Planning Tool for Determining a Future Cost of Retirement

• US 20150127581A1
• Filed: 11/04/2014
• Published: 05/07/2015
• Est. Priority Date: 11/06/2013
• Status: Active Application

• Current Assignee: BlackRock Index Services LLC (Blackrock Incorporated)
• Original Assignee: BlackRock Index Services LLC (Blackrock Incorporated)
• Inventors: Castille, Charles A. III, Daverman, Edward
• Application Number:
  US14/532,383
• Publication Number:
  US 20150127581A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A future cost of retirement planning tool conveniently translates lump-sum investment amounts into a future lifetime annual income amount. This future lifetime annual income amount is predicted as a function of retirement date, future pre-retirement saving rate, retirement income goal, and investment portfolio composition. The planning tool also provides probability distributions (or other measurements of variability) of the predicted future lifetime annual income amount based on the foregoing factors. This information is presented to a user in a convenient graphical interface.

Claims

1. A computer-implemented method comprising:

receiving, at a client device, an age of a user at a first date, an initial portfolio value at the first date, and a future target date;

determining a future cost of retirement index value as a function of time based on the received age of the user, the future cost of retirement index corresponding to an expected amount of present value for purchasing a fixed amount of income for life at the future target date;

determining a portfolio value as a function of time based on at least the initial portfolio value, and the future cost of retirement index value as a function of time;

determining an estimated future annual retirement income at the future target date by dividing the portfolio value at the future target date by the future cost of retirement index amount at the future target date; and

determining a range of probable retirement incomes at the future target date based on the estimated future annual retirement income and a confidence interval.

2. The computer-implemented method of claim 1, wherein determining the portfolio value as a function of time is based on a portfolio composition, an expected annual rate of return corresponding to the portfolio composition, and an annual increase in a savings rate of the user.

3. The computer-implemented method of claim 1, wherein the cost of retirement index value as a function time is based on an initial index level at an initial time, and a Brownian motion term.

4. The computer-implemented method of claim 1, further comprising receiving an annual income target beginning on the future target date.

5. The computer-implemented method of claim 1, wherein determining the range of probable retirement incomes for the confidence interval is based on a return vector, a variance, and a covariance.

6. The computer-implemented method of claim 1, further comprising displaying the estimated future annual retirement income at the future target date and displaying the range of probable incomes.

7. The computer-implemented method of claim 1, further comprising determining a pre-retirement savings amount needed to achieve the estimated future annual retirement income target at the future target date.

8. The computer-implemented method of claim 7, wherein the future annual retirement income target at the future target date is based on a pre-retirement savings rate as a proportion of portfolio value, a number of years of savings, an expected return of the portfolio, a desired percentage increase in annual savings rate, a return vector, a holding vector, an initial income, future cost of retirement index level, and a covariance matrix.

9. The computer-implemented method of claim 1, further comprising determining an amount of additional annual savings for achieving the estimated future annual retirement income based on the age of the user at the first date, the initial portfolio value, the future retirement date, a portfolio composition, and the confidence interval.

10. A system comprising:

a user profile store configured for receiving an age of a user at a first date, an initial portfolio value at the first date, and a future target date;

a calculation engine configured for;

determining a future cost of retirement index value as a function of time based on the received age of the user, the future cost of retirement index corresponding to an expected amount of present value for purchasing a fixed amount of income for life at the future target date;

determining a portfolio value as a function of time based on at least the initial portfolio value, and the future cost of retirement index value as the function of time;

determining an estimated future annual retirement income at the future target date by dividing the portfolio value at the future target date by the future cost of retirement index amount at the future target date;

determining a range of probable retirement incomes at the future target date based on the estimated future annual retirement income and a confidence interval; and

a web server configured for providing for display the estimated future annual retirement income at the future target date and the range of probable retirement incomes.

11. The system of claim 10, wherein the web server is further configured for receiving a portfolio composition from a portfolio composition database.

12. The system of claim 11, wherein the calculation engine is further configured for determining the portfolio value as a function of time is based on the portfolio composition, an expected annual rate of return corresponding to the portfolio composition, and an annual increase in a savings rate of the user.

13. The system of claim 10, wherein the calculation engine determines the cost of retirement index value as a function time based on an initial index level at an initial time, and a Brownian motion term.

14. The system of claim 10, wherein the user profile store is further configured for receiving an annual income target beginning on the future target date.

15. The system of claim 10, wherein the calculation engine is further configured for determining the range of probable retirement incomes for the confidence interval is based on a return vector, a variance, and a covariance.

16. The system of claim 10, wherein the web server is further configured for providing for display the estimated future annual retirement income at the future target date and the range of probable incomes.

17. The system of claim 10, wherein the calculation engine is further configured for determining a pre-retirement savings amount needed to achieve the estimated future annual retirement income target at the future target date.

18. The system of claim 17, wherein calculation engine determines the future annual retirement income target at the future target date based on a pre-retirement savings rate as a proportion of portfolio value, a number of years of savings, an expected return of the portfolio, a desired percentage increase in annual savings rate, a return vector, a holding vector, an initial income, future cost of retirement index level, and a covariance matrix.

19. The system of claim 10, wherein the calculation engine is further configured for determining an amount of additional annual savings for achieving the estimated future annual retirement income based on the age of the user at the first date, the initial portfolio value, the future retirement date, a portfolio composition, and the confidence interval.