Retirement in a Nutshell is designed to give the professional advisor a quick overview of a client's income, expenses, net worth, and cash flow from now until age 90 or older if desired. It is intended to allow you to analyze a client's retirement situation in less than 30 minutes including data input. You can even discuss it with the client as you are working on it, make adjustments and hand the client the report at the end of a one hour meeting. It quickly answers the main question most clients have. How are all of my retirement income sources going to come together at some future point in time? It also answers related questions. Am I saving enough? How much more do I need to be putting away?

It is not intended to be a comprehensive plan that examines college funding, estate planning, insurance needs, etc. There are plenty of excellent software tools out there that may be used to do that. It does not include any canned language. It does not have a myriad of line or bar charts. One of the problems with line and bar charts is that they tend to show the lump sum results of calculations but not the detail of the calculation or what was included in the lump sum. So, while a chart may tell a client they are going to be okay, it does not tell them how they are going to be okay. In that respect, charts are not as believable as a spreadsheet that shows all of the pieces and each of a client's accounts and cash flow items and how they generate income in retirement.

Retirement in a Nutshell shows the cash flow detail, year-by-year, left to right, with five years shown on each single page. There may be a few clients who have so many cash flow items it requires two pages but you can usually combine a few like items to keep it on one page. It is much more effective and easy for a client to follow on one page for each five year period.

Design Concepts

The program is designed to display cash flow. That means when you are entering "Income" it means annual gross income you are receiving now or will receive in the future. This includes such things as salary, Social Security, defined benefit pension payments, alimony, child support, etc. There is a drop down box that will show you what to include. It does not include income from investment accounts or investment real estate which have their own tabs.

Most input pages have a drop down box for selecting whether that item should be reported under the "Client or Spouse." This is not intended to show ownership for estate or legal purposes. It is only used within the program to show when various kinds of cash flow start or stop for the client or spouse. They might be retiring or drawing from their IRA’s in different years. If the ownership does not matter for a particular item, just enter it as the client’s.

Assets are items that will not be used for generating cash flow such as checking, savings, residence, vacation homes, cars, etc. These items will show on the balance sheet but not the year-by-year cash flow report. Items that will generate ongoing income at some point are entered as investments or real estate tab under their respective tabs. The real estate tab is only for investment real estate.

There is only one report that this program generates. It has several sections or individual pages such as: Income and Expense that show how the client's expenses are calculated; Balance Sheet that shows assets, liabilities, and net worth; Year-by-Year pages that show cash flow from now until whatever age you enter on the plans tab. The program has been designed with the data entry tabs running horizontally across the top of the page and the report pages running vertically on the left side of the page. This allows you to quickly toggle back and forth between entry items and report pages to check for errors and accuracy. Also, be sure to select "Print Entire Report" in order to display the report as a PDF file for download or printing.

The entire report will only be 15-20 pages long so it will not use up another tree if you have to reprint it. The reports are just the numbers and no more writing than necessary. This makes them straight-forward, easy for identifying errors, and easy for the client to follow.

There is a sample intake form you can print and give to a client to fill out before coming in. This can save time and you can have someone else enter the data for you. It also gives you the opportunity to review the reports before meeting with the client. There is one big downside with doing this. Clients hate to fill out any forms and often will not come back in because they haven’t finished it.

The other option is to have the clients bring certain statements and records (not too many) and to enter the data on the spot with the them looking on. There is a list of items to bring you can print out to give to the client when using this approach. This means the client doesn’t have any forms to fill out and just needs to show up. If the client is not sure about an entry item, estimate it with them, and let them take the final report home and call you with any changes. Since you are not asking them to do any research on their expenses, most clients know most of their numbers off the top of their head. They tend to know where their money is and how much they have.

An Easier Way to Calculate Expenses

One of the biggest time savers is that the program calculates a client's expenses for them. You don't have to ask them to itemize their expenses. It is also a more accurate reflection of their true expenses. Nutshell calculates a client's expenses by taking their gross income, subtracting income taxes and any money going into savings. The rest of their money is spent. It has to be. There are no other alternatives unless they are invading savings or building up debt every month. There are ways to handle those circumstances but they should be rare for most of your clients.

