (at the bottom) to all stocks (at the top).
  • this interface 90G of the second tool 18E illustrates that as the amount of stock in the asset mix increases, the fluctuation in the user accounts goes from smooth to moderate to bumpy. For each asset mix with more stock, the range of achievable income is wider.
  • this tool also indicates preferably by color the asset mix necessary to achieve the user's retirement income goals.
  • Fig. 6J specifically illustrates how the user can change these retirement income goals.
  • Fig. 6K specifically illustrates an enhanced control panel 96 for changing spouse or partner information. It should be appreciated that the system could display the information provided by the second tool in a horizontal fashion.
  • the system enables the user to save the adjusted variables.
  • the system will then calculate and display preferably three plans for the user using the adjusted variables.
  • the retirement system finds a plan that meets the user's goals using the information entered, the system prompts the user to choose one of three different plans 18F and provides as illustrated in Fig. 6E. After the user selects a plan, the system provides an interface 90L which requires the user to confirm the plan selected as illustrated in Fig. 6L.
  • Figs. 7A, 7B, 7C and 7D after the user agrees to a plan, the system provides a series of interfaces, such as interface 100A, 100B and 100C, which direct the users through a series of tests to see if the user is comfortable with the plan that the user selected. This is the point at which short-term volatility, the daily, weekly, or monthly ups and downs of the user's investment portfolio, comes into play.
  • the system focuses first and foremost on the longer-term risk of not meeting the user goals, the user's tolerance for short-term risk and the user's ability to remain with the user's investment plan are important for the user to achieve the retirement income goals or range.
  • the system preferably uses easy-to-understand graphs to demonstrate to the user multiple real-world loss scenarios for the user's chosen investment plan over pre-determined periods of time such as three- month, one-year and two-year time horizons.
  • the different risk scenarios could include: (i) a three-month "loss” scenario, (ii) a one year “loss” scenario; and (iii) a two-year “loss” scenario (1973-74 classic "bear market” scenario).
  • Each of these scenarios has happened before and could very likely happen again.
  • the system preferably asks the user whether the user can be comfortable with that kind of loss or whether the user would like to select a less-aggressive investment plan.
  • the system will show the user a more comfortable plan as illustrated in Fig. 7C and returns to step 3. If the user thinks the user can be comfortable with the type of losses that the user experiences in the test as illustrated in Fig. 7B, the system moves on to a "handshake" interface 100D as illustrated in Fig. 7D. This interface requires the iser to promise to remain with the investment strategy even if the user's portfolio suffers losses similar to those shown in test.
  • the system provides investment recommendation interfaces 110A and 11 OB for the user to understand the investment recommendations provided by the system.
  • the system preferably seeks to build portfolios where the stock portfolio recommended to the user is made up of the following: (a) U.S. stocks with a large-growth investment style; (b) U.S. stocks with a large-value investment style; (c) U.S. stocks with a small-cap-growth or mid-cap-growth investment style; (d) U.S. stocks with a small-cap-value or mid-cap-value investment style; and (e) international stocks.
  • U.S. stocks with a large-growth investment style a large-value investment style
  • U.S. stocks with a large-value investment style a small-cap-growth or mid-cap-growth investment style
  • U.S. stocks with a small-cap-value or mid-cap-value investment style and (e) international stocks.
  • these allocations are preferably based on a suitable equilibrium model where the system assumes that stock-market valuations are broadly correct and that in most cases a prudent investor should not greatly over or underweight a particular style of stock, such as large or small, value or growth.
  • the system preferably analyzes the underlying holdings of each fund and how they can affect the overall portfolio.
  • the system's database preferably has data on every holding in every mutual fund, and thus the system does not have to treat a fund as a one-note investment. For example, a fund consisting primarily of large-growth stocks wouldn't necessarily be considered 100% large growth. In reality, the fund might be 94% stocks and 6% cash, the 94% stock position might be 86% U.S.
  • the system preferably considers all of this information (as well as any other information deemed relevant by the system implementer), so that the resulting portfolio is as accurate as possible.
  • the retirement system selects a set of mutual funds in the user's organization 401 (k) plan that presents the best chance for achieving the user's retirement income goals.
  • the system preferably: (i) ranks all investment choices by percentage of the overall portfolio; (ii) informs the user that it filled the asset mix with best available funds; (iii) informs the user that it balanced the portfolio with stocks, bonds and cash; and (iv) informs the user that it diversified the portfolio to give it a variety of investment styles and stock sectors.
  • the retirement system preferably displays to the user: (i) an indication of the funds overall quality; (ii) the fund's percentage of the overall portfolio; (iii) the fund's asset allocation (i.e., stocks versus bonds versus cash); (iv) the fund's investment style in (%) of large value, large growth, small value, small growth, and international; and (iv) the fund's key industry sectors (e.g., technology, health, industrials, financials, energy, etc.).
