Seligman harvester risk management system for achieving a recommended asset allocation and withdrawal strategy

• US 20050246260A1
• Filed: 07/12/2005
• Published: 11/03/2005
• Est. Priority Date: 03/01/1999
• Status: Abandoned Application

• Current Assignee: Ameriprise Financial, Inc.
• Original Assignee: Ameriprise Financial, Inc.
• Inventors: Kadlec, Charles W., Hodgdon, Stephen J.
• Application Number:
  US11/180,810
• Publication Number:
  US 20050246260A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

The new and improved method and apparatus of the invention generates a hypothetical illustration of a distribution of possible portfolio values and withdrawal amounts for a designated time period. The invention also provides a new and improved method and apparatus for determining a hypothetical distribution of investment outcomes for a specified portfolio based on a Monte Carlo analysis of historical rates of return for the portfolio and historical rates of inflation. The invention further provides a new and improved method for determining a withdrawal strategy using a combination of fixed dollar and fixed percent withdrawals. The hypothetical illustration of the invention is generated by interacting the combinations of fixed dollar and fixed percent withdrawals, with the hypothetical distribution of investment outcomes for a specified portfolio to facilitate a recommended asset and withdrawal strategy.

Claims

1-89. -89. (canceled)

90. A method comprising:

receiving information regarding a client'"'"'s total initial investable assets, and a withdrawal amount having a fixed dollar withdrawal amount and a fixed percentage withdrawal amount;

determining a recommended asset allocation of the initial investable assets; and

generating in a computer a probabilistic distribution of investment outcomes for the recommended asset allocation and the withdrawal amount on a periodic basis.

91. The method of claim 90, wherein the periodic basis is an annual basis.

92. The method of claim 90, wherein the probabilistic distribution of investment outcomes is generated for a designated time period.

93. The method of claim 92, wherein the designated time period is 30 years.

94. The method of claim 90, wherein the probabilistic distribution of investment outcomes ranges from a first predetermined percentage of worst investment outcomes to a second predetermined percentage of best investment outcomes.

95. The method of claim 94, wherein the first and second predetermined percentages are 10%.

96. A method comprising:

receiving from a client information comprising a financial portfolio having an initial value and an investment strategy having an initial asset allocation and a withdrawal amount;

generating in a computer a distribution of outcomes for the financial portfolio over time based on the investment strategy; and

providing the client with an assessment of how likely the investment strategy will work for a pre-determined period of time.

97. The method of claim 96, wherein the assessment is a probability that the investment strategy will cause the financial portfolio to run out of money before expiration of the pre-determined period of time.

98. The method of claim 96, further comprising, prior to the providing step, guiding development of additional investment strategies based on a goal received from the client.

99. The method of claim 98, wherein the goal is selected from the group consisting of:

survivorship of the portfolio, providing reliable dividend and interest income, avoiding undue volatility of a value of the portfolio over time, and combinations thereof.

100. A financial product for providing periodic future income from an investment, the product comprising:

a fixed income stream of periodic future payouts based on an initial value of an the investment; and

a variable income stream of periodic future payouts based on a corresponding value of the investment at the time of each said period future payout.

101. The financial product of claim 100, wherein the fixed and variable income streams continue for a designated period of time.

102. The financial product of claim 100, wherein the fixed and variable income streams continue until the current value of the investment has a value of zero or less.

103. The financial product of claim 100, wherein the fixed and variable income streams are paid to an entity selected from the group of an individual, a foundation, a corporation or a partnership.

104. The financial product of claim 100, wherein the fixed income stream as a percentage of the initial value of the investment ranges from 0 to 10%.

105. The financial product of claim 104, wherein the variable income stream as a percentage of the current value of the investment ranges from 0 to 12%.