The program then subtracts the monthly debt payments from the expenses since those payments will stop someday and not be an expense throughout their entire lifetime. After those items are subtracted, what is left are the living expenses that will continue for the rest of their lives such as food, utilities, property taxes, insurance, travel, entertainment, etc. This is their current standard of living that should serve as the basis for measuring if they will have enough cash flow to maintain that standard of living throughout their lives.

The bottom line expense number is the most important number in the plan since it becomes the basis from which a client's cash flow adequacy is measured. It is important to make certain the client has given you accurate and full information about their income, savings, and taxes to provide them with an accurate report.

Taxes

Every client has a different tax situation reflecting their particular deductions, credits, depreciation, and so forth. The percentage entered is the average or "effective rate" rather than the "marginal rate." The federal and state taxes are entered in the program as a percentage of adjusted gross income. The program adds the federal and state rates together to get an overall percentage so it is not critical that the split between them is exact. I ask the client to bring their latest tax return with them so we can check the actual taxes paid against the percentage I entered. During data entry, there is a tax table link on the Expense/Taxes entry page you can click on to help you estimate the percent of federal and state income taxes that a client is paying. The advantage of doing it this way is that it takes into account the fact that one client who has a lot of deductions will have a lower than average tax percentage and those with no deductions may have a higher than average percentage. Ask the client if there is going to be any big change in their tax situation going forward. The program does allow you to change the tax rate once in some future year, from that point forward.

Do not edit the percentage you entered for taxes until you are finished entering all of the plan data because contributions to qualified plans will be deducted from taxable income and reduce the taxes accordingly. After all items are entered then go to the income and expense report page and see how much the program has calculated for taxes and compare that to the client's actual taxes. Then go back to the Expenses/Taxes entry page and adjust the percentages for federal and state taxes until you come close to the client's actual taxes.

Conservative Calculation Assumptions

Since the plan is intended to give a quick look at the client's big picture and projections are only general targets, the plan is not accurate to the month. It calculates things on an annual basis. If a client is going to retire during the current year, it is best to show their full pre-retirement income for the current year and show them retiring next year. This will give you an accurate number for their pre-retirement living expenses to use for measuring cash flow adequacy during retirement.

The plan is also conservative in how it calculates additions to and withdrawals from retirement accounts. It assumes the annual additions go in at the end of the year and that annual withdrawals come out at the beginning of the year. Once again, the plan attempts to look at the big picture. There are so many variables going forward that we felt exact numbers are not as important as getting a conservative, general picture of where the client stands.

Defaults

To minimize data input time, the program uses, as a default, the assumption that clients will stop receiving salaries at the selected retirement age and will start receiving any monthly pensions in that same year. It also assumes that clients will stop making contributions to their retirement income investment accounts at the selected retirement age and that they will start drawing the designated income from those accounts for the rest of their lives. The program does have optional, data input fields you can customize for situations where these assumptions are not true.

The data entry pages have been divided into two sections. When you select a data input category such as income, a list of all the income items previously entered will show in a grid on the page. Above the list is a button for entering a new item or you can select one of the items already entered to edit that item. When entering a new item, or editing a previously entered item, you may click on the button that says "Show Optional Entries" and change any of the default assumptions for that item only.

Investment Returns and Withdrawal Rates

The rates of return used for projections in various investment categories are based on relevant indexes and are fixed within the program. This is done to stay within regulatory bounds. There is a wide range of choices that you can select and we have tried to find long term, but conservative numbers for each category. We have used a blend of stocks bonds and cash to represent blended accounts such as mutual funds. We will continuously track these indexes to see if they need updating but, because of the long term nature of the indexes used, they should not change very much over the years. One of the report pages called "Index Returns" will show you and the client the indexes and percentage returns used for each category. On the investment data input page, there is a drop down list that allows you to select the index to be used.