  • the system may be adapted to enable user to view more detailed information about the fund by choosing to link to the system implementer's website or another website where such information is accessible.
  • the retirement system After enabling the user viewing the fund information, the retirement system preferably asks the user to accept the portfolio. If the user does not accept the portfolio, the system enables the user to specify preferences that the system will attempt to use as much as possible to produce a new suggested set of mutual funds.
  • the preferences that the user may specify include: (i) the preferred number of funds to include in the portfolio; (ii) whether the user has a preference for including index funds or actively managed funds; (iii) whether the user has a preference for including funds from a particular family; and (iv) the user may choose particular individual funds. The system uses these preferences to select the appropriate funds available to the user.
  • Action List (Step 6)
  • the system provides the user with interfaces 120A and 120B which provide the user with an action list of everything the user needs to do to implement the recommended retirement plan.
  • the action list provide specific changes or actions the user must take to implement the plan including changes to the user's investment choices, savings rates and the like.
  • the user can print the action list which is preferably designed to encourage immediate user response.
  • the action list also preferably includes an explanation that will subsequently remind the user of the reasoning behind the user's decision.
  • the retirement system action list preferably provides: (i) the % allocation of money that currently exists in the user's 401 (k) by fund; (ii) the % allocation of money invested after implementing the plan in the user's 401 (k) by fund; (iii) reminders for the user to visit his or her 401 (k) plan to make the changes; (iv) reminders for the user to make sure that his or her 401 (k) contribution rate is set to the % entered into the system; and (v) reminder for the user to return to the system in six months so that the system can evaluate user's portfolio progress.
  • the action list also preferably recaps the user's: (i) personal information; (ii) retirement income goals or range; (iii) current financial situation; (iv) savings information; and (iv) other retirement assets. It should be appreciated that the action list could provide other information to the user, as desired by the system implementer.
  • an alternative embodiment of the present invention enables users to input their information, or the system to obtain the users' information without the users initially inputting their acceptable and desirable income goals or retirement income range.
  • This alternative embodiment enables users to obtain an initial retirement income range achievable based on their current information and to use that range to further determine or adjust their achievable retirement income range, their acceptable and desirable income goals and a plan for achieving such goals.
  • the user can thus review the range provided by this alternative embodiment of the system and use that information to make an intelligent or informed decision regarding selecting a plan to achieve their acceptable and desired retirement income goals.
  • the alternative embodiment therefore helps the user determine one or more retirement plans for the user based on their current financial, retirement and biographical information.
  • the alternative embodiment of the retirement evaluation and recommendation system of the present invention includes a multiple step process for evaluating the user's current situation and making specific recommendations to the user, similar to that described above.
  • the system After the user logs onto the system 1000 as indicated by oval 1012, the system: (i) obtains the user's biographical information as indicated by block 1014; (ii) obtains information regarding the user's current investments and retirement plan (including 401 (k) plan) as indicated by block 1016; (iii) calculates potential investment or retirement plans for the user and enables the user to select a retirement investment plan as indicated by block 1018 which includes enabling the user to adjust or input an alternative retirement income range based on the income range provided by the system and then enables the user to select a plan; (iv) runs the user through a test of the selected retirement investment plan as indicated by block 1020; (vi) makes specific recommendations for the user's investments as indicated by block 1022; and (vii) provides the user with an action list for the user to follow as indicated by block 1024.
  • the user exits the system as indicated by block 1026.
  • the system provides an interface 1070 for enabling the user to input his or her biographical information 1073 used to determine a retirement plan for the user.
  • this interface 1070 enables the user to input the user's name 1073A, date and year of birth 1073B and whether the user's gender 1073C.
  • the system also asks the user to determine whether the system will include information regarding the user's spouse or partner 1075 (if applicable), including requesting information about the spouse's name 1075A, the spouse or partner's date and year of birth 1075B and whether the spouse is a male or a female 1075C.
  • Figs. 1 D, 12A, 12B, 12C, 12D, 12E and 12F the alternative embodiment of the system provides interfaces 1080A, 1080B, 1080C, 1080D, 1080E and 1080F which enable the user to input detailed information regarding the user's current financial situation, and particularly the user's current retirement investments as described with respect to Figs. 5A through 5D.
  • the user is asked to input the user's annual salary, desired retirement age, spouse's or partner's salary (if applicable) or illustrated in Fig. 12A, employer savings plan information as indicated in Fig. 12B, other investments as illustrated in Fig. 12C, investment balances as illustrated in Fig 12D, company stock information (if applicable) as illustrated in Figs. 12E and 12Fand other relevant information if desired by the system implementor.
