When I look at the Added Savings Solver tool or the printed Alternative Scenarios & Solutions page, I don't understand how the "amount needed" and the "shortfall" numbers are calculated. It seems as though I should be able to substract the shortfall amount from the amount needed amount (since they are both in today's dollars) and come up with our current investment balance... but it is way off of that simple calculation. What am I missing?
- Steve
Hey Steve,
Looked at the code.....
Calculations first goes through all the years of retirement and sums up the shortfall amounts pulled to present value at the retirement age... and it uses the retirement blended return to do that. It also does the same for the total of each year's retirement income goal. So that leaves those numbers "at the retirement age" values as lumpsums.
The program then goes one step further to pull those values back to current age also using a present value calculation and in that case uses the pre-retirement blended return.
Subtracting the shortfall from the amount needed does NOT have any correlation to their current investment balance... BECAUSE the above calculations do not really factor in the social security and pension amounts. In other words, you can't just substract "amount needed - shortfall" and get a total of their current investments because that ignores the super positive impact of their social security, pensions and any cash infusions. It also does not account for taxes as the calculations of these shortfall and amount needed numbers do account for taxes and you entered 36%...
Think about that for a bit.... and let me know if that helps. I agree 100% that it is confusing.... there is no way to thumbnail a correlation of what you see in the printout or on the screen with their current investment amounts really. I know that is confusing but it's the reality of how these numbers are calculated. We may change this in the future but for now the way these are calculated was requested by a client.