106. The financial product of claim 105, wherein the fixed and variable income streams are selected from the group consisting of:

(1) the fixed income stream equals 5% of the initial value of the investment and the variable income stream equals 2% of the corresponding value of the investment at the time of each said period future payout, (2) the fixed income stream equals 4% of the initial value of the investment and the variable income stream equals 3% of the corresponding value of the investment at the time of each said period future payout, (3) the fixed income stream equals 4% of the initial value of the investment and the variable income stream equals 4% of the corresponding value of the investment at the time of each said period future payout, (4) the fixed income stream equals 3% of the initial value of the investment and the variable income stream equals 6% of the corresponding value of the investment at the time of each said period future payout of the investment, and (5) the fixed income stream equals 2% of the initial value of the investment and the variable income stream equals 8% of the corresponding value of the investment at the time of each said period future payout.

107. The financial product of claim 100, wherein the fixed and variable income streams are funded by allocating the investment among (1) 0% -100% U.S. large-cap stocks;

(2) 0% -15% U.S. mid-cap stocks, (3) 0% -100% U.S. small-cap stocks, (4) 0% -100% international large-cap stocks, (5) 0% -20% international mid-cap stocks, (6) 0% -10% international small-cap stocks, (7) 0% -10% emerging markets stocks, (8) 0% -100% U.S. long-term corporate bonds, (9) 0% -100% U.S. government bonds, (10) 0% -10% inflation index bonds and (11) 0% -100% U.S. 30-day treasury bills.

108. A method for selecting a recommended fixed income and variable income withdrawal strategy comprising:

obtaining data comprising rates of return for a plurality of asset classes and at least one rate of inflation;

selecting for a particular individual a financial portfolio to be evaluated having an initial investment allocated to at least one of the asset classes and a desired fixed income withdrawal and variable income withdrawal;

generating a probabilistic distribution of investment outcomes for the financial portfolio on an incremental basis within a designated time period by determining a plurality of projected portfolio values using the rates of return of the asset classes and the rate of inflation;

selecting based on said distribution of investment outcomes a recommended fixed income and variable income withdrawal strategy for said designated time period.

109. The method of claim 108, wherein the fixed income withdrawal is based on said initial investment.

110. The method of claim 108, wherein the fixed income withdrawal varies based on the rate of inflation.

111. The method of claim 108, wherein the variable income withdrawal may be adjusted at any time based on a current value of said portfolio.

112. The method of claim 108, wherein the fixed income withdrawal is a fixed dollar amount, and wherein the variable income withdrawal is a fixed percentage amount.

113. A computer program in a computer-readable memory device for selecting a recommended fixed income and variable income withdrawal strategy, the computer program comprising:

first program means for obtaining data comprising rates of return for a plurality of asset classes and at least one rate of inflation;

second program means for selecting for a particular individual a financial portfolio to be evaluated having an initial investment allocated to at least one of the asset classes and a desired fixed income withdrawal and variable income withdrawal;

third program means for generating a probabilistic distribution of investment outcomes for the financial portfolio on an incremental basis within a designated time period by determining a plurality of projected portfolio values using the rates of return of the asset classes and the rate of inflation;

fourth program means for selecting based on said distribution of investment outcomes a recommended fixed income and variable income withdrawal strategy for said designated time period.

114. The computer program of claim 113, wherein the fixed income withdrawal is based on said initial investment.

115. The computer program of claim 113, wherein the fixed income withdrawal varies based on the rate of inflation.

116. The computer program of claim 113, wherein the variable income withdrawal may be adjusted at any time based on a current value of said portfolio.

117. The computer program of claim 113, wherein the fixed income withdrawal is a fixed dollar amount, and wherein the variable income withdrawal is a fixed percentage amount.

118. An apparatus for selecting a recommended fixed income and variable income withdrawal strategy comprising:

a storage device;

a processor connected to the storage device;

a program stored in the storage device and configured to control the processor; and

the processor operative with the program to;

obtain data comprising rates of return for a plurality of asset classes and at least one rate of inflation;

select for a particular individual a financial portfolio to be evaluated having an initial investment allocated to at least one of the asset classes and a desired fixed income withdrawal and variable income withdrawal;

generate a probabilistic distribution of investment outcomes for the financial portfolio on an incremental basis within a designated time period by determining a plurality of projected portfolio values using the rates of return of the asset classes and the rate of inflation;

select based on said distribution of investment outcomes a recommended fixed income and variable income withdrawal strategy for said designated time period.