  • the system can also obtain much of the users information from the user's employer or databases containing the user information.
  • Figs. 10C, 13A, 13B, 13C, 13D and 13E the system makes a series of calculations based on the user information as indicated by block 1018A in Fig. 10C (similar to the calculations described previously and as described below) to determine a range of expected lump-sum values for the user's portfolio at retirement. This determination is preferably based on the inputs the user provided (or which the system otherwise obtained about the user) in the first two steps of the alternative embodiment as well as the system implementer's own forecasts for return, risk, and correlation for each of the three major asset classes (i.e., stocks, bonds and cash).
  • major asset classes i.e., stocks, bonds and cash
  • the system of the present invention could employ alternative asset mixes or an alternative number of assets.
  • the system could base its determinations on five asset classes including U.S. large-cap stock, U.S. mid/small-cap stock, international stock, bonds and cash.
  • the system calculates portfolio values based on a plurality of different asset allocations (which range from 0% stock to 100% stock) using the mathematical model described below. It should be appreciated that the system could provide these values to the user as retirement income ranges as discussed in more detail herein or alternatively in lump sum values.
  • the system provides interface 1090A which displays to the user one or more plans with asset mixes of stocks, bonds and cash as illustrated in Fig. 13A and indicated by block 1018B in Fig. 10C.
  • the system displays the achievable retirement income range 1091 , a comfort prediction 1092, and an asset mix 1093.
  • the system preferably presents the plans in the context of their relative short- term volatility (i.e., smooth, moderate and bumpy). If one of these plans are acceptable to the user, the user can select the acceptable plan.
  • the alternative embodiment enables the user to use a modified first tool and a second tool 1018D and 1018E, respectively, as indicated by Fig. 10C to modify the retirement plans.
  • the first tool provided by interface 1090B and illustrated in Fig.
  • the retirement income range 1077 includes an annual retirement income goal, level or amount 1072 that the user would like to receive each year in retirement and an acceptable annual retirement income goal, level or amount 1074 that the user would settle for in retirement.
  • the first tool also enables the user to provide adjustments 1075 as illustrated in Fig. 13B and as described about with respect to the first tool.
  • This alternative embodiment makes determining the desired retirement income range comprehensible for any user.
  • the user uses the proposed retirement plan information illustrated in Fig. 13A (which is determined using the using the user's current information and situation,) as a basis for determining their desired income range and ultimately their retirement plan.
  • the system determines if there is a suitable plan for the user to meet his/her retirement income goals.
  • the system provides an interface 1090F which preferably sets forth three plans which show the income ranges 1091 A, achievable based on the user's adjustments, the comfort prediction 1092A, the asset mix 1093A necessary to achieve those ranges and the changes 1095A that the user must make in his or her current retirement plans or investment strategy to obtain these retirement income goals 1091 A.
  • the modified first tool 1018D thus asks the user to indicate the users' flexibility on various factors, including retirement income goals so that the system can recalculate and preferably find a plan that meets both of the user's income goals.
  • the alternative embodiment of the system also provides a second tool as illustrated in Fig. 13D, which enables the user to explore retirement income ranges different from the ranges displayed by interface 1090F in Fig. 13C.
  • the system enables the individual to use the second tool 1018E to experiment with the different plans. If the user wants greater control over the user's situation, the user may opt for the second tool.
  • the second tool 1018E lets the user manipulate and experiment with various factors to adjust the achievable retirement income ranges as described above. The user can see in the graph 1097 how the user's retirement income range can change based upon the user's asset mix and other variables.
  • the user can change the user's acceptable retirement income goal and desired retirement income goal by horizontally moving the vertical bars which will change these goals upward or downward, respectively.
  • This second tool can also include an enhanced control panel for changing spouse or partner information as described above. It should be appreciated that the system could display the information provided by the second tool in a horizontal or other fashion. If the user selects a plan using the second tool 1018E, the system enables the user to save the adjusted variables. The system will then calculate and display preferably three plans for the user using the adjusted variables. As further illustrated in Fig. 13E, the system is also adapted to provide an income assessment graph via interface 1091 F.
  • Figs. 14A, 14B, 14C and 14D after the user selects a plan, the system provides a series of interfaces, 1100A, 1100B, 1100C and 1100D which direct the users through a series of tests to see if the user is comfortable with the plan that the user selected. As in the other embodiment, this is the point at which short-term expected volatility, the daily, weekly or monthly ups and downs of the user's investment portfolio, comes into play.