You may enter and use any withdrawal percentage rate for an account that you want. If you use the same withdrawal rate as the return for that account, it will gradually deplete the account because the withdrawals are taken at the beginning of the year and returns added at the end of the year to be conservative.

Editing the Report

You can access the data entry pages using the buttons across the top of the current page and the report using the left side menu. This makes it really fast and easy for you to go back and forth to make any corrections. The client can look over your shoulder as you enter the data and look at the report to help you find any errors.

Another suggestion is to get a flat screen desktop monitor with enough cable to give the client a good position for viewing, and display for them what you are entering on your computer. They will be able to anticipate the data entry and you will be able to discuss each item as you enter it to make sure you are getting it right. After data entry, you can bring up the report on the screen and discuss the results. You can make any adjustments on the spot so everything is right before you print it.

The only downside with this approach is, if the year-by-year report shows a significant shortfall in cash flow at retirement, it can be a shock to the client. This can be alleviated by preparing the client before opening the year-by-year report. You can tell them there may be a shortfall and that there are several approaches to dealing with shortfalls such as working part time a little longer, increasing investment returns, or reviewing expenses for places to save.

If you want to create a second plan to look at an alternate retirement age or change other data items and compare it to the current plan, click on the "Plans" button at the top of the page, select a plan by clicking on the pencil to the left of the desired plan and then click the "Copy as New Plan" button. A duplicate plan will be created with all of the data from the current plan. If you wish to use an earlier plan, select that plan from the list and then "Copy as New Plan." You can then change just the items you want to adjust and compare the results between the two plans. Only one plan can be loaded at a time so you may have to switch between them after making changes. Another option is to have two browser windows open with different plans loaded and toggle between the browser windows. The date and description of the currently loaded plan will be shown at the top of the entry page above the buttons.

Program Security

The program is hosted on a secure server that is backed up daily. Beyond that, we have eliminated any sensitive data that is not needed for preparing the reports. You are not asked to enter client Social Security numbers, addresses, account numbers, or birthdates. We only ask for the name and birth year for the client. This eliminates most of the data that hackers would be hoping to find and use for their own purposes. Clients are searched for by name under the planner's account and password. If you have two clients with the same first and last name, you will need to differentiate by middle name or use different forms or abbreviations for the names.

Printing the Report

The report is created in PDF format for easy downloading and printing. The report can be generated from the web site for three years from the plan date. After that plan data will be saved to offsite storage and can be retrieved by special request. You can download the file to a location on your computer so that you can keep it for as long as you want and can easily retrieve it if a client calls and you want to review the plan to better answer their question.

The total report should be somewhere between 12 and 20 pages long, depending on the client's current age. Since color is an important feature in viewing the year-by-year report, a color printer should be used. The report is short enough to be printed on the spot while the client is present and give it to them before they leave. The client can review the report at home and check any numbers that were uncertain or incorrect and then call you with corrections.

You can simply staple the report in the upper left hand corner. However, if you would like to give the client a more professional and durable report to take with them, it is recommended that you purchase a page punch at any office supply store that puts a line of slots along the left side of the page and opens a plastic binding to receive the pages. There are clear plastic cover sheets that are slightly larger than the 8½" by 11" size of the report. The plastic sheets can be punched and placed at the front and back of the report before binding.

Help

Every data entry page has an entry hints button in the upper right corner that will give you information and tips for each data entry item. If that doesn't provide enough information, or if you have further questions or suggestions for improvements that you would like to see in the program, there is a "Contact Us" link on the home page that will allow you to e-mail us. We will respond as soon as possible. One of the nice things is that we can make changes, as long as they do not compromise the speed and ease of use of the program, fairly easily and quickly.

I have one other suggestion before you get started. On the home page, click on the sample report and print it out so you can refer to it when learning the system. Then, click on "Reports Overview" tab under "Helpful Info" on the main home page. That will provide you with a description of each page of the report and how to interpret and use them with a client.

I think that is enough for you to get started. I hope you will find it an essential tool in your practice and we appreciate any feedback. We would also appreciate it if you tell your friends and if they sign up and give you as a reference, we will give you an additional three months usage for free.