119. The apparatus of claim 118, wherein the fixed income withdrawal is based on said initial investment.

120. The apparatus of claim 118, wherein the fixed income withdrawal varies based on the rate of inflation.

121. The apparatus of claim 118, wherein the variable income withdrawal may be adjusted at any time based on a current value of said portfolio.

122. The apparatus of claim 118, wherein the fixed income withdrawal is a fixed dollar amount, and wherein the variable income withdrawal is a fixed percentage amount.

123. A method comprising:

inputting into a computer an amount of an investment for an entity;

inputting into the computer the entity'"'"'s needs, which are the entity'"'"'s total fixed expenses;

inputting into the computer the entity'"'"'s wants, which are the entity'"'"'s total discretionary expenses divided by the investment amount; and

recommending a withdrawal strategy of the investment for the entity having a fixed income component based on the entity'"'"'s needs, and having a variable income component based on the entity'"'"'s wants.

124. The method of claim 123, wherein the step of recommending a withdrawal strategy comprises:

converting, on an integer basis, the entity'"'"'s needs and wants into percentage values of the investment; and

selecting the fixed income and variable income components so that the percentage values of the entity'"'"'s needs and wants match values in the fixed income and variable income columns for a single row of the following table;

Fixed IncomeVariable IncomeTotal Periodic Withdrawal6%0%6%5%2%7%4%4%8%3%6%9%2%8%10% 

125. The method of claim 124, wherein, if the percentage values of the entity'"'"'s needs and wants do not match the fixed income and variable income columns of a single row of the table, the fixed income and variable income components are selected so that the sum of the percentage values of the entity'"'"'s needs equals the value in the total periodic withdrawal column of the table.

126. The method of claim 123, further comprising:

generating in a computer a distribution of outcomes for the investment within a designated time period by determining a plurality of projected portfolio values; and

displaying to the entity an illustration of the distribution of outcomes.

127. The method of claim 126, further comprising selecting an appropriate investment strategy by iteratively varying a variable selected from the group consisting of:

the fixed income component, the variable income component, an allocation in a financial portfolio of the investment, and combinations thereof, and reviewing the illustration of the distribution of outcomes.

128. The method of claim 127, wherein the fixed income component is varied on an integer basis in the range of 0 to 10%, and the variable income component is varied on an integer basis in the range of 0 to 12%.

129. The method of claim 123, wherein the fixed income and the variable income components are pre-selected to continue for a fixed period of time.

130. The method of claim 123, wherein the fixed income and the variable income components are to be funded by the investment.

131. The method of claim 130, wherein the fixed income and the variable income components are pre-selected to continue until a current value of the investment has a value of zero or less.

132. The method of claim 123, wherein the fixed income and the variable income components are to be paid to an entity selected from the group of an individual, a foundation, a corporation or a partnership.

133. The method of claim 123, wherein the fixed income component equals the entity'"'"'s needs less any guaranteed income of the entity.

134. The method of claim 133, wherein the guaranteed income is selected from the group consisting of social security payments, pension payments and combinations thereof.

135. A computer program in a computer-readable memory device, the computer program comprising:

first program means for inputting in a computer an amount of an investment for an entity;

second program means for inputting in a computer the entity'"'"'s needs, which are the entity'"'"'s total fixed expenses;

third program means for inputting in a computer the entity'"'"'s wants, which are the entity'"'"'s total discretionary expenses divided by the investment amount; and

fourth program means for recommending a withdrawal strategy for the entity having a fixed income component based on the entity'"'"'s needs, and having a variable income component based on the entity'"'"'s wants.