  • the system focuses first and foremost on the longer-term risk of not meeting the user goals, the user's tolerance for short- term risk and the user's ability to remain with the user's investment plan are important for the user to achieve the retirement income goals or range.
  • the alternative embodiment of the present invention provides investment recommendations as the system provides investment recommendation interfaces 1110A, 1110B, 1110C and 1110D for the user to understand the investment recommendations provided by the system.
  • the system preferably seeks to build portfolios where the stock portfolio recommended to the user is made up of the following: (a) U.S. stocks with a large-growth investment style; (b) U.S. stocks with a large-value investment style; (c) U.S. stocks with a small- cap-growth or mid-cap-growth investment style; (d) U.S. stocks with a small- cap-value or mid-cap-value investment style; and (e) international stocks, as discussed previously.
  • Action List Referring to Figs. 16A, 16B, 16C, 16D, 16E, 16F and 16G, in the alternative embodiment the system provides the user with interfaces 1120A, 1120C, 1120D and 1120E which provide steps, personal alerts and an action list of everything the user needs to do to implement the recommended retirement plan.
  • the action list provide specific changes or actions the user must take to implement the plan including changes to the user's investment choices, savings rates and the like.
  • the user can print the action list which is preferably designed to encourage immediate user response.
  • the action list also preferably includes an explanation that will subsequently remind the user of the reasoning behind the user's decision.
  • the system provides interfaces 1130A, 1130B and 1130D which provide recommended percentages of each asset class or the asset mix for the plan instead of giving specific investment recommendations.
  • This alternative embodiment also provides an interface which enables a user to pick specific funds to meet the asset mix instead of recommending funds.
  • the system makes a series of calculations to analyze the user's current situation, create plans for the user and to make specific recommendations to the user. It should be appreciated that the calculations, formulas, variables, constants and assumptions could vary depending on the system implementer's determinations of how the system should make such calculations and the important information.
  • the system implementer preferably provides asset class forecasts of the pre-expense expected returns, standard deviations, and correlations of the four asset classes (i.e., stocks, bonds, cash and company stock).
  • RK the return on company stock
  • Rs the return on stocks
  • UK the idiosyncratic return on company stock.
  • the retirement savings are preferably held in multiple asset pools.
  • Each asset pool has its own: initial value, cash flows, asset class expected returns after expenses and asset mix.
  • the user specifies the initial value of each asset pool. Omitting a value is equivalent to setting it to zero.
  • the initial value is the sum of the dollar amounts. If the user provides a positive value for company stock within his or her own 401 (k) account, the specified value is the initial value of the asset pool that represents the user's holdings of company stock within the user's 401 (k) account. The system subtracts this value from the current balance of the user's 401 (k) account to obtain the initial value of the asset pool that represents the rest of the user's 401 (k) account.
  • Cash flows for asset pools that relate to the primary 401 (k) of the user and the user's spouse or partner (if applicable) are derived from projected salaries, employee and employer contribution rates, and loans.
  • the cash flows for all other pools are the constant annual amounts specified by the user. If the user indicates that the home will be sold before retirement, the expected net cash profit is added to the cash flows of the taxable accounts pools for the year indicated. If none of these pools have been set up, an asset pool is set up with the default asset mix, an initial value of zero, and all other cash flows set to zero. Cash flows are assumed to occur once a year on the last day of the year. The first set of cash flows occur one year from the present.
  • the last set of cash flows occurs at the end of his or her working life. The system assumes that it occurs on the date that the user reaches his or her retirement age. (The system assumes that all birthdays are on December 31.) If the analysis is being performed for a couple, the last set of cash flows occurs as soon as one person reaches retirement age. If one person is still working at this point, his or her income goes into the retirement model described below.
  • the system calculates expected returns after expenses. For taxable accounts, the system treats taxes as an additional expense.
  • the asset class fund expenses depend on which funds are used to implement each asset class. If the user does not fill in the details dialog box, the generic fund expenses must be provided by the system implementer. If the details dialog box is filled in, the fund expenses are derived from the asset mixes and fund expenses of the funds.
  • V j initial investment in fund j in pool i (an element of v')
  • X' Aj allocation to asset class A of fund j in pool i (an element of Xi)
  • asset class A is not represented in pool i, A is set equal to the generic fund expense provided by the system implementer. If asset class A is represented in pool i,
  • Asset Mixes The system implementer provides a list of asset mixes to see which mixes, if any, achieve the two retirement income goals. For the purpose of this analysis, these asset mixes are treated as if they are implemented with generic asset class funds.
  • the asset mixes are preferably divided into groups that represent broad levels of short-term risk.
  • the asset mixes for the pools other than the one that represents the users 401 (k) account remain fixed throughout the analysis.
  • the user has the option of filling in the details dialog box. If the user does not fill in the details dialog box for one of these pools, a default asset mix provided by the system implementer is used and treated as if is implemented with generic asset class funds. If the user fills in a details dialog box, the asset mix of the pool is derived from the asset mixes of the funds. For asset pools that represent the user's company stock, the asset mix is 100% Company Stock.
  • Both the user and the spouse or the partner can have a 401 (k) with employee contributions, employer matches, and loans.
  • the user's employer contributions can either be part of the main asset pool which represents the main part of the user's 401 (k) account or a separate asset pool representing the user's company stock holdings within their 401 (k) account, depending on how the user specifies that employer matches are handled.
  • the system implementer provides values for S max (t) based on the system's implementer's forecast of future legal limits on 401 (k) contributions.
  • the system defines:
  • the system implementer provides values for Ym ax (t) based on the system implementer's forecasts of future legal limits on qualifying incomes for employer matches in 401 (k) plans.
  • the employer's contribution is 100 ⁇ percent of the first 100 ⁇ percent, then 100 ⁇ 2 percent of the next 100 ⁇ 2 , and then 100 ⁇ 3 percent of the next 100 ⁇ 3 .
  • the highest level of income that the employer can apply the match to is Y ma ⁇ (t).
  • the employer's matching stops when once the employee has contributed S ma ⁇ (t).
  • the amount of the match cannot exceed what the employee has contributed. This results in the following formula for the employer's contribution:
  • K * ⁇ , min (s, K, ) + ⁇ 2 min (max ( ⁇ ,s -K j ), ⁇ 2 ) + ⁇ 3 min (max (O ⁇ S -K ⁇ - ⁇ 2 ), ⁇ 3 )
  • the system uses the following:
  • C-4oik(t) the cash flow into the 401 (k) in question in year t
  • C 2 (t) the cash flow into the asset pool that represents the holding of company stock with the 401(k) plan in year t
  • the system uses the following:
  • A amount of payment in time 0 dollars
  • inflation rate v date loan is fully paid-off
  • the system assumes that contributions continue during the repayment period. The payments are level in nominal terms. However, the build-up formula requires real cash flows. Hence, A must be inflation adjusted.
  • the loan is paid off as a nominal annuity so that: yL
  • a notification or caution page is displayed to the user.
  • the page provides appropriate educational content and asks the user for a target rate and for a divestiture rate as explained below.
  • the target rate & is the desired level of company stock as a fraction of total financial income. If « 9 > « 9 ) the user receives details on how much company stock to sell to gradually approach the desired share of company stock. The approach is gradual to avoid having the user take a large market risk and sell all of his or her company stock holdings at a single time.
  • the field is pre-populated with a number provided by the plan sponsor (e.g., their maximum allowed divestiture rate).
  • the amount of new company stock should be lower than the amount the user is going to divest.
  • the non-company-stock part of the 401 (k) receives contributions and is likely to grow at a faster rate, while the company stock balance remains constant or grows at a slower pace because it receives little or no net contributions.
  • divested(t) minjsr • F 3 (t), max ⁇ , (& - 3 * )- V 3 (t) ⁇
  • m the chosen annual divestiture rate
  • V3(t) the current balance of Pool #3.
  • the divested(t) amount For each of the periods, the divested(t) amount must be subtracted from that period's company stock balance (a negative contribution to Pool #3). It then is added (an extra contribution to Pool #1 , not subject to the Smax(t) limit) to the mutual funds balance of the 401 (k):
  • V ⁇ (t) V ⁇ (t-l) + C m " k (t-l) _
  • V (t) V 3 ⁇ t- ⁇ ) + C 3 (t -l)
  • Percentiles of wealth are approximated using a lognormal distribution.
  • T min (user's retirement age - user's current age, spouse's or partner's retirement age - spouse's or partner's current age)
  • Rj(t) 1 + year t total return on asset pool i
  • the system uses the following:
  • the system uses the following:
  • Vj(t) value of pool i at time t before the time t contribution is made
  • V 1 ' (T) V I (T)+ C I (T)
  • Each pool has its own pattern of contributions and asset allocations.
  • n number of pools
  • V(t) value of the entire portfolio at time t before the time t contribution is made
  • V'(t) value of the entire portfolio at time t after the time t contribution is made
  • the first two raw moments of V(T) can be derived from the first two raw moments of the Vj(T)'s:
  • V;( ⁇ ) exp ⁇ v +z p ⁇ v ⁇ +C( ⁇ )
  • the Retirement Model The system assumes that at retirement, the investor puts aside part of the portfolio to fund the estate and the rest is invested in a set of annuities that together with other income, provides a constant real level of income.
  • the system defines the following:
  • V F is simply the value of all retirement assets at the time that the person retiring retires as calculated in the build-up phase described above. If the analysis is being done for a couple in which the two people will retire at different times, V F includes all of retirement assets of both people at the time that the first person to retire retires. The system assumes that these assets are used to fund the annuities and the estate. All of the earnings of the person who is still working become part of retirement-period income. With the two-goal approach, V F is preferably calculated at both the 50 th percentile and the 5 th percentile of the distribution of portfolio value at retirement. A value of W will be calculated from each of the two percentiles of VF.
  • the real riskless discount rates that are needed to price the annuities are provided by the system implementer.