136. The computer program of claim 135, wherein the fourth program means is configured to convert, on an integer basis, the entity'"'"'s needs and wants into percentage values of the investment;

and select the fixed income and variable income components so that the percentage values of the entity'"'"'s needs and wants match values in the fixed income and variable income columns for a single row of the following table;

Fixed Income Variable Income Total Periodic Withdrawal 6% 0% 6% 5% 2% 7% 4% 4% 8% 3% 6% 9% 2% 8% 10% 

137. The computer program of claim 136, wherein, if the percentage values of the entity'"'"'s needs and wants do not match the fixed income and variable income columns of a single row of the table, the fourth program means is configured to select the fixed income and variable income components so that the sum of the percentage values of the entity'"'"'s needs equals the value in the total periodic withdrawal column of the table.

138. The computer program of claim 135, further comprising:

fifth program means for generating in a computer a distribution of outcomes for the investment within a designated time period by determining a plurality of projected portfolio values; and

sixth program means for displaying to the entity an illustration of the distribution of outcomes.

139. The computer program of claim 138, further comprising seventh program means for selecting an appropriate investment strategy by iteratively varying a variable selected from the group consisting of:

the fixed income component, the variable income component, an allocation in a financial portfolio of the investment, and combinations thereof, and reviewing the illustration of the distribution of outcomes.

140. The computer program of claim 139, wherein seventh program means is configured to vary the fixed income component on an integer basis in the range of 0 to 10%, and vary the variable income component on an integer basis in the range of 0 to 12%.

141. The computer program of claim 135, wherein the fourth program means is configured to recommend the fixed income and the variable income components that are pre-selected to continue for a fixed period of time.

142. The computer program of claim 135, wherein the second program means is configured to input into the computer any guaranteed income of the entity and to calculate the fixed income component to be equal to the entity'"'"'s needs less the guaranteed income.

143. The computer program of claim 142, wherein the guaranteed income is selected from the group consisting of social security payments, pension payments and combinations thereof.

144. An apparatus for selecting a recommended fixed income and variable income withdrawal strategy comprising:

a storage device;

a processor connected to the storage device;

a program stored in the storage device and configured to control the processor; and

the program operative with the processor to;

obtain an investment amount for an entity;

obtain the entity'"'"'s needs, which are the entity'"'"'s total fixed expenses;

obtain the entity'"'"'s wants, which are the entity'"'"'s total discretionary expenses divided by the investment amount; and

recommend a withdrawal strategy of the investment for the entity having a fixed income component based on the entity'"'"'s needs, and having a variable income component based on the entity'"'"'s wants.

145. The apparatus of claim 144, wherein the program is operative with the processor to recommend a withdrawal strategy by:

converting, on an integer basis, the entity'"'"'s needs and wants into percentage values of the investment; and

selecting the fixed income and variable income components so that the percentage values of the entity'"'"'s needs and wants match values in the fixed income and variable income columns for a single row of the following table;

Fixed IncomeVariable IncomeTotal Periodic Withdrawal6%0%6%5%2%7%4%4%8%3%6%9%2%8%10% 

146. The apparatus of claim 145, wherein, if the percentage values of the entity'"'"'s needs and wants do not match the fixed income and variable income columns of a single row of the table, the program is operative with the processor to select the fixed income and variable income components so that the sum of the percentage values of the entity'"'"'s needs equals the value in the total periodic withdrawal column of the table.

147. The apparatus of claim 144, further comprising a display, wherein the program is further operative with the processor to generate a distribution of outcomes for the investment within a designated time period by determining a plurality of projected portfolio values;

and display to the entity an illustration of the distribution of outcomes.

148. The apparatus of claim 147, wherein the program is further operative with the processor to select an appropriate investment strategy by iteratively varying a variable selected from the group consisting of:

the fixed income component, the variable income component, an allocation in a financial portfolio of the investment, and combinations thereof, and reviewing the illustration of the distribution of outcomes.

149. The apparatus of claim 148, wherein the fixed income component is varied on an integer basis in the range of 0 to 10%, and the variable income component is varied on an integer basis in the range of 0 to 12%.

150. The apparatus of claim 144, wherein the fixed income component equals the entity'"'"'s needs less any guaranteed income of the entity.

151. The apparatus of claim 150, wherein the guaranteed income is selected from the group consisting of social security payments, pension payments and combinations thereof.