  • the system needs probabilities of being alive and of dying for all retirement years. These probabilities can be readily calculated from published mortality rates. Mortality rates are expressed as number of deaths per 1 ,000 people in the age and gender group.
  • m,(t) the mortality rate of people of age t with the same gender as person i
  • s) the probability that person i is alive at age t, given that he or she is alive at age s
  • the system calculates the probability of at least one of them being alive at each future date.
  • s) the probability that the retiring person is still alive at age t, given that they are alive at age s q 2 (t-d
  • s-d) the probability that the spouse or partner is still alive at when the retiring person would have reached age t, given that the retired person is alive at age s q(t
  • s) the probability that at least one of the two people is still alive when the retiring person would have reached age t, given that they are both alive when the retiring person is age s
  • s) q 1 (t
  • T age of death T is a random variable. The expected age of death of
  • T age that retiring person would be when the last person of the couple dies So that
  • the estate is paid at time E[T
  • the system assumes that at retirement, the investor puts aside money for the estate. This money is invested in risky assets.
  • the system assumes that the amount of money put aside is just what is needed for the money put aside to reach the desired estate value at E[T
  • the system calculates how much to put aside for the estate by assuming that the estate money is invested into the asset mix that has the highest median return.
  • VE is given by:
  • W the constant real dollar amount of income that the person or couple will receive every year during retirement.
  • Ij(t) the sum of all other payments received by person i in year tlj(t) is the sum of: Social Security payments, payments from defined benefit plans, if the person is retired but has a part-time job, income from the part- time job, and if the person has not retired, income from their job. If the person in question is the member of a couple who is still working after the wealth accumulation phase, the system uses:
  • J ex (.) amount of income that is exempt from the Social Security withholdings
  • ⁇ (.) fraction of income in excess of J ex (.) withheld
  • the user can specify a part-time job during retirement for each person.
  • Jli the income from person i's part-time job
  • TJj the number of years that person I will hold his or her part-time job
  • Jli the income from person i's part-time job
  • TJj the number of years that person I will hold his or her part-time job
  • the user can specify up to two defined benefit plans for each person including a pension from the current employer, and other pension plans. For each defined benefit plan, the user provides an annual amount and a starting date.
  • the system uses the following:
  • the system defines: DB tU 0 ' t ⁇ ti '
  • DB 1 (t) DBl i (t)+ DB2 l (t)
  • the system estimates a person's Social Security benefit using the algorithm embodied in program code that Social Security Administration posts on its website with some simplifications and assumptions.
  • the inputs to this algorithm are the retirement age of the person in question and the projected salary history from the salary curve and part-time job parameters.
  • the output of the algorithm is a single number that represents the full Social Security benefit that the person will receive in years in which they are entitled to it.
  • the user has the option of overriding the system's estimates of Social Security benefits with his or her own.
  • the system uses the following:
  • the system assumes that the person's birthday is December 31 so that benefits start in the year after the person as reached the age of agessstarti-
  • W constant real dollar amount of income that a single person or couple will receive every year during retirement.
  • K fraction of W that a surviving spouse will receive
  • the annuities fill in the gap between W or W and the sum of the li(t)'s each year (including IH in year tH). If the person is single, this is W- 11 (t).
  • the value of the annuities is the present discounted value of these cash flows, each cash flow weighted by the probability that the cash flow it will occur. The system assumes that the sale of the home is only relevant if the person is alive at tH:
  • the system also assumes that the sale of a home is only relevant if at least one person is alive at time ⁇ w so that
  • V ⁇ -t-V ⁇ l + V ⁇ , + V, w - I 2
  • the system uses a three-stage model of salary growth.
  • a person's salary growth at a compound annual rate of Gi from age t 0 to age t
  • salary grows at a compound annual rate of G 2 from age ti to age t 2 .
  • G 3 From age t 2 forward, salary grows at a constant rate of G 3 .
  • g(.) is linear in each stage:
  • the first constraint is that the compound annual growth rate between from age to to ti is G ⁇ .
  • the constraint is that:
  • the first constraint is that the compound annual growth rate between from age ti to t 2 is G 2 .
  • the second constraint is that:
  • the four constraints form four linear equations in four variables that can be solved as follows:
  • the system needs to calculate salary levels from the growth rates given by g(.). To do this, the system needs to calculate cumulative salary growth.
  • the system uses the following:
  • Y(t) salary in year t
  • the user provides the value of Y(0).
  • the value of y(v) is given by:
  • the system will set the compensation points corresponding to the hiatus periods to zero. Since the 401 (k) contributions are percentages of compensation, they will be zero for the corresponding periods.
  • the system estimates the Social
  • the system assumes that: For years beyond which historical data are available, the cost of living grows at the system implementer's assumed inflation rate. For years beyond which historical data are available, real average income grows at an historical rate or at a rate provided by the system implementer. For years beyond which historical data are available, the ratio of nominal average income to real average income grows at the system's assumed inflation rate. The person's real salary for years prior to the current year followed the same salary curve that the system uses to project future 401 (k) contributions. The system simply evaluates the function Y(.) for years before the present.
  • the ratio of the person's nominal salary to his or her real salary is set to the historical Consumer Price Index (CPI), normalized so that the CPI of the current year equals one.
  • CPI Consumer Price Index
  • the person's real salary for future years will follow the salary curve that the system uses to project future 401 (k) contributions, until retirement. If the person retires before becoming eligible for Social Security and the user has indicated that the person will have a part-time job in retirement, the income from the part-time job from the age of retirement until the age of eligibility will be credited towards Social Security benefits.
  • the person began to work at least 35 years before they will begin to receive Social Security benefits. There are no years in which they did not or will not work from that year until they retire.
  • the first tool changes the variables selected by the user in search of asset mixes that meet both retirement goals.
  • the algorithm is run for each of the three short-term risk groups defined by the system implementer. In one embodiment of the system, the algorithm is as follows:
  • the system tests all variables to see if the limits defined by the system implementer have been reached. If the limits on all variables have been reached, the system stops looping. If the limit has been reached on only one variable, the system breaks out of this loop and proceeds using the same algorithm, or the single variable algorithm described above if there is only one variable left, treating the remaining variable as if it were the only variable. The system changes both variables by amounts defined by the system implementer. The system stops looping if this results in a solution. If not, the system repeats the process.
  • 401 (k) Contributions Because of the limit on employee contributions to 401 (k) plans, it is possible that increasing the contribution rate can actually reduce the total of employee and employer contributions. Therefore, in seeking a solution that involves changing a 401 (k) contribution rate the system should only increase a 401 (k) contribution rate if doing so increases the value of both ends of the retirement income range for all asset mixes being considered. If not, the value should not be increased and the contribution rate should be treated as if it has hit its limit.
  • Second Tool Calculations The second tool allows the user to set the effect of changing variables has on the retirement income ranges of all asset mixes.
  • increases in outside contributions go into Taxable Accounts. If the user did not set up Taxable Accounts, an asset pool is set up with a default asset mix and a balance of zero. Increases in outside contributions go into taxable accounts. If the user did not set up taxable accounts, it is set up with the default asset mix and a balance of zero.
  • decreases in outside contributions are taken out of contributions in the various non-401 (k) accounts in the following order:
  • Roth IRA Contributions are reduced one account at a time. When contributions for an account reach zero, the remaining reduction is applied to the next account on the above list.
  • the system selects a set of mutual funds to implement the asset mix.
  • the set of funds that the system can choose from depends on the implementation of the system. If the user is accessing the implementation of the system designed specifically for the user's employer-sponsored 401 (k) plan, the set of funds will be those that the plan sponsor has selected. If the user is accessing a generic implementation of the system, the user selects a set of funds from a larger set provided by the system implementer. Prior to the implementation of the system, the system implementer assigns a numerical score to each fund that the system can access. This score should reflect the system implementer's view of the quality of the fund.
  • the score of a portfolio of funds is simply the weighted-average of the scores of the funds that constitute the portfolio, the weights being the fund portfolio weights.
  • the system implementer must also define a set of fund characteristics that reflect the risks associated with a fund or fund portfolio. These characteristics should include expose to the primary asset classes (stocks, bonds, and cash). They can also include exposure to equity styles (large- cap growth, small-cap value, etc.), economic sectors (industrial, health, financial, etc.), and security characteristics such as bond duration and credit rating. Each characteristic of each fund must have a numerical value so that the characteristics of portfolios of funds can be calculated by taking weighted-averages across funds.
  • the system implementer selects the value of the p s.
  • the system selects the fund portfolio by maximizing the following objective function:
  • the system constrains the fund weights as follows: the sum of the weights must equal 100%, each weight must fall within a range set by the system implementer, the number of funds used must fall within limits set by the system implementer.
  • the system maximizes the value of Q, subject to these constraints, by using an algorithm specified by the system implementer.
  • the user can customize the fund selection process by setting the preferred number of funds to use.
  • the user can further customize the fund selection process by specifying a preference for index funds, particular fund family, and custom list of funds. These preferences are implemented by increasing the fund quality score of the preferred funds during the fund selection process by an amount determined by the system implementer.

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  • Business, Economics & Management (AREA)
  • Accounting & Taxation (AREA)
  • Finance (AREA)
  • Engineering & Computer Science (AREA)
  • Development Economics (AREA)
  • Economics (AREA)
  • Marketing (AREA)
  • Strategic Management (AREA)
  • Technology Law (AREA)
  • Physics & Mathematics (AREA)
  • General Business, Economics & Management (AREA)
  • General Physics & Mathematics (AREA)
  • Theoretical Computer Science (AREA)
  • Financial Or Insurance-Related Operations Such As Payment And Settlement (AREA)

Abstract

Un système d'évaluation de retraite et de recommandation relative à la retraite comprend un processus à phase multiples d'évaluation de la situation financière ponctuelle et de la plage de revenus de retraite d'un utilisateur, et d'établissement de recommandations spécifiques à l'utilisateur. Ledit système fournit à l'utilisateur des informations relatives à la biographie de l'utilisateur, aux investissements en cours (10) et au plan de retraite, calcule les plans possibles pour que l'utilisateur atteigne les objectifs de revenus de retraite voulus et acceptables (14), permet à un utilisateur d'entrer la plage de revenus de retraite (18) ; permet à l'utilisateur de sélectionner un plan d'investissement de retraite (20), fait passer à l'utilisateur un test relatif au plan d'investissement de retraite sélectionné (20), établit des recommandations spécifiques pour les investissements (22) de l'utilisateur et lui fournit une liste de mesures à prendre (24).
PCT/US2001/001829 2000-01-21 2001-01-19 Systeme d'evaluation de retraite et de recommandation relative a la retraite WO2001053975A1 (fr)

Priority Applications (1)

Application Number Priority Date Filing Date Title
AU2001227962A AU2001227962A1 (en) 2000-01-21 2001-01-19 Retirement evaluation and recommendation system

Applications Claiming Priority (6)

Application Number Priority Date Filing Date Title
US17731800P 2000-01-21 2000-01-21
US60/177,318 2000-01-21
US71605100A 2000-11-17 2000-11-17
US09/716,051 2000-11-17
US74613700A 2000-12-21 2000-12-21
US09/746,137 2000-12-21

Publications (1)

Publication Number Publication Date
WO2001053975A1 true WO2001053975A1 (fr) 2001-07-26

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AU (1) AU2001227962A1 (fr)
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Cited By (1)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
WO2017088026A1 (fr) * 2015-11-25 2017-06-01 Supered Pty Ltd Cadriciels et méthodologies mis en œuvre par ordinateur configurés pour permettre la distribution d'un contenu et/ou d'une fonctionnalité d'interface utilisateur sur la base de la surveillance d'une activité dans un environnement d'interface utilisateur et/ou commande l'accès à des services distribués dans un environnement en ligne en réponse à l'utilisation d'un protocole d'évaluation de risque

Citations (4)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
US5918217A (en) * 1997-12-10 1999-06-29 Financial Engines, Inc. User interface for a financial advisory system
US5987433A (en) * 1996-06-03 1999-11-16 General Electric Company Method and system for developing a time horizon based investment strategy
US5999918A (en) * 1997-04-02 1999-12-07 Rational Investors, Inc. Interactive color confidence indicators for statistical data
US6012043A (en) * 1996-09-09 2000-01-04 Nationwide Mutual Insurance Co. Computerized system and method used in financial planning

Patent Citations (4)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
US5987433A (en) * 1996-06-03 1999-11-16 General Electric Company Method and system for developing a time horizon based investment strategy
US6012043A (en) * 1996-09-09 2000-01-04 Nationwide Mutual Insurance Co. Computerized system and method used in financial planning
US5999918A (en) * 1997-04-02 1999-12-07 Rational Investors, Inc. Interactive color confidence indicators for statistical data
US5918217A (en) * 1997-12-10 1999-06-29 Financial Engines, Inc. User interface for a financial advisory system

Cited By (1)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
WO2017088026A1 (fr) * 2015-11-25 2017-06-01 Supered Pty Ltd Cadriciels et méthodologies mis en œuvre par ordinateur configurés pour permettre la distribution d'un contenu et/ou d'une fonctionnalité d'interface utilisateur sur la base de la surveillance d'une activité dans un environnement d'interface utilisateur et/ou commande l'accès à des services distribués dans un environnement en ligne en réponse à l'utilisation d'un protocole d'évaluation de risque

Also Published As

Publication number Publication date
AU2001227962A1 (en) 2001-07-